Expert: Shirley McAllister, CPP, PHR - 9/2/2010

Question
I am moving to Australia but the company I work for is based in the U.S. and they will be paying my salary.  How does this affect my Federal Income Tax Return? And does my company hold out my FICA and Federal Withholding like they normally do?

Answer
If you will be in the country less than 183 days than your wages are not taxable under Australian law. They would be taxable under U.S. Law and treated as if you were still working in the U.S.

If you are in the country longer than 183 days you will be taxes both in Australia and in U.S. for the income.

http://www.irs.gov/newsroom/article/0,,id=108276,00.html

If you are living and working abroad you may be entitled to the Foreign Earned Income Exclusion.

The Foreign Earned Income Exclusion United States Citizens and resident aliens who live and work abroad may be able to exclude all or part of their foreign salary or wages from their income when filing their U.S. federal tax return. They may also qualify to exclude compensation for their personal services or certain foreign housing costs.

http://www.irs.gov/businesses/small/international/article/0,,id=97130,00.html
Publication on the foreign income exclusion

Whether you will pay state withholding depends on how your state treats residency and foreign income. Your state tax commission would be able to answer those questions for you.

Fica and Medicare will be withheld from your employer in the U.S. if the country has a totalization agreement with the U.S. than it is only withheld in the U.S. and not in the foreign country. Australia does have a totalization agreement with the U.S. This is for a period of 5 years. If you are living in the foreign country for longer than 5 years you need to check with the foreign country government office to find out how this will be handled.

To establish U.S. Social security coverage the employer must request a certificate of U.S. Coverage for Australia by sending a letter to

U.S. Social Security Administration
Office of International Programs
P.O. Box 17741
Baltimore, MD  21235-7741

The letter must contain:
1) The employee's name and address in the U.S. and in the foreign country
2) The employee's U.S. and foreign social security numbers
3) The employee's date and place of birth
4) The country of the employee's citizenship
5) The name and address of the employee's employer in the U.S. and in the foreign country
6) The employee's (and any dependents) health insurance coverage
7) The date and place the employee was hired
8) The beginning and expected ending date of the employee's foreign assignment.

The employer may also go online at www.socialsecurity.gov/international/CoC_link.html. to complete the application on line.

www.socialsecurity.gov/international is an online site that provides employers with online resources. Click on "International Agreements" for links to other international information.

I would suggest the employer contact the Social Security Administration, The IRS and the State Tax Commission to make sure they are handling the withholding correctly.

Shirley