Tax Tips for U.S. Citizens and Green
#1. U.S. Citizen Employees of International Organizations Must Self Impose Self-Employment Tax
International Organizations (I/Os) do not withhold and pay Social Security Taxes for their employees. Therefore, U.S. citizen employees of International Organizations working in the United States must self-impose and pay U.S. Social Security tax by filing the Self-Employment Tax Form (Form SE) with their U.S. income tax return. Generally, the Social Security tax rate is 15.3%. (Wages received for work performed outside the United States are not subject to the self-employment tax).
#2. U.S. Citizen Employees are not entitled to Business Deductions
Although the Self-Employment tax form is the compliance mechanism for International Organization employees to pay U.S. Social Security taxes, it does not mean that the I/O employee is self-employed. Therefore, self-employment deductions for “business expenses” and self-employed pension plan deductions are not allowed for income tax purposes.
#3 Report Worldwide Income and File Foreign Financial Informational Forms
All U.S. citizens and green card holders must report their worldwide income to the U.S. government, as well as file certain foreign financial information reports.
Here are some of the forms that may be required:
Form 114 (Report of Foreign Bank and Financial Accounts)
This form is used to report foreign financial accounts when the taxpayer has a financial interest or signature authority over foreign financial accounts, if the aggregate of such accounts exceeds $10,000 at any time during the calendar year.
Form 8938 (Statement of Specified Foreign Financial Assets)
This form is used to report specified foreign financial assets (e.g., foreign bank accounts, certain foreign pensions, etc.) if the total value exceeds certain thresholds. Often the information requested on this form may be the same as the Form 114. Although this may be the case, the Form 8938 may still be required. For a married couple living in the United States, the threshold for filing this form is $100,000 of specified foreign financial assets. Some I/O employee pensions, especially those of The World Bank, IMF and Inter-American Development Bank may be reportable on this form, even in some cases where the employee is not yet retired.
Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or a Qualified Electing Fund)
This form is used to provide information to the U.S. government about the ownership of “passive foreign investment companies”, often referred to as “PFICs”. The most typical type of PFIC is a foreign mutual fund. However, if you purchased a foreign mutual fund through a U.S. brokerage firm it is highly unlikely that you will be the owner of a PFIC.
Form 3520 (Annual Return to Report Transactions with Foreign Trusts and Receipts of Certain Foreign Gifts)
This form is used to report the ownership of, or distributions from foreign trusts (often foreign pensions are viewed as foreign trusts). The form is also used for reporting an inheritance or gift from a foreign person of more than $100,000 during the year.
Please contact Dale Mason, CPA & Co. if you would like to schedule a consultation regarding any of your tax needs.