# Best tax structure for US citizen working for Aussie company



## bobcart

I'm a US citizen living in the US and paying taxes in the US. I've been offered work by an Australian company. They expect me to be in AUS for at least 2 months of the year and they'd like me to outright move. They have offered to work with me to structure things for the best tax situation for me. I can be an employee or contractor directly for the AUS company or via the subsidiary the company own in the USA.

I've reviewed IRS Pub 54 and it appears that I would not be eligible for the wonderful Foreign earned income exclusion. That could help push for spending more time there. It also seems like a consultant there might be required to pay a flat 30% company tax and 10% GST. Yikes! I'm not sure how the tax treaties work and all that. I'm just hoping there is an advantage to structuring things in some other way than as an employee of the US subsidiary, though that seems the most familiar from a tax perspective.

Any suggestions or clues greatly appreciated.


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## Bevdeforges

You definitely aren't eligible for the FEIE if you're only going to be out of the country for 2 months of the year. Were you to outright move to Oz to take up employment then you're all set.

Your "tax residence" is based on your actual residence (i.e. physical presence and "center of interests") and has little if anything to do with who your employer is or where they are based. If you plan to remain resident in the US, you'd probably do best to be employed through the US subsidiary so that you'd continue to have the usual sorts of withholdings done - US social security, health insurance, federal and state taxes, etc. If you're only in Oz for 2 months of the year, you'd still be considered a US employee and US resident and basically nothing much changes for you in terms of taxation. No visas, no Australian taxation (as far as I know).

If you're employed by the Australian company, it would probably work out best if you relocated to Australia. That way, your tax residence would be Australia, and you'd be subject to the same taxes and social insurances as the other Australian employees. By establishing yourself as an Australian resident, you'd become eligible to exclude your whole salary from US taxation (you still have to file, but you won't have to pay taxes in most cases) up to about $92,000. The employer would have to get you the appropriate visa, whether you were a regular employee or a contractor. 

But working as a contractor abroad can complicate things for your US tax returns. Big thing is that, if you're compensated for "expenses" in addition to "salary" you have to combine those figures when calculating the FEIE and if that brings you over the maximum allowance, you have to start allocating your deductions to the excludable and non-excludable parts of your income.
Cheers,
Bev


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## bobcart

Beverly, great reply. Thank you. So I suppose the AUS company could pay me as an employee and withhold taxes without involving the US subsidiary too? I could also be a consultant to the AUS company as an American with tax home in the US? Sounds like there is little difference if I am living and working in ghe US even if my employer is AUS? Interesting. Who's rules would apply on determination as to whether I am a contractor or employee?

Thank you!


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## Bevdeforges

The Australian company can't hire you as an employee if you remain in the US without paying you through the US payroll (i.e. to handle the US withholdings - social security, etc.). They could conceivably hire you directly as a contractor - which means you'd be responsible for your own payroll taxes (including both parts of social security - employer and employee). The one big caveat to that plan is that the IRS is deadly suspicious of contractors with only one "customer." It's a common dodge for employers who don't want to pay their share of payroll taxes for a US employee.

One other caution on working as a contractor: since you're responsible for your own taxes and expenses, you should be getting paid more (often as much as twice as much) than if you were an employee. Remember, that as a contractor, you're running a business and have to pay for your own supplies, facilities, computers, etc. You can bill your "client" for such things, but then those billings become part of your revenue and must be reported to the IRS, as well as being tracked so that you can deduct them as business expenses.
Cheers,
Bev


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## bobcart

Bev, thank you again! So, if I choose to be a contractor directly for the Aussie company, and I have only one client and would be ruled an employee by IRS standards, what could the IRS do to get the foreign employer to withhold taxes or pay employer share of social security? Even with a totalization agreement, it doesn't appear that the IRS would have any right to demand the company withhold. If I'm paying my quarterly estimates, seems they should be okay with that arrangement. 

While I understand as a contractor, I have to report all my revenue, I can also write off all the operating expenses. That could ultimately reduce my taxes. I haven't yet done the analysis, but I'm guessing it could. I'm just now trying to figure out the best high level structure, then I will dig into details. 

Thanks again!


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## Bevdeforges

bobcart said:


> Bev, thank you again! So, if I choose to be a contractor directly for the Aussie company, and I have only one client and would be ruled an employee by IRS standards, what could the IRS do to get the foreign employer to withhold taxes or pay employer share of social security? Even with a totalization agreement, it doesn't appear that the IRS would have any right to demand the company withhold. If I'm paying my quarterly estimates, seems they should be okay with that arrangement.


Given that your Australian "employer" appears to have a US presence (and has offered to employ you through that branch), I suppose the worst the IRS could do is to insist that you become an employee on the US books of your employer.

Just be aware that paying your quarterly estimates (and filing correct tax returns) is one aspect of compliance. Paying up your "self employment tax" (i.e. the social security taxes comprising both employer and employee portion) is the other consideration.
Cheers,
Bev


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## bobcart

Thanks again. How about this. What if I am treated as a foreign employee by the Aussie company, but I provide documentation showing that, as a US citizen, I am not subject to any AUS taxes and they simply pay me the gross amount? On my end, I'm effectively treated like a consultant and have to pay employers share of SS, but I get the benefit of paid leave and other benefits from my AUS employer. Would I then need a work visa for that?


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## jenneflan

I know this is an old thread but I am wondering what you ended up doing and if you can offer advice. I am US and AUS citizen currently living in US. I am talking with an AUS company about working for them a few months in AUS and a few months in US (back and forth). I have an AUS bank account I can be paid into but then I dont think I would quality for income exclusion bc Im living in US and own a house here. This company does not have a current presence in US (just AUS and India). Any advice would be great.


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## Bevdeforges

Honestly, you don't get to choose which tax system you pay into. And as an American citizen, you just about always wind up having to at least file US taxes.

Doing the "few months" splits won't help on the taxation front, either. To be eligible for the FEIE, you must remain outside the US for a full 12 consecutive months (with no more than about 30 to 35 days back in the US during that time). It does not matter where you are paid, it's the fact of where you are physically located while doing the work that determines where you are working.

Probably your most practical option would be to work for the Australian employer on a contract basis (i.e. so that you would not be on the Aussie payroll, nor have Australian taxes and social insurances withheld from your pay). You bill them for your services from the US and then treat the income as "self-employment" or a sole proprietorship, probably adding a Schedule C to your US returns to account for your expenses. 

Don't know the Australian side of the tax situation, but basically, you'd be a "vendor" to them and they'd pay you like any other service they contract out for. The bulk of the paperwork falls on you.
Cheers,
Bev


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## jenneflan

Thanks so much. That was what I was thinking but I was reading that the IRS is wary of independent contractors whom are only working for one employer and other setups which are more employer than independent contractor. 
My job will include any paperwork and process to hire internationally so I wonder whether it would work to set up a U.S. Arm of the company that I am paid from. Maybe that's more work than it's worth though


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