Are you a foreign employer? You don’t know what taxes you are subject to when living abroad?Don’t worry at all! You have come to the right place. We at USTAXFiling.in will guide you to contract your taxes as a foreign employer. Click to go through the guide and get more insights on it
Contracting for a Foreign Employer?Here’s How to Report It on Your Tax Return
Many expats don’t know what to do when they are contracting for a foreign employer. They might not receive any of the forms such as W2s, 1099s. So our USTAXFiling.in experts have compiled the answers to help you on how and where to report your income that comes from contracting for a foreign employer on the United States income tax return
What Taxes You Are Subject to If You Are Contracting for a Foreign Employer?
Anyone who falls into the category of the resident alien, United States citizen or non-resident alien who works in abroad for a foreign employer is generally not needed to do any Medicare tax or social security tax withholding it. But if you are working for a foreign affiliate who is an American employer, in such scenario the employer might ask for Medicare tax or social security tax to be withheld from the employees of the foreign affiliate.
Resident aliens, the United States citizens or non-resident individuals who are employed in the United States but who work for a foreign employer are still subjected to Medicare tax and social security tax withholding as well. Those who are employed in the United States for a foreign employer may be exempted from Medicare or social security tax withholding if their agreement is in place.
What are Totalization agreements?
Totalization agreements are agreements that are made between two countries that states to which country certain tax needs to be paid, that includes Medicare as well as Social Security tax too.
Effectively Connected Income
If a non-resident individual receives wages from a foreign person for services they carry out in the United States, those wages are claimed effectively connected with the conduct of business or trade in the United States. Such wages are classified as ECI or effectively connected income. It means that the wages are subject to the United States graduated tax rates and the federal or the income tax reporting and withholding by the foreign employer.
If a taxpayer earns a wages or salary as an employee in the country employed by an overseas employer then the earned income must be reported on a United States income tax returns. You must be aware that this income has to be reported whether the employer gives a W2 or not.
If anyone who is working for a foreign employer is paid or salaried as an independent contractor, then the income should be reported on Schedule C of the United States income tax return of an individual. And the expenses included in connection with the income earned will decrease the taxable amount.
Also, with income tax, the net income that is after deduction of expenses is subjected to self-employment tax. A state tax return might also be a tax-filing need, varying on the state of residence.
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USTAXFiling.in experts specialize in taxes for Americans who are working in the United States, so they are aware with the tax nuances of different employment rules that also includes expats who are contracting for an overseas employer. USTAXFiling.in experts are there to help you file your income tax returns anytime. You can reach out to us at USTAXFiling.in for consultation who are contracting for a foreign employer now!