Do you have to pay U.S. taxes if you work FOR a company outside of the U.S. but work FROM the U.S.?

Question

I have been taking around 20% out of my paycheck to cover taxes, but does anyone know if this is necessary since I work for a company out of China?

Answer 1

If you are a US citizen or resident, it doesn't matter where either you or your employer are located, your income is fully subject to US taxation.

If you are self-employed, you'll need to make quarterly estimated tax payments using Form 1040-ES. The self-employment tax alone is 15.3% of the net profit, plus income taxes on top of that. 20% is probably not enough to cover your tax liability.

A few folks have mentioned the Foreign Earned Income Exclusion. Since you live in the US, you can't claim that. You must either be a resident of a foreign country or meet the Physical Presence Test in a foreign country to qualify for that. If you are paying any Chinese Income Tax on the income, you CAN take a credit for those taxes paid. File Form 1116 with your tax return to claim the credit.

Answer 2

If you are a US citizen, all of your income is subject to income taxes, regardless of where it is earned.

However, there is a foreign earned income exclusion. If you qualify, you may be able to exclude up to $82,400 (2006 limit) of your foreign earned income from your taxable income.

From IRS Publication 54...

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

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

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

I hope this information is helpful to you, however I would recommend that you consult a tax professional to see if you qualify for the exclusion or not, and to see if any other tax issues apply to you while you are living abroad.

Answer 3

Well, I would say if you are a US citizen, and you have been maintaining your US residency in america, then yes, you have to pay taxes. If you moved to china and are trying to become a citizen there, and have no real intentions on maintaining your residency here, then I would pay my taxes until I get my citizenship there, that way you're not on the FBI's most wanted list for tax evasion (just kidding!haha) But seriously, if you're maintaining your US residency then you must pay your US taxes.

Answer 4

the tax code says income from all sources. This includes income abroad. However, you can take foreign income exclusion and credit for taxes paid