Overseas Freelancer


Today TaxMama® hears from Jim in the TaxQuips Forum with this question.  “I live in Thailand and do some freelance work. I can’t put that income on Form 2555 for the Foreign Earned Income Exclusion because I had to return to the US for 60 + days for an operation. How do I report this income?”

 Hi Jim, 

I hope you’re feeling much better! And perhaps this will help. There are two ways to get the Foreign Earned Income Exclusion.

1) Is to live/work outside the US for 330 days out of 365.
2) Is to be a bona fide resident of the foreign country.

So, if your regular place of residence is in Thailand, you can use that option. Then, it doesn’t matter if you were back here for health reasons.

But remember, even though the income will be excluded for income tax purposes, you must still pay self-employment taxes on it, unless you were on a payroll with that company.  

Suppose the bona fide resident option doesn’t work for you? You can also use foreign tax credits to offset your US taxes. If you paid taxes on that income in Thailand, you can use Form 1116 the Foreign Tax Credit form to reduce your US taxes.

 Aaah, but if you didn’t pay taxes in Thailand, either? Then you get no break. You have to pay taxes somewhere!

And remember, you can find answers to all kinds of questions about working overseas and other tax issues, free. Where? Where else? At www.TaxMama.com.

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5 thoughts on “Overseas Freelancer

  1. TaxMama says:

    Thanks a BUNCH for explaining, Roger!
    Rosemarie, since you have already maxed out on FICA taxes, your additional SE taxes will only be the Medicare portion. That’s the small part of it. This will only cost you 2.9% X ($5,000 minus business expenses).

    Your payroll withholding may already be enough to cover this.

  2. Roger Adams says:

    First for Jim:
    If you spent an entire tax year in T’land (Jan. 1 – Dec. 31) in 2010, then you are a BFR for 2011 and may take the Exclusion; Thailand is your country of residence, your absence was temporary, and you continue to live in Thailand.
    I have plenty of clients who reside permanently abroad but return to the US for several months on business.
    For Rosemary:
    Your consulting income is schedule C income and cannot be lumped with wages and you will have to pay SE tax too of course. As far as deductions go you certainly must have had telecommunications expenses, printing supplies, professional organization fees and dues, etc.

  3. Rosemarie Szostak says:

    OK, I have a slightly different issue. This last year I was asked to do some consulting work for the EU. I have a full time job in the US but am allowed to consult on my own time. My regular job salary puts me slightly above the max for the SS tax. What should I expect to have to pay the IRS as a percent of my consulting? It was only $5K. I take it that will be added to my regular salary to determine my taxable income. What can I deduct from it to lower my taxable income? I do NOT take a home office tax deduction, never have, prob never will. Too much trouble IMO. Thanks in advance.

  4. TaxMama says:

    Thanks Marco.
    This is so interesting.
    Gee, I didn’t know Eritreia also taxes world-wide.
    I thought we were the only arrogant country that did.

  5. Marcio Pinheiro says:

    Great answer. Yes, as self employed you will have to pay Social Security Self Employment Tax on the excluded income. Problem 1: if Thailand do not have have a Social Security Tax Treaty with the USA you will have to pay…in both countries… Problem 2 : If you pay income tax on your investments in Thailand you will have to declare this to the IRS and pay the difference if the tax in the USA are higher. Problem 3: If in Thailand you have a pension or a investment that according to Thailand laws don´t have to pay taxes there, nevertheless you will have to pay taxes in the US. Problem 4: You will have to fill and declare Fbars to the USA Treasury if you have more than US$10.000 in Thailand Bank Accounts and Investments. And finally, the USA, besides Eritreia, is the only Country that taxes its citizens regardless of where they live. All other countries don´t do this and respect that people should pay taxes from earned income only to the country where they reside.

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