(K) Section 14 Payroll for U.S. employees abroad and aliens in the U.S.

Question 1

US citizens are?

Answer 1

Born in the U.S

or

Naturalized (granted full citizenship)

Question 2

Resident aliens are and are subject to what taxes?

Answer 2

-Permanent resident test (green card holders)

Resident aliens are generally subject to federal income withholdings, social security and medicare taxes on the same basis as a US citizen.

Question 3

How are wages earned abroad taxed for U.S. citizens and resident aliens working abroad?

Answer 3

Wages earned abroad-

• are generally subject to federal income tax withholdings, and social security, medicare and FUTA taxes.
• Could be excluded from income tax withholdings under the foreign earned income exclusion or foreign housing exclusion
• could be eligible for a tax credit for foreign tax payments
• could be exempt from withholdings if the employer is required to withhold foreign taxes.

Question 4

What are Expatriates?

Answer 4

For U.S. payroll purposes, expatriates are US citizens and resident aliens who are US employees working on a business assignment in a foreign country.

Question 5

Are employers required to withhold federal income tax from an expatriate earnings wages abroad/ if the employer is required by foreign law to withold foreign income tax from the wages?

Answer 5

NO

Question 6

When US employer is paying the employees working abroad, and the employees have income that is subject to employment taxes and income taxes, the employer must follow regualr deposit, payment, and return regulation? true or false?

Answer 6

true,

This means that form 941, 940, W2 must be filed by their regular deadlines and the pay and taxed for the expats is to be included.

Question 7

Are wages paid to US citizens and resident aliens working abroad for a US employer subject to social security and medicare?

Answer 7

Yes, the social security and medicare must be matched by employer.

Foreign earned income and housing cost exclusions DO NOT exempt a US employer or employee from social security or meicare tax.

Question 8

What is the totalization agreement?

Answer 8

To alleviate the burden of double social secuirty taxation and to integrate coverage of employees, the US governemtn has entered into a bi-national social security agreements, also know as “totalization” agreement with 24 countries.

US citizens working temporary (less than 5 years) in countries under a totalization agreement are subject only to US FICA taxes.

Employees working permanently are subject only to foreign social secuirty taxes.

Question 9

To establish that an employee’s wages are subject to US social secuirty and medicare taxes, but are exempt from foreign social security tax, the employer must get what certificate?

Answer 9

Certificate of US coverage from the US social security administration, office of international programs.

Question 10

If an employee will be permanently working in the foreign country and will be exempt from U.S. social security and medicare taxes, the employee or the employer should obtain what statment?

Answer 10

Statment from an authorized social secuirty offical or agency of the foreign country.

Question 11

The US has agreements with more than ___ countries to clarify taxing jurisdictions?

Answer 11

55

Question 12

If tax treaty and the IRC conflicts, which is given priority?

Answer 12

Tax treaty is given priority (unelss the IRC provision states that it supersedes treaties).

Question 13

What are Hypothetical taxes (referred to as “hypo tax”

Answer 13

The estimated amount of actual tax that would have been withheld from the pay of an employee working abroad if the employee had stayed/worked in the US. Need this amount for tax protection or tax equalization plans

Question 14

All foreign citizens working in the US are considered non resident unless they qualify under internal revenue code by meeting one of the two test….what are the two test?

Answer 14

Lawful permanent resident test (Aka green card test). Based on aliens right to be in the US and not physical presence. Also applies to commuter green card holders from Canada and Mexico who works in the US.

Substancial presence test- aliens is present in US for at least 31 days during a current calendar year and total number of days of US presence during the calendar year, plus 1/3 of first preceding calendar year, and 1/6 of second preceding calendar year is equal to 183 days (do not need to know specifics of this test for the test…)

Question 15

What are the special W4 instructions for non resident aliens?

Answer 15

Nonresident aliens:

• can only check “Single” on line 3
• Can cliam only one withholding allowances on line 5, unless resident of Canada, Mexico, Japan, or Sourth Korea, or are U.S. nationals
• Must indicate nonresident alien status above line 6
• cannot claim “exempt” withholidngs status on line 7

Question 16

What are some exceptions to nonresidnet alien witholdings rules?

Answer 16

-Resident of Canada or Mexico who frequently enter and leave the US are exempt if they are performing duties in certain exempt industries.

Question 17

What are some Non resident aliens taxation exceptions?

Answer 17

Taxation exceptions
-independent contractors
 taxed at flat 30% rate unless they are exempt or under a tax treaty
-commercial travelers
 =less than 90 days during taxable year
 =compensation less than $3,000
 =US employer in a foreign country

Subject to social secuirty and medicare taxes execeptions:

• non resident alien student
• agricultural workers
• workers on foreign ship or plans
• workers for foreign governments
• workers of international organizations
• other exemptions according to totalization agreement

Subject to federal unemployment taxes exceptions:
-agricultural workers

Question 18

List nonresident reporting and depositing forms

Answer 18

• Form 941, employer’s quarterly federal tax return
• Form W2, wages and tax statement
• Form 1042-S, foreign person’s US source income subject to withholdings (not on W2, regular employee nonwage income)
• Form 1042, Annual withholding Tax return for US source income of foreign persons (Not on W2)
• Form 1042-T, Annual summary and transmittal forms 1042-S (not on W2)

Question 19

List examples of Immigrant Visas

Answer 19

• Immigrant visas (green cards) are issued to foreign nationals entering into the US as lawful permanent resident or who become lawful permanent resident
• an immigrant visa is an I-551 Permanent resident card (AKA alien registration receipt card or resident alien card)
• Proves both identity and the authorization to work under the immigration reform and control act

Question 20

List examples of Nonimmigrant Visas

Answer 20

B-1, business visitors
D-1, Foreign crewmen
E-1, Treaty Traders
E-2, Investors
F-1, Students
H-1B, Prof and tech workers
J-1, Exchange visitors
L-1, Intracompany transfers
M-1, Nonacademic or vocational student
O-1 & O-2, extraordinary ability
P-1, Entertainers, athletes
Q, cultural exchange
R-1, Religious occupations
TN, NAFTA, CAN and MEX professionals

Question 21

An individual from a foreign country working in his/her home country is considered a ____ by payroll professionals in the US.

Answer 21

Local national