# US Tax Question - FICA tax



## tnauss (Nov 28, 2008)

I am currently living in Macao and have filed my US Tax return the past three years with no issue. I pay quarterly estimated tax and then true that up at the time of filing tax returns each year. During these three years, I have not paid FICA tax.

Now, I am switching my employment to a US based company but will still be living and working in Macao. As such, I will be paid from the US and will have US Federal Income Tax and FICA (Social Security) taxes withheld. Accordingly, I don't have to pay quarterly estimated taxes. However, I now am being charged FICA taxes without the benefit of living in the US. 

My question is that I would like to know if there is a way of not paying the FICA tax until I am residing in the US again. Has anyone had this situation and how did they handle it?

Thanks!

Tim


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## synthia (Apr 18, 2007)

I moved your question on US taxes to the American forum for obvious reasons. There are more Americans here who might have been in the same situation.

As to your question, I'm not sure. Unless you are subject to a special tax treaty arrangement, you should still be eligible for the exclusion, and that's what got you out of paying FICA, I think. Have you actually had a paycheck where FICA was withheld, or did your new employer tell you they would be withheld. Because unless you are subject to a tax treaty, your exclusion should help. And if you have been making over the exclusion level, you should have been paying FICA on the amount over that anyway. 

It is now time for FatBrit to tell me how wrong I am.

I actually regret all the years I didn't pay FICA, because those years would have increased my social security income now by quite a bit. Your social security income is based on the 35 years where you paid FICA on the highest percentage of the maximum income. So if the maximum is 100,000 and you make 75,000, your percentage is 75%. When they figure your payment, if you don't have 35 years where you paid FICA, all those zero years get added in and drag down the overall percentage, which is then used to calculate your payment.


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## Fatbrit (May 8, 2008)

You were paying the FICA tax under Schedule SE -- at double the rate you're paying if you're employed no less!


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## Bevdeforges (Nov 16, 2007)

OK - if you have been paying US income tax these past three years, I assume you're an American citizen. You should have been taking the Overseas Earned Income Exclusion, assuming you're not living solely on investment income or something exotic like that.

Working for a US based company does not automatically mean you should be having US taxes withheld from your check. If you are resident in Macao (and after three years, I would assume you are), you are subject to Macao's tax laws as well as any social insurances they may have there. You should most definitely be taking the Overseas Earned Income Exclusion and unless there is some reason you want to pay into FICA (such as to establish your eligibility for social security later on), your employer should not be withholding it from your check.

You need to contact your employer's payroll office and find out what is going on. It may be that the employer does not have a "presence" in Macau and is improvising. If they are unable to handle overseas payroll, chances are you should be paid as a contractor, in which case you will have to handle the applicable taxes and benefits payments yourself. But it sounds as if your "tax residence" is Macau and not the US.
Cheers,
Bev


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## synthia (Apr 18, 2007)

FatBrit may be right. If you have been filing your taxes as a self-employed person and paying the 'self-employment' tax, you have been paying FICA. As a self-employed person you pay both the employee half and the matching employer half, since you are both.

If you haven't been claiming the overseas residence exemption, then you should see a tax accountant and look into filing amended returns. You could get a huge refund.


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## Bevdeforges (Nov 16, 2007)

The OP never said he was self-employed. Overseas filers may still have to file quarterly estimated payments if they have sources of income on which they have to pay US tax (like interest or investments). Or he could have been paying US taxes in error - the IRS certainly won't refuse a citizen's generous "contribution." (And, the overseas earned income exclusion isn't automatic - it has to be "elected." He'll have to check the pub 54 instructions to see if you can elect it when filing amended returns - there is some technicality about this, I think.)

The key thing is that his US employer should probably NOT be withholding US taxes if he is resident in Macau.
Cheers,
Bev


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## Fatbrit (May 8, 2008)

Bevdeforges said:


> The OP never said he was self-employed. Overseas filers may still have to file quarterly estimated payments if they have sources of income on which they have to pay US tax (like interest or investments). Or he could have been paying US taxes in error - the IRS certainly won't refuse a citizen's generous "contribution." (And, the overseas earned income exclusion isn't automatic - it has to be "elected." He'll have to check the pub 54 instructions to see if you can elect it when filing amended returns - there is some technicality about this, I think.)
> 
> The key thing is that his US employer should probably NOT be withholding US taxes if he is resident in Macau.
> Cheers,
> Bev


Aha! Maybe you're right. I assumed he'd been self-employed and was now just plain, old employed. Looks like the US firm is just running him through the payroll with all their US-resident staff.


