US Tax Question - FICA tax

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US Tax Question - FICA tax


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Old 28th November 2008, 02:42 AM
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Default US Tax Question - FICA tax

I am currently living in Macao and have filed my US Tax return the past three years with no issue. I pay quarterly estimated tax and then true that up at the time of filing tax returns each year. During these three years, I have not paid FICA tax.

Now, I am switching my employment to a US based company but will still be living and working in Macao. As such, I will be paid from the US and will have US Federal Income Tax and FICA (Social Security) taxes withheld. Accordingly, I don't have to pay quarterly estimated taxes. However, I now am being charged FICA taxes without the benefit of living in the US.

My question is that I would like to know if there is a way of not paying the FICA tax until I am residing in the US again. Has anyone had this situation and how did they handle it?

Thanks!

Tim

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Old 28th November 2008, 02:53 AM
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I moved your question on US taxes to the American forum for obvious reasons. There are more Americans here who might have been in the same situation.

As to your question, I'm not sure. Unless you are subject to a special tax treaty arrangement, you should still be eligible for the exclusion, and that's what got you out of paying FICA, I think. Have you actually had a paycheck where FICA was withheld, or did your new employer tell you they would be withheld. Because unless you are subject to a tax treaty, your exclusion should help. And if you have been making over the exclusion level, you should have been paying FICA on the amount over that anyway.

It is now time for FatBrit to tell me how wrong I am.

I actually regret all the years I didn't pay FICA, because those years would have increased my social security income now by quite a bit. Your social security income is based on the 35 years where you paid FICA on the highest percentage of the maximum income. So if the maximum is 100,000 and you make 75,000, your percentage is 75%. When they figure your payment, if you don't have 35 years where you paid FICA, all those zero years get added in and drag down the overall percentage, which is then used to calculate your payment.

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Old 28th November 2008, 03:57 AM
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You were paying the FICA tax under Schedule SE -- at double the rate you're paying if you're employed no less!

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Old 28th November 2008, 07:40 AM
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OK - if you have been paying US income tax these past three years, I assume you're an American citizen. You should have been taking the Overseas Earned Income Exclusion, assuming you're not living solely on investment income or something exotic like that.

Working for a US based company does not automatically mean you should be having US taxes withheld from your check. If you are resident in Macao (and after three years, I would assume you are), you are subject to Macao's tax laws as well as any social insurances they may have there. You should most definitely be taking the Overseas Earned Income Exclusion and unless there is some reason you want to pay into FICA (such as to establish your eligibility for social security later on), your employer should not be withholding it from your check.

You need to contact your employer's payroll office and find out what is going on. It may be that the employer does not have a "presence" in Macau and is improvising. If they are unable to handle overseas payroll, chances are you should be paid as a contractor, in which case you will have to handle the applicable taxes and benefits payments yourself. But it sounds as if your "tax residence" is Macau and not the US.
Cheers,
Bev

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Old 29th November 2008, 03:34 AM
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FatBrit may be right. If you have been filing your taxes as a self-employed person and paying the 'self-employment' tax, you have been paying FICA. As a self-employed person you pay both the employee half and the matching employer half, since you are both.

If you haven't been claiming the overseas residence exemption, then you should see a tax accountant and look into filing amended returns. You could get a huge refund.

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Old 29th November 2008, 06:43 AM
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The OP never said he was self-employed. Overseas filers may still have to file quarterly estimated payments if they have sources of income on which they have to pay US tax (like interest or investments). Or he could have been paying US taxes in error - the IRS certainly won't refuse a citizen's generous "contribution." (And, the overseas earned income exclusion isn't automatic - it has to be "elected." He'll have to check the pub 54 instructions to see if you can elect it when filing amended returns - there is some technicality about this, I think.)

The key thing is that his US employer should probably NOT be withholding US taxes if he is resident in Macau.
Cheers,
Bev

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Old 29th November 2008, 03:30 PM
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Quote:
Originally Posted by Bevdeforges View Post
The OP never said he was self-employed. Overseas filers may still have to file quarterly estimated payments if they have sources of income on which they have to pay US tax (like interest or investments). Or he could have been paying US taxes in error - the IRS certainly won't refuse a citizen's generous "contribution." (And, the overseas earned income exclusion isn't automatic - it has to be "elected." He'll have to check the pub 54 instructions to see if you can elect it when filing amended returns - there is some technicality about this, I think.)

The key thing is that his US employer should probably NOT be withholding US taxes if he is resident in Macau.
Cheers,
Bev
Aha! Maybe you're right. I assumed he'd been self-employed and was now just plain, old employed. Looks like the US firm is just running him through the payroll with all their US-resident staff.

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Old 29th November 2008, 09:35 PM
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Default US FICA Tax Question

I assume if you are filing US taxes while abroad you are a US resident for tax purposes. While working for a non US employer in a foreign country you either qualify for tax totalization or you should pay US social security tax as a self employed individual-twice the rate paid by an employee of a US employer. As I don't think you gualify for tax tatalization you should have been paying US FICA tax voluntarily.

Now that you are working as an employee of a US employer you will have half the total FICA eithheld and your employer will pay half, and you will receive credit toward social security retirement and Medicare benefits.

Although you may have benefited from the Secition 911 income tax exclusion, that did not relieve you of your responsibility to contribute to U.S. Social Security.


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Old 30th November 2008, 03:51 AM
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It certainly used to. I actually wanted to contribute, and couldn't.

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Old 30th November 2008, 07:16 AM
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Quote:
Originally Posted by taxman View Post
I assume if you are filing US taxes while abroad you are a US resident for tax purposes. While working for a non US employer in a foreign country you either qualify for tax totalization or you should pay US social security tax as a self employed individual-twice the rate paid by an employee of a US employer. As I don't think you gualify for tax tatalization you should have been paying US FICA tax voluntarily.

Now that you are working as an employee of a US employer you will have half the total FICA eithheld and your employer will pay half, and you will receive credit toward social security retirement and Medicare benefits.

Although you may have benefited from the Secition 911 income tax exclusion, that did not relieve you of your responsibility to contribute to U.S. Social Security.
Excuse me, but all US citizens and green card holders living overseas MUST file US tax returns (whether or not they actually owe taxes). Overseas filers generally do NOT pay FICA on their earnings. IF Macau has a "tax totalization" agreement with the US, it may be possible to elect to pay FICA while living there, but this election is limited to the first few years (usually no more than 5) - and if he hasn't been paying FICA until now, he hasn't elected this option.

If you check the Overseas Taxpayer instructions (pub. 54) you'll find that you do not incur a FICA obligation if your "self-employment" is registered locally in almost any form and obligates you to paying local taxes and social charges. We are not at all certain that the OP was actually "self-employed" during the last 3 years. Based on what he has posted, he could have been working for a non-US company all this time. (In which case, he should have been filing US taxes and would NOT have been subject to FICA - though he should have been taking the overseas earned income exclusion.)

Many small US companies without a foreign presence believe that they can simply add a US national living overseas to their US payroll. This is definitely NOT the case. US citizens living abroad must be paid according to the laws of the country in which they reside - and after 3 years living in Macau, I think it's fairly clear that the OP is resident overseas, especially if he is now changing employers.

If the US employer winds up having to pay the OP as a contractor, he should do whatever is necessary to set himself up as a small business in Macau - paying local taxes and any social charges to the local authorities. He'll still have to file US tax returns, but will be able to take the exclusion and will not be subject to US FICA.
Cheers,
Bev


Last edited by Bevdeforges; 30th November 2008 at 07:39 AM. Reason: clarification on "tax totalization" agreements
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