> US Citizen/ Resident
3. You must be either a 1) US Citizen (not US Resident) who is bona fide resident of a foreign country for an
uninterrupted period that includes an entire tax year, OR 2) a US Resident who is a citizen of a country with an
income tax treaty with the US, and who is a bona fide resident for that country for an uninterrupted period that
includes an entire tax year, OR 3) US Citizen/ Resident who is physically present in foreign country (countries)
for at least 330 full days during any period of 12 consecutive months (aka Physical Presence Test).
You are eligible get an automatic extension of 2 months to file your return if you are living outside of the US and Puerto Rico, and your main place of business is outside of US and Puerto Rico. You may request for up to another 6 months of extension in addition to the initial 2 months automatic extension if you need more time to meet the bona fide residence test or the Physical Presence Test but you need to file the appropriate request form ASAP.
US employers must withhold income tax from the pay of US citizens working abroad unless foreign law requires the employers to withhold foreign income tax. But if is reasonable to believe that you will exclude them from income under Foreign Earned Income Exclusion or Foreign Housing Exclusion, you may request your employers not to withhold income tax by preparing a statement.
US Social Security and Medicare Taxes
In general, US Social Security and Medicare taxes do not apply to wages for service you performed as an employee outside of the US unless 1) you are working in a country with which US has entered into a binational social security agreement (aka Totalization Agreement), or 2) you are working for an American employer, or 3) your employer is a foreign affiliate of an American employer under voluntary agreement. If your pay is exempt from the US social security tax, you or your employer should get a statement from the foreign country verifying that your pay is subject to social security coverage in that country. Make sure both you and your employer keep a copy of the statement.
If you are working in a country that has Totalization Agreement with the US, you are generally only subject to the social security taxes in the country where you are working. However, if you are temporarily working in a foreign country, you generally can remain covered only by the US social security. For a list of countries that have entered into the Totalization Agreement with the US, please click here.
In general, if you are self-employed, you still need to pay US self-employment tax. Self-employment tax is the Social Security and Medicare taxes on net-earnings from self-employment. But if the foreign country you work in has Totalization Agreement with the US, you may be subject to the social security tax of the country where you reside. If your pay is exempt from the US social security tax, you should get a statement from the foreign country verifying that your net-earning is subject to social security coverage in that country. Make sure both you keep a copy of the statement.
Foreign Earned Income Exclusion
If you satisfied the requirement, you may exclude your FEI from income tax (the maximum exclusion for 2015 is $100,800). FEI includes income you received for services you performed, allowances or reimbursements (e.g. cost of living, overseas differential, family allowance, educational allowance ...etc.), professional fees as lawyer or doctor, certain reimbursed moving expenses and fair market value of fringe benefits in the form of rights to use employer’s property or facilities.
Foreign Housing Exclusion and Deduction
In addition to FEI Exclusion, you may also claim Foreign Housing Exclusion if you work as an employee. Generally, the Exclusion amount is the subtraction of Base Housing Amount from total housing expense. Base Housing Amount is obtained by multiplying 16% of maximum FEI Exclusion ($97,600 for 2013) by the number of days during your qualifying periods that fall within your tax year. Please note that there is a limit of the total housing expense eligible for Exclusion. Some localities allow for high limit.
If you are self-employed, you may also claim Foreign Housing Deduction in addition to FEI Exclusion. If you only have self-employment income, you may deduct your housing amount as Deduction. The Deduction cannot be more than your FEI - (FEI Exclusion + Foreign Housing Exclusion). You can carry over to the next year any part of your housing Deduction that is not allowed due to this limit.
State Income Tax
The material discussed above is applicable to Federal Income Tax. However, many States have their own income tax
laws and they do not necessarily mirror Federal Income Tax Laws. Therefore if your State imposes personal income
tax, it may not allow Foreign Earned Income Exclusion and/ or Foreign Housing Exclusion/ Deduction.