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## taxman (Nov 29, 2008)

*US FICA Tax Question*

I assume if you are filing US taxes while abroad you are a US resident for tax purposes. While working for a non US employer in a foreign country you either qualify for tax totalization or you should pay US social security tax as a self employed individual-twice the rate paid by an employee of a US employer. As I don't think you gualify for tax tatalization you should have been paying US FICA tax voluntarily.

Now that you are working as an employee of a US employer you will have half the total FICA eithheld and your employer will pay half, and you will receive credit toward social security retirement and Medicare benefits.

Although you may have benefited from the Secition 911 income tax exclusion, that did not relieve you of your responsibility to contribute to U.S. Social Security.


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## synthia (Apr 18, 2007)

It certainly used to. I actually wanted to contribute, and couldn't.


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## Bevdeforges (Nov 16, 2007)

taxman said:


> I assume if you are filing US taxes while abroad you are a US resident for tax purposes. While working for a non US employer in a foreign country you either qualify for tax totalization or you should pay US social security tax as a self employed individual-twice the rate paid by an employee of a US employer. As I don't think you gualify for tax tatalization you should have been paying US FICA tax voluntarily.
> 
> Now that you are working as an employee of a US employer you will have half the total FICA eithheld and your employer will pay half, and you will receive credit toward social security retirement and Medicare benefits.
> 
> Although you may have benefited from the Secition 911 income tax exclusion, that did not relieve you of your responsibility to contribute to U.S. Social Security.


Excuse me, but all US citizens and green card holders living overseas MUST file US tax returns (whether or not they actually owe taxes). Overseas filers generally do NOT pay FICA on their earnings. IF Macau has a "tax totalization" agreement with the US, it may be possible to elect to pay FICA while living there, but this election is limited to the first few years (usually no more than 5) - and if he hasn't been paying FICA until now, he hasn't elected this option.

If you check the Overseas Taxpayer instructions (pub. 54) you'll find that you do not incur a FICA obligation if your "self-employment" is registered locally in almost any form and obligates you to paying local taxes and social charges. We are not at all certain that the OP was actually "self-employed" during the last 3 years. Based on what he has posted, he could have been working for a non-US company all this time. (In which case, he should have been filing US taxes and would NOT have been subject to FICA - though he should have been taking the overseas earned income exclusion.)

Many small US companies without a foreign presence believe that they can simply add a US national living overseas to their US payroll. This is definitely NOT the case. US citizens living abroad must be paid according to the laws of the country in which they reside - and after 3 years living in Macau, I think it's fairly clear that the OP is resident overseas, especially if he is now changing employers. 

If the US employer winds up having to pay the OP as a contractor, he should do whatever is necessary to set himself up as a small business in Macau - paying local taxes and any social charges to the local authorities. He'll still have to file US tax returns, but will be able to take the exclusion and will not be subject to US FICA.
Cheers,
Bev


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## taxman (Nov 29, 2008)

All US. Tax Residents (whether by birth, naturalization of tax stature) need to file a U.S. income tax return reporting their worldwide income, unless such income is below the filing threshhold. Failing to file a timely return could deny them the benefit of electing IRC Section 911 benefits in the future as they may be deemed to have elected out as the 911 election is an affirmative election. Employees of a foreign employer (on payroll) do not need to pay U.S. FICA; however self employed persons need to regardless of where they work unless special provisions are met (check the law as well as the IRS website for Individuals-International Taxpayers). Not all U.S. taxpayers are permitted to elect the FEI exclusion as certain conditions must be met. A foreign tax credit is permitted against U.S. tax liability against which foreign income tax has been paid or accrued. Any company conducting business in a foreign country is subject to local business and employment law, including self employed individuals. There is no totalization agreement with Macao. 
IRS CIRCULAR 230 NOTICE: To ensure compliance with recently enacted U.S. Treasury Department regulations, we hereby advise you that any and all tax information contained in this website should not be considered as tax advice nor intended for the use of any taxpayer for the purpose of evading or avoiding tax penalties that may be imposed pursuant to U.S. law. Furthermore, the use of any tax information contained in this communication has neither been written nor intended for the purpose of promoting, marketing, or recommending a partnership or other entity, investment plan or arrangement to any taxpayer, and such taxpayer should seek advice on the taxpayer’s particular circumstances from an independent tax advisor. The information contained throughout this web site is provided without charge, and although all efforts have been made to ensure the reliability of the information contained in this internet web site, the information contained herein should be used for general understanding only and should not be relied upon exclusively as the basis of any tax or financial decisions or for any positions taken on any tax return. Advice should only be obtained directly through the retention of a competent tax advisor.


