Withholding

U.S. employers generally must withhold U.S. income tax from the pay of U.S. citizens performing services in a foreign country unless the employer is required by foreign law to withhold foreign income tax.

Your employer, however, is not required to withhold U.S. income tax from the portion of your wages earned abroad that are equal to the foreign earned income exclusion and foreign housing exclusion if your employer has good reason to believe that you will qualify for these exclusions.

Statement. You can give a statement to your employer indicating that you will meet either the bona fide residence test or the physical presence test and indicating your estimated housing cost exclusion.

Form 673 is an acceptable statement. You can use Form 673 only if you are a U.S. citizen. You do not have to use the form. You can prepare your own statement.

Form 673

Give the statement to your employer and not to the IRS.

Generally, the receipt of a signed statement from you that includes a declaration under penalties of perjury is considered authority for your employer to discontinue withholding. However, if your employer has reason to believe that you will not qualify for an exclusion of income, your employer must disregard the statement and withhold the tax.

If your employer has information about pay you received from any other source outside the United States, it must be considered in determining whether your foreign earned income is more than the limit on the exclusion.

Your employer should withhold taxes from any wages you earn for working in the United States.

Foreign tax credit. If you plan to take a foreign tax credit, you may be eligible for additional withholding allowances on Form W-4. You can take these additional withholding allowances only for foreign tax credits attributable to taxable salary or wage income. See Publication 505 for further information.

Withholding from pension payments. U.S. payers of benefits from employer deferred compensation plans, individual retirement plans, and commercial annuities generally must withhold income tax from the payments or distributions they make to you. Withholding will apply unless you choose exemption from withholding. You cannot choose either exemption unless you:

1. Provide the payer of the benefits with a residence address in the United States or a U.S. possession, or
2. Certify to the payer that you are not a U.S. citizen or resident alien or someone who left the United States to avoid tax.

Checking your withholding. Before you report U.S. income tax withholding on your tax return, you should carefully review all information documents, such as Form W-2 and Form 1099. Compare other records, such as final pay records or bank statements, with Form W-2 or Form 1099 to verify the withholding on these forms. Check your U.S. income tax withholding even if you pay someone else to prepare your tax return. You may be assessed penalties and interest if you claim more than your correct amount of withholding.

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