session ii working overseas: individual tax impacts
TRANSCRIPT
Session II
Working Overseas: Individual Tax
Impacts
InsideNGO’s Taxation Management of US Expats
Kate Fisken, Principal International Tax Specialist
December 6, 2012
Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats
Kate Curtis Fisken, EA, LPA, ATA • [email protected]
25 years of experience working with expatriates, nonprofits and government contractors
Highly knowledgeable about the experiences of Americans overseas
– Lived and worked in Central and South America and India
Member of:
– National Society of Accountants
– Maryland Society of Accountants
– Virginia Society of Accountants
– National Society of Enrolled Agents
Kate Curtis Fisken, EA, LPA, ATA International Tax Specialist and Principal of Client Services
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Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats
Kate Curtis Fisken, EA, LPA, ATA • [email protected]
Agenda
I. Definitions
– Long-term expatriate staff vs. short term business travelers
II. Expat Compensation Package
– Qualifying exclusions, 2012 exclusions, tax impact
III. 9 Steps to Manage Employer’s Risk
IV. Special Expat Issues
– State Tax Withholding Issues
V. HR Process for W-2/1099 Forms
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Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats
Kate Curtis Fisken, EA, LPA, ATA • [email protected]
I. Definition – Long-Term Expatriate Assignment
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Employee’s principal place of employment moves to or is in an overseas location for more than one year
Expectation at the start of the assignment is key to the initial determination
Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats
Kate Curtis Fisken, EA, LPA, ATA • [email protected] 5
I. Definition – Long-Term Expatriate Assignment
An assignment that was not expected to last more than one year but is extended to more than one year will become a long-term assignment going forward
Documentation supporting assignment length is important
Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats
Kate Curtis Fisken, EA, LPA, ATA • [email protected]
I. Definition – Short-Term Overseas Business Travelers
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Overseas assignment lasts less than one year
Organizations differ in levels of support and
treatment of short-term overseas business travelers
depending on HR policy
May become a long-term assignee if on location for
more than one year
May be subject to host country taxes
Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats
Kate Curtis Fisken, EA, LPA, ATA • [email protected]
Overseas Employee’s Typical Salary and Allowances
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II. Expat Compensation Package
Base Salary
Cost of Living
Allowances
Housing Allowance
Security Allowance
Danger Pay
Education Allowance
Separate Maintenance
Allowance
Other Allowances –
FMV of Property of
Facilities
Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats
Kate Curtis Fisken, EA, LPA, ATA • [email protected]
II. How to Qualify for Exclusions
Eligible long-term expat employee
US citizen/US resident alien
Tax home is in a foreign country
Foreign earned income
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Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats
Kate Curtis Fisken, EA, LPA, ATA • [email protected]
II. How to Qualify for Exclusions (cont.)
Meet Residency Requirements Meet Physical Presence Test
– 330 days in a foreign country out of 365
Bona Fide Residency Test
Established tax home in a foreign country – Residency is a full calendar
year – Based on intent and facts
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Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats
Kate Curtis Fisken, EA, LPA, ATA • [email protected]
II. How to Qualify for Exclusions (cont.)
Eligible Contract
Duration as employee or contractor more than one year, or indefinite
Services performed in foreign country
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Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats
Kate Curtis Fisken, EA, LPA, ATA • [email protected]
Eligible Earned Income
Compensation, wages, commissions, bonuses
Allowances
– Education pay
– Danger pay
– COL
– Separate Maintenance
– Security
Fair market value or property or facilities received by employee or contractor
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II. How to Qualify for Exclusions (cont.)
Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats
Kate Curtis Fisken, EA, LPA, ATA • [email protected]
II. What are the 2012 Exclusions?
Foreign Earned Income Exclusion (FEIE)
2012 amount is $95,100 for full calendar year
First and last year FEIE may be prorated
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Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats
Kate Curtis Fisken, EA, LPA, ATA • [email protected] 13
II. What are the 2012 Exclusions?
Foreign Housing Exclusion Limit (FHE)
2012 maximum housing exclusion is limited to $28,530 (30% x $95,100) full calendar year, less base amount of $15,216 (16% x 95,100) = $13,314 − In high-cost areas (Mumbai, Abuja, etc.), FHE
will be more
First and last year FHE may be prorated
Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats
Kate Curtis Fisken, EA, LPA, ATA • [email protected]
II. Overseas vs. Domestic Typical Salary, Allowance and Tax Impact
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Description Domestic Expat
Salary $85,000 $85,000
Housing N/A $31,200
Post Diff N/A $ 9,010
Danger Pay N/A $ 6,500
Total Compensation $85,000 $132,710
Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats
Kate Curtis Fisken, EA, LPA, ATA • [email protected] 15
II. Overseas vs. Domestic Typical Salary, Allowance and Tax Impact
Description Domestic Expat
Compensation $85,000 $132,710
Less: HCT N/A ($25,500)
Less: US Tax ($15,106) ($ 8,662)
Less: Housing N/A Non Cash
Net Cash Available $69,894 $98,548
Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats
Kate Curtis Fisken, EA, LPA, ATA • [email protected]
III. 9 Steps to Manage Employer Risk
HR Checklist – Handout #1 1) Provide compensation summary – initial year,
current year and final year (Handout #2)
2) Provide expat personnel policies and procedures handbook
3) Overseas day tracking calendar (Handout #3)
4) Insurance coverage information
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Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats
Kate Curtis Fisken, EA, LPA, ATA • [email protected]
5) IRS for 673 and instructions (Handout #3A)
− Purpose: Who, when and why
• US citizen or resident alien
• Completed and signed annually
• Expects to meet PPT or BFRT
• Form kept in employee’s HR or payroll file
− State treatment for form 673
− Withholding on salaries over FEIE
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III. 9 Steps to Manage Employer Risk (cont.)
Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats
Kate Curtis Fisken, EA, LPA, ATA • [email protected]
6) IRS form 2555 and instructions
7) IRS publication 54, FBAR & FR 8938
8) Restricted travel – Eliminates FEIE
and FHE
9) References for tax professionals
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III. 9 Steps to Manage Employer Risk
Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats
Kate Curtis Fisken, EA, LPA, ATA • [email protected]
IV.Special Expat Tax Issues
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Evacuation “Waiver of Time”: war, civil
unrest, etc. (Handout #4)
Second Foreign Household Allowable under certain
conditions
Group Living Residences Allocation of housing allowances
Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats
Kate Curtis Fisken, EA, LPA, ATA • [email protected]
Transfer to New Country Effects on compensation package (Handout
#5)
Early Termination of Contract Possible remedies?
High Cost Verse Low Cost Housing Issues What are the tax impacts between low cost
and high cost housing assignments? (Handout #6)
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IV.Special Expat Tax Issues
Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats
Kate Curtis Fisken, EA, LPA, ATA • [email protected]
IRS Extension Forms
If an employee cannot file tax returns by April 15, they can file Form 4868 and/or Form 2350.
−Expats receive an automatic extension until June 15
If an employer cannot file by the due date, they can file Form 8809
−www.irs.gov
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IV.Special Expat Tax Issues
Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats
Kate Curtis Fisken, EA, LPA, ATA • [email protected] 22
BREAK TIME! 15 Minutes
Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats
Kate Curtis Fisken, EA, LPA, ATA • [email protected]
Documentation for state withholding
Employer’s options:
−Withhold in state
−Employee pays state estimated payments
−If employee insists they do NOT have a state domiciliary: What are the employer’s remedies?
IV.Special Expat Tax Issues
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Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats
Kate Curtis Fisken, EA, LPA, ATA • [email protected]
IV.Special Expat Tax Issues State Tax Withholding
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Voter registration and voting history
Driver’s license
Prior state income tax filing history
Home leave & departure post
Familial ties
Property ownership
Burial plot
Bank and investment accounts
Library cards, club dues, memberships, community involvement
Utility payments
Rental income from property owned in state
Auto registration and licenses
Factors for determining state domicile
Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats
Kate Curtis Fisken, EA, LPA, ATA • [email protected]
State and Domicile Rules Aggressive domicile rules: CA, VA, MD, MA and SC Recognize non-residency after meeting certain tests: IL,
NJ, NY No income tax: AL, WA, NV, SD, WY, TX, FL
Tax interest and dividends: TN, NH
Adequate resources
Inexperienced/unqualified staff Accounting and industry training programs and seminars
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IV.Special Expat Tax Issues State Tax Withholding
Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats
Kate Curtis Fisken, EA, LPA, ATA • [email protected] 26
Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats
Kate Curtis Fisken, EA, LPA, ATA • [email protected] 27
V. 2012 W-2 Exercise
Base salary or sub-contractor compensation
Rent, housing, utilities and storage
Post differential and danger pay
Separate maintenance
Settling in – flat payment, no accounting
Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats
Kate Curtis Fisken, EA, LPA, ATA • [email protected] 28
V. 2012 W-2 Exercise
Base salary
Rent, housing and security
Post differential and danger pay
Settling in – flat payment, no accounting
Education allowance
Per diem reimbursement, with accounting
Initial air ticket for overseas move
Moving expenses paid to company
R & R – home leave
See Handouts 8, 8A, 8B and 9
Working Overseas : Individual Tax Impacts International NGO’s Taxation Management of US Expats
Kate Curtis Fisken, EA, LPA, ATA • [email protected]
Conclusion
Expat qualifications
Expat HR checklist
Special expat issues
W-2 preparation issues
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Kate Fisken, Principal Email: [email protected]
Telephone: (301) 951 – 9090
Website: www.grfcpa.com
Visit:
Questions & Answers
4550 Montgomery Avenue, Suite 650N • Bethesda, MD 20814