Social Security and Medicare Taxes

Social security and Medicare taxes may apply to wages paid to an employee regardless of where the services are performed.

General Information

In general, US social security and Medicare taxes do not apply to wages for services you perform as an employee outside the United States.  There are exceptions.

Foreign Earned Income and Housing:  Exclusion – Deduction

Topics

This chapter discusses:

·       Who qualifies for the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction.

·       How to figure the foreign earned income exclusion, and

·       How to figure the foreign housing exclusion and the foreign housing deduction.

Useful Items

You may want to see:

Publication

• 519 – US Tax Guide for Aliens

• 596 – Earned Income Credit

Form (and Instructions)

• 1040X– Foreign Earned Income

• 2555-EZ – Foreign Earned Income Exclusion

Who Qualifies for the Exclusions and the Deduction?

If you meet certain requirements, you may qualify for the foreign earned income and foreign housing exclusion and the foreign housing deduction.

If you are a US citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income.  However, you may qualify to exclude from income up to $76,000 of your foreign earnings.  In addition, you can exclude or deduct certain foreign housing amounts.

You may also be entitled to exclude from income the value of meals and lodging provided to you by your employer.

Requirements

To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must have foreign earned income, your tax home must be in a foreign country, and you must be one of the following:

A US citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year;

A US resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year; or

A US citizen or a US resident alien who is physically present in a foreign country or countries for at lest 330 full days during any period of 12 consecutive months.

See Publication 519 to find out if you qualify as a US resident alien for tax purposes and whether you keep that alien status when you temporarily work abroad.

If you are a nonresident alien married to a US citizen or resident, and both you and your spouse choose to treat you as a resident, you are a resident alien for tax purposes.  For information on making the choice, see the discussion in chapter 1 under Non-resident Spouse Treated as a Resident.

Waiver of minimum time requirements

The minimum time requirements for bona fide residence and physical presence can be waived if you must leave a foreign country because of war, civil unrest, or similar adverse conditions in that country.  See Waiver of Time Requirements under Exceptions to Tests, later.