Publication 54 - Tax Guide For U.s. Citizens And U.s. Citizens Abroad

housing exclusion, your employer must consider

General Information

any information about pay you received from

any other source outside the United States.

In general, U.S. social security and Medicare

taxes do not apply to wages for services you

Your employer should withhold taxes from

perform as an employee outside of the United

any wages you earn for working in the United

States unless one of the following exceptions

States.

Withholding Tax

applies.

Foreign tax credit. If you plan to take a for-

1) You perform the services on or in connec-

eign tax credit, you may be eligible for additional

tion with an American vessel or aircraft

withholding allowances on Form W – 4. You can

Topics

(defined later) and either:

take these additional withholding allowances

This chapter discusses:

only for foreign tax credits attributable to taxable

a) You entered into your employment

•

salary or wage income.

contract within the United States, or

Withholding income tax from the pay of

U.S. citizens,

b) The vessel or aircraft touches at a

Withholding from pension payments. U.S.

•

U.S. port while you are employed on

Withholding tax at a flat rate, and

payers of benefits from employer deferred com-

it.

•

pensation plans, individual retirement plans,

Social security and Medicare taxes.

and commercial annuities generally must with-

2) You are working in one of the countries

hold income tax from the payments or distribu-

with which the United States has entered

Useful Items

tions they make to you. Withholding will apply

into a binational social security agree-

You may want to see:

unless you choose exemption from withholding.

ment (discussed later).

You cannot choose exemption unless you:

Publication

3) You are working for an American em-

1) Provide the payer of the benefits with a

ployer (defined later).

505

Tax Withholding and Estimated

residence address in the United States or

4) You are working for a foreign affiliate (de-

Tax

a U.S. possession, or

fined later) of an American employer under

2) Certify to the payer that you are not a U.S.

a voluntary agreement entered into be-

Form (and Instructions)

citizen or resident alien or someone who

tween the American employer and the

673

Statement For Claiming Benefits

left the United States to avoid tax.

U.S. Treasury Department.

Provided by Section 911 of the

Internal Revenue Code

American vessel or aircraft. An American

Check your withholding. Before you report

W – 4

Employee’s Withholding

vessel is any vessel documented or numbered

U.S. income tax withholding on your tax return,

Allowance Certificate

under the laws of the United States and any

you should carefully review all information docu-

other vessel whose crew is employed solely by

ments, such as Form W – 2 and Form 1099.

See chapter 7 for information about getting

one or more U.S. citizens, residents, or corpora-

Compare other records, such as final pay rec-

these publications and forms.

tions. An American aircraft is an aircraft regis-

ords or bank statements, with Form W – 2 or

tered under the laws of the United States.

Form 1099 to verify the withholding on these

forms. Check your U.S. income tax withholding

American employer. An American employer

even if you pay someone else to prepare your

Withholding

includes any of the following employers.

tax return. You may be assessed penalties and

interest if you claim more than your correct

1) The U.S. Government or any of its instru-

U.S. employers generally must withhold U.S.

amount of withholding.

mentalities.

income tax from the pay of U.S. citizens working

abroad unless the employer is required by for-

2) An individual who is a resident of the

eign law to withhold foreign income tax.

United States.

30% Flat Rate

Your employer does not have to withhold

3) A partnership of which at least two-thirds

U.S. income tax from any wages earned abroad

of the partners are U.S. residents.

Withholding

that you can reasonably be expected to exclude

under either the foreign earned income exclu-

4) A trust of which all the trustees are U.S.

sion or the foreign housing exclusion.

residents.

Generally, U.S. payers of income other than

wages, such as dividends and royalties, are

5) A corporation organized under the laws of

Statement. You can give a statement to your

required to withhold tax at a flat 30% (or lower

the United States, any U.S. state, or the

employer indicating that you will meet either the

treaty) rate on nonwage income paid to nonresi-

District of Columbia, Puerto Rico, the Vir-

bona fide residence test or the physical pres-

dent aliens. If you are a U.S. citizen or resident

gin Islands, Guam, or American Samoa.

ence test and indicating your estimated housing

and this tax is withheld in error from payments to

cost exclusion.

you because you have a foreign address, you

Form 673 is an acceptable statement. You

Foreign affiliate. A foreign affiliate of an

should notify the payer of the income to stop the

can use Form 673 only if you are a U.S. citizen.

American employer is any foreign entity in which

withholding. Use Form W – 9, Request for Tax-

You do not have to use the form. You can pre-

the American employer has at least a 10% inter-

payer Identification Number and Certification, to

pare your own statement. See the previous

est, directly or through one or more entities. For

notify the payer.

page for a copy of Form 673.

a corporation, the 10% interest must be in its

You can claim the tax withheld in error as a

Give the statement to your employer and not

voting stock. For any other entity, the 10% inter-

withholding credit on your tax return if the

to the IRS.

est must be in its profits.

amount is not adjusted by the payer.

Generally, your employer can stop the with-

Form 2032, Contract Coverage Under Title II

holding once you submit a signed statement that

of the Social Security Act, is used by American

includes a declaration under penalties of per-

employers to extend social security coverage to

jury. However, if your employer has reason to

U.S. citizens and residents working abroad for

Social Security

believe that you will not qualify for either the

foreign affiliates of the American employers.

foreign earned income or the foreign housing

Coverage under an agreement in effect on or

and Medicare Taxes

exclusion, your employer must continue to with-

after June 15, 1989, cannot be terminated.

hold.

In determining whether your foreign earned

Social security and Medicare taxes may apply to

Excludable meals and lodging. Social se-

income is more than the limit on either the for-

wages paid to an employee regardless of where

curity tax does not apply to the value of meals

eign earned income exclusion or the foreign

the services are performed.

and lodging provided to you for the convenience

Page 8

Chapter 2 Withholding Tax

Publication 54 - Tax Guide For U.s. Citizens And U.s. Citizens Abroad - 2001 Page 8

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