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## gkloken (Aug 9, 2007)

I don't want to create concern, but you should immediately see an experienced CPA. If you do not have one that deals with international expats and their taxes in both countries, let me know I will send you details of a highly recommended CPA firm .


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## MadisonDave (Dec 11, 2008)

*FICA tax*

Tim,

It all depends on your employment status. If you are self-employed you must pay the FICA tax. However, if you are employed by a non-US registered company, neither you nor your employer have to pay the tax. IF you are employed by a US company, the company may choose to be taxed in a way that will not require them (or you) to pay FICA, but most US companies do not make the election because their disadvantages to it.

Are you self employed or are your recieving wages? If you are consulting, or something akin to private contracting, see if you can get your client to put you on the payroll, it will save you a lot of money.

On the other hand, if are self employed, you do have the advantage of being able to set up a solo ROTH 401k, which is a hugely lucrative retirement planning tool.

I hope this helps.

David





tnauss said:


> I am currently living in Macao and have filed my US Tax return the past three years with no issue. I pay quarterly estimated tax and then true that up at the time of filing tax returns each year. During these three years, I have not paid FICA tax.
> 
> Now, I am switching my employment to a US based company but will still be living and working in Macao. As such, I will be paid from the US and will have US Federal Income Tax and FICA (Social Security) taxes withheld. Accordingly, I don't have to pay quarterly estimated taxes. However, I now am being charged FICA taxes without the benefit of living in the US.
> 
> ...


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## MadisonDave (Dec 11, 2008)

Hi,

Payment of FICA is indepedent of the foreign Earned Income Tax Credit or deduction. If you are subject to the 15.3% FICA tax (due to status as employed by a US company, or due to status as self employed) on your forst $102k of earnings. It is not reduced in anyway by teh foreign earned income tax credit or deduction.

One advantage you get (besides it increasing your potential social security income later in life as pointed out in the previous post), but it may also qualify you to establish a low cost solo ROTH IRA which can have huge, positive, long-run tax advantages.

David





synthia said:


> I moved your question on US taxes to the American forum for obvious reasons. There are more Americans here who might have been in the same situation.
> 
> As to your question, I'm not sure. Unless you are subject to a special tax treaty arrangement, you should still be eligible for the exclusion, and that's what got you out of paying FICA, I think. Have you actually had a paycheck where FICA was withheld, or did your new employer tell you they would be withheld. Because unless you are subject to a tax treaty, your exclusion should help. And if you have been making over the exclusion level, you should have been paying FICA on the amount over that anyway.
> 
> ...


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## Bevdeforges (Nov 16, 2007)

Being employed by a US company while resident overseas does not subject the employee to paying FICA, certainly not at the 15.3% rate. If a US citizen is working in a country where there is an equalization agreement, it may be possible to continue to pay US FICA for a period of time in order to maintain their enrollment in the US system. But otherwise social security taxes (i.e. social insurances) are paid to the country of residence, no matter the home base of the employer.

We never did determine whether or not the OP was indeed self-employed according to US tax law.
Cheers,
Bev


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## MadisonDave (Dec 11, 2008)

The original question referred to Macau - there is no tax treaty. If an American citizen is employed in Macau by a US company (or any other non-tax equalization treaty country), the employee is responsible for 1/2 of the FICA and the employer is responsible for the other 1/2, unless the employer has opted not to pay the tax, then both employee and employer get out of it IRC Sec. 312 (1).





Bevdeforges said:


> Being employed by a US company while resident overseas does not subject the employee to paying FICA, certainly not at the 15.3% rate. If a US citizen is working in a country where there is an equalization agreement, it may be possible to continue to pay US FICA for a period of time in order to maintain their enrollment in the US system. But otherwise social security taxes (i.e. social insurances) are paid to the country of residence, no matter the home base of the employer.
> 
> We never did determine whether or not the OP was indeed self-employed according to US tax law.
> Cheers,
> Bev


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## Jimm (Jan 19, 2009)

gkloken said:


> I don't want to create concern, but you should immediately see an experienced CPA. If you do not have one that deals with international expats and their taxes in both countries, let me know I will send you details of a highly recommended CPA firm .


Hi gkloken, I'd be interested to get in touch with such CPA firms also. Can you send private message on this forum? Cheers


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## gkloken (Aug 9, 2007)

Have done so check your private messages.


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## liveirisjul (Jul 9, 2009)

yeah if you do not have one that deals with international expats and their taxes in both countries, you should have some details of a highly recommended CPA firm in your place...


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