Someone I know mentioned that Haliburton was looking for people to work in Iraq, and that the job would be essentially tax-free since the work was occuring outside the US for more than a year.
But I am under the impression that you have to pay federal taxes as long as you’re a US citizen, no matter where you live. Am I right? Alternatively, have special tax breaks been set up for people working on reconstruction contracts in Iraq?
This question is important. There’s a case of beer riding on the answer.
if all your income comes from overseas work, is less than ~$78K and you haven’t spent more than 30 days in the US, you are exempt from Federal taxes (although you are still required to file). FICA and Social security are still witheld.
This is not an Iraq exception. This is a standard thing.
I’m sure a tax pro can fill you in on the details. I’ve been a contractor working overseas for a little over 3 years now.
I’m a dual citizen, Australian/American living in Australia. Until I earn 80k+ a year US (so about 110k a year australian), Im only taxed by my governing body (australia). If I earn more, Im taxed based on whats left over after Australia’s taxed me. Under Clinton though, it didnt really matter. Under Bush though, hes trying to reclaim the deficit, thus hes asking for everyones moneys.
There is also a foreign tax credit. Briefly put, if you pay income taxes to a foreign country on income originating in that country, you get a credit against your US taxes.
For example, if you own Nokia stock (actually Nokia ADRs), your dividends from Nokia count as foreign source income and the taxes witheld by Nokia and paid to their country count as foreign taxes paid.
The longer explanation, including how to handle earned income (as opposed to unearned income such as dividends), is best left to the tax pros. IANA tax pro.
I’m a former international tax specialist with the Canada Customs and Revenue Agency. While I do not know the specifics of US tax law, there are various factors involved in determining whether you pay US tax on income earned outside the country.
Generally speaking, US citizens pay income tax on their worldwide income, no matter where it is earned and where they live. Only two countries I know of impose income tax on citizenship rather that residency (Brazil is the other). This means you have to file tax returns regardless.
However, if you are considered a resident of another country for tax purposes (the so-called 330-day presence test), you may be entitled to exclude foreign-earned income. See IRS Publication 54 for details. In addition, if the US has signed a tax treaty with your country of residence, there may be other provisions. Tax treaties override domestic legislation
In any event, everything hinges on your residency status. Determining residency is not a simple matter, and you have to show, by filing a certain form, that you are a bona fide resident of a foreign country. Companies who send workers overseas usually help employees take care of this paperwork.
Per the IRS’s FAQ, here’s how you qualify for the “foreign earned income exclusion”:
Just want to add two things about the specifics of the OP.
If there are special provisions (tax breaks) with respect to work in Iraq, I don’t know, but it’s possible.
It’s important that the income be “foreign”, i.e. paid for work performed outside the US. You can’t have part of the duties performed in the US.
There are so many potential factors and exceptions that it’s really not possible to provide a definate answer. Hope it’s enough for a case of beer though.
