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:
- Provide the payer of the benefits with a residence address
in the United States or a U.S. possession, or
- 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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