Income Tax on foreign earnings?

[mike l]

Originally Posted by tflea

Quick (simplified) response: If you get a US paycheck, as you already stated, you pay the US taxes (and if you live here you get an approx. $85K yearly tax break on that). If you don't make money here you don't pay taxes here (again, simplified). Your company can talk to Ernst and Young, Deloitte, all the companies that do taxes for thousands of foreigners, to confirm. You can also look at:
travel.state.gov and browse around. Or, the US, INS (confusing, some of them)federal web sites. I get a US paycheck, pay all taxes applicable to the US, don't recieve any local income, and thus pay no local income taxes, and recieve the first $85K frm the US, tax free. (If I were to be so fortunate to make such). The DR is not a 'tax haven', but is very favorable to expats regarding taxes, overall. An experienced US accounting firm, or attorney, could give much more info than here stated.
I am neither an attorney nor accountant; just one opinion of an individual, living out of country for 20+ years in various places.

This is also my interpretation and I am also not an Attorney Or CPA.

For countries with tax treaties you only pay tax in the country you are earning the income in.

So if you are a resident of the DR and earning an income from DR sources you would pay tax in the Dr but not liable for tax in another country that has a treaty with the DR.

Not meaning to confuse you but the IRS does make it difficult to determine withholding but in your case HR can rest assured they are in no way, shape or form required for back up witholding for any Country whatsoever.

[GringoCArlos]

It's that time of year again...

InsanelyOne, yes you are liable to the US for taxes on your income, no matter where you live in this world. But, you report your income at the beginning of your 1040 and then add the 2555 form and can claim an exemption of up to $91,400 against your 2008 income (basically wiping that amount off the table before you start claiming other deductions and calculating your tax liabilties on the remaining income.

To be able to claim this "Foreign Earned Income Exclusion" you must qualify in one of two ways: either you are physically within US territory for less than 35 days during the tax year or you can have legal residency in another country.

Your employer must legally only withhold the SS and Medicare taxes and pay their match. They have no duty to the DR to withhold DR taxes from your income. That is up to you and is your responsibility.

Have your pay deposited into a US bank account (and it is very unlikely that your employer has the capability to deposit your pay into a foreign bank account anyway. You can most easily do this by claiming 35 exemptions on your (W-4???) that you give to your US payroll department.

You can establish your absence from the US for any 365 day period, not based on a calendar year - talk to a tax expert who deals with foreign employment and taxation, and not just the H & R Block office down on the corner - they won't know enough about this to help you and may get you in trouble.

Here's my recommendation for advice: Jane Bruno. She only does foreign tax returns, she is both a CPA and a tax attorney, and she is great. You can reach her at: Welcome to or at janebruno1@gmail.com

You can tell her Carlos in Santo Domingo told you to contact her. Good luck.

[bryan1258]

And if you draw an income from your investments in the DR as a foreigner. Do you pay tax in the DR.

[Lambada]

Originally Posted by InsanelyOne

Okay... maybe I'm not making myself clear. I'm an American citizen and I work for a company based IN the United States. All of my income will be generated working for the US company. Either while onsite or working remotely via the internet on their computers. As far as the US tax law goes, it matters not where I am physically located, I am liable for all taxes no different than if I were residing in the US. That is not what I'm unsure about.

It's the HR staff at my company that is concerned that they will be breaking DR laws by not withholding taxes for the DR. Lambada has been kind enough to point me toward the relevant Domincan tax law. Unfortunately I speak about 10 word of Spanish so I've got to get someone to translate it for me. But that should be enough to placate the HR people.

Mike, my employer would be breaking the law by not withholding tax and social security from my paycheck.

You're most welcome. And actually you made yourself totally clear. You were asking about taxation in the DR. Had you been asking about taxation in the US I would never have responded because.........I'm a Brit. living in the DR with no knowledge nor interest in the US taxation system (other than I smile each time I see how much the paper version weighs ).

[TOOBER_SDQ]

InsanleyOne.

Click the link Abuela posted. It has all of the information you need. The other posters are also mostly correct. I am not too sure about the 91k USD that Gringo Carlos mentioned. I thing it is 87.5k USD.

Anyway, if you think you will pass the "Physical Presence Test" of being outside of the US for more than 35 days in one year, submit IRS Form 673 to your employer. This document stops your employer from deducting withholding tax from your salary.
When tax time rolls around, you pay taxes on earnings above 87.5k USD.

There is no escape from Social Security/ Medicaid deductions.

Again. Read the government link Abuela posted. All the information is in there.

[GringoCArlos]

Yep, I messed up. For tax year 2008, the max amount is $87,600. For tax year 2009, this amount goes up to $91,400. (but then again InsanelyOne is still living in the US, so he needs to plan ahead, right?)

Foreign Earned Income Exclusion - Maximum & Prorated Exclusions

here is the IRS webpage with info on the Foreign Earned Income Exclusion:

Foreign Earned Income Exclusion

[Lumber Joe]

Originally Posted by Abuela

Here's the best source for you:
Five Facts about the Offshore Banking Income Exclusion

Thanks for sharing