# Foreign earned income exclusion - 1099 question



## farang_bkk

Hello all.

I'm an American living in Thailand for the last 6 years. I did not file my taxes during this time, regrettably. My salary is paid each month from a US company that I'm a minority shareholder of. 

My income is within the limits of the foreign earned income exclusion most of those years, but it has just come to my attention that the way the company reported my income has been incorrect and therefore subjecting me to a flat 15% tax rate for "self-employment" tax. My income has been reported under "box 7" in the 1099's which means I'm a sub-contractor, and I believe that is inaccurate. There are 20 staff in my company in 2 offices (US and Thailand) and I'm a minority shareholder of this company. I'm clearly an employee in my opinion.

My question is, can I re-submit these 1099's for the last 6 years to show that income any other way than box 7? If I can't revise them, I'm basically screwed and will owe 15% of the last 6 years income.

Any comments and suggestions would be greatly appreciated!


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## Bevdeforges

If you're getting 1099 for your pay, you're a contractor. To be considered an "employee" you'd be getting a W-2 and having taxes withheld (including half of the "self-employment" tax, which is nothing but US social security). 

This is the IRS take on employer vs. contractor: Independent Contractor (Self-Employed) or Employee?

Depending on precisely what you "do" to earn your pay, you could also be considered to be getting "dividends" - be careful because then that might not all fall under the FEIE.

Good luck. Getting back social security contributions is not easy.
Cheers,
Bev


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## farang_bkk

Thank you Bev. So that means that if I am working overseas, tax would still be withheld? That's the part that I don't understand -- everyone else I know here doesn't pay tax because of the FEIE. 

If those 1099's are incorrect, should they be refiled as W-2's? This is where it gets confusing to me.

It also seems that I should be paid by the local Thailand company and not from the US to eliminate confusion going forward..


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## Bevdeforges

I don't know how it works in Thailand, but based on how things have to be done here in Europe, you aren't really supposed to be an "employee" of the US entity at all. Because you are resident in Thailand, you are considered to be working in Thailand, and therefore you must be paid from a Thai payroll, meeting all the tax and whatever else requirements of the local labor laws. (Also, regarding holidays, vacations, minimum wage, etc.)

Normally what a multinational company will do is to pay an expat employee through the local office (assuming they have one) and then the US entity reimburses the local office for the expense of the payroll. 

I don't believe you can "refile" the 1099s as W-2s. The IRS will have already attempted to match up the 1099s with the tax returns you didn't file. Probably easier to just back file the returns as a contractor and then see about getting onto the Thai payroll if you can.
Cheers,
Bev


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## BBCWatcher

Bevdeforges said:


> I don't know how it works in Thailand, but based on how things have to be done here in Europe, you aren't really supposed to be an "employee" of the US entity at all. Because you are resident in Thailand, you are considered to be working in Thailand, and therefore you must be paid from a Thai payroll, meeting all the tax and whatever else requirements of the local labor laws. (Also, regarding holidays, vacations, minimum wage, etc.)


I'm not aware of any U.S. labor or tax law requirements along the lines you've described, Bev. Being on U.S. payroll does not require being physically inside the United States.


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## Bevdeforges

BBCWatcher said:


> I'm not aware of any U.S. labor or tax law requirements along the lines you've described, Bev. Being on U.S. payroll does not require being physically inside the United States.


No, but being legally resident in a country normally means that you ARE subject to that country's taxes and labor laws. If someone is performing work for which they are being paid while "resident" in the country, it's normally the case that you are considered to be working in that country, no matter where your pay is coming from. The issue is more with local laws than with the US laws. But like I said, I don't know how Thailand handles these sorts of issues - or if they even have income taxes and/or labor laws.
Cheers,
Bev


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## farang_bkk

I'm not asking anything about Thailand. I get part of my salary here, and have a work permit, etc. My question is related to US side of things and why I'm not benifiting from the FEIE the way I thought I should be.


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## BBCWatcher

Bevdeforges said:


> No, but being legally resident in a country normally means that you ARE subject to that country's taxes and labor laws.


No disagreement, but that's a very separate set of issues.

Yes, it does seem like the original poster's employer treated him as a contractor. Plenty of employers have been known to do that improperly. Did you have a chat with your company's HR person?


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## Bevdeforges

Well, first of all, you aren't "benefiting" from the FEIE if you aren't filing your income tax returns. The FEIE is an option you are free to use or not. (Which is the reasoning behind why you have to file returns even if your income is below the FEIE limit.)

But, even if you were a contractor on a 1099, you'd be able to take the FEIE on pretty much the same basis that you'd take it if the income had been reported to you on a W-2. 

The 15% FICA ("self-employment tax", if you prefer) isn't income tax so doesn't really affect your FEIE status at all. Take a look at Publication 54, where I think there is some discussion of when you have to pay social security taxes even while working overseas. (If not, get the IRS publication on social security.)

I don't recall all the details, but you are subject to social security tax if you are a US citizen living overseas and being paid by a US employer. So, on a W-2, you'd be hit for the usual 7.5% - which I don't believe you can get back in any event. As a "contractor" you're usually off the hook for unemployment tax if you can show that you are enrolled in the local national "social security" system - either personally or through your business (i.e. as a contractor). But check Pub 54 on that, because it's one of those things I skimmed through quickly, made a mental note of and I could have read it too quickly.
Cheers,
Bev


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## DavidMcKeegan

farang_bkk said:


> My question is related to US side of things and why I'm not benifiting from the FEIE the way I thought I should be.


Unfortunately, a common misconception among expats is that if you make less than the FEIE, then you automatically don't owe tax to the US (or worse they think that excludes them from having to file). Although this is usually the case, it does not work that way if you are self employed. The FEIE does not exclude your income from SE tax. 

Although the US does have totalization agreements with a number of countries (to ensure you are not double taxed on SE/SS), they do not have one with Singapore. As such, even if you are currently paying into the Singapore system (doesn't sound like it, but perhaps you are), it will be difficult to exempt your income from SE tax in the US.

My advice would be to get caught up (usually ok to file just the last three years) on your taxes, and only then will you see what you are likely to owe. If you voluntarily come forward with everything, then the fines and penalties (if applied) are certain to be less than if they "catch" you delinquent on your taxes.


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## BBCWatcher

The original poster is living in Thailand. That's good, because the Singaporean government at least makes it rather difficult to be legally self-employed in Singapore without permanent residence, citizenship, or a very special permit.

Paying the self-employment tax also means eligibility for and increasing retirement benefits in U.S. Social Security. With disability, survivors, etc. Plus future Medicare. You get something individually and directly in exchange for those payments.


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