# Employment status while residing outside US



## taxmeplease (8 mo ago)

Hi, Need guidance on an employment situation. Brief detail:


Citizenship status: US
Residing in India (Permanently)
No US home address available
Employer is US based
Employer wants to pay in USD in US Bank account
Employer wants to employ for long term (essentially full time)

There are 3 options from what I read for my employment status:
a. W2 (Full time)
b. 1099 (Independent contractor)
c. W8BEN (foreigner employee, full time or contractor)

I need help with the approach that can be taken so there is no hassle with IRS. Also something which is standard practice from employer point of view. 

a. W2 seems like the best approach. But does it require a US home address for employer to generate a W2? Does anyone know if employer can generate a W2 with foreign address? 

b. Can 1099 be used safely here given that employment type will be for long term? Also 1099 might attract higher SS & Medicare taxes, does that get adjusted somewhere as deduction?

c. W8BEN is for foreigners, so does not apply in my case.

If anyone has been in a similar situation, please share your experience and any other ideas you might have. Thanks a lot.


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## Bevdeforges (Nov 16, 2007)

taxmeplease said:


> a. W2 seems like the best approach. But does it require a US home address for employer to generate a W2? Does anyone know if employer can generate a W2 with foreign address?


Basically, no, it's not a matter of not being able to generate a W2 for a foreign address, but rather than this means that you'd be on the employer's US payroll and subject to US SS, state taxes (depending on whatever US address you wind up using), the employer's US benefit system (which won't benefit you living in India) and a bunch of other complications.

The 1099 system is fine, as long as it is similarly fine with your home government (i.e. India). But in that case, you'll have to fulfill the requirements of your local government as far as "self-employment" or setting up a small business entity is concerned. Unless India has a national system of "social security" (primarily retirement benefits) you'll pay something like 15% in self employment tax. You can opt out of that if you can show that you are enrolled in the Indian retirement system. But you'll have to bill your US "employer" for services you render to them and handle any and all taxes that India expects from you as a resident there.


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## Moulard (Feb 3, 2017)

There is nothing standard practice about an employer having an employee working permanently from without the United States (as it is quaintly termed in the Internal Revenue Code). 
While some may skirt the rules and simply pretend that you are residing in the US, there are a bunch of Indian tax compliance rules that can get in the way if they are trying to do things above board.

Many countries require a foreign resident business to establish a business entity domestically to address things like Income Tax withholding, payroll taxes, social security type contributions and the like. There tend to be de-minimus rules (3-6 months is common) but if you are permanently based in India those are unlikely to apply. 

If your employer is willing to turn a blind eye to the local tax compliance requirements then...

You want to submit IRS Form 673 with your US employer to claim an exemption from Federal Income Tax withholding
You will not be able to avoid US Social Security payments because there is no totalisation agreement between the US and India
You would be responsible for saving to comply with Indian Income tax and compliance with requirements with the applicable social security system (assuming you are required)
You would continue to report your global income to the IRS by virtue of being a US Citizen
You would continue to report your global income to Indian tax authorities by virtue of being a tax resident of India
You would use forieign tax credits or the foreign earned income exclusion to reduce the US taxation on your income - if you decide to use FTCs you will need to factor in whether it is better to go down a cash or an accrual basis of accounting given the difference in the US and Indian fiscal year
The limitation on foreign addresses is, technically at least, not the W2.. the address field is just a giant box. Its probably more about any limitation in the payroll tool they use. If their payroll system spits them out and posts them, you may or may not receive a copy. 

If you went down the 1099 route for you, it would be mostly the same as above if you decided to go down the sole trader type route.
Once thing that Bev did not mention, is that you you would be subject to US Self Employment taxes because there is no totalisation agreement in place.


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## Bevdeforges (Nov 16, 2007)

One further caveat in all this, though, is the fact that many US employers have no idea how to carry a non-resident employee on their payroll. Be very careful about this, because they may withhold taxes (like state taxes) that you cannot get back, whether or not you file state tax returns. It's simply more "convenient" for the US employer to treat you like everyone else on their payroll, and for that reason they may simply list your "home address" in their records as their own payroll department. This can and does create problems - mostly for you. (I tried to help out a US expat one time on a similar arrangement and things got very complicated very quickly.)

Proceed with caution, whatever you decide to do. And make sure your employer-to-be is considering your issues as well as their own when setting up payments. Also be sure to check what India's rules and regulations regarding taxation of this sort of situation might be. Technically, you will be subject to full taxation of your earnings as you are working in India (i.e. are physically present there). The location of your employer or where you are paid normally has no bearing on the situation.


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## taxmeplease (8 mo ago)

@Bevdeforges @Moulard 
Based on what you mentioned and some suggestion from outside, it looks like I may only have 2 main choices (a) 1099 with 15% Self-employment tax (b) Owner of a Foreign Limited Liability Company. 

I am considering option (a) in short term and switch to option (b) long term. I do prefer to get paid in USD in my US bank a/c, and that will be possible with option (a). With option (b), the foreign LLC may not be able to open a US bank a/c for this purpose. I am further researching about how will option (b) work for payments in USD, may be it would be possible to make the payment to the US bank account of the "owner" of the foreign LLC. However, there may not be much complication if the employer has to pay in my local currency to the LLC's foreign bank account, so that may be a short term solution as well.

Thank you for raising concerns about state taxes & totalization agreement. They are very valid issues. I have indicated about state taxes to the employer, they seem to understand the problem, will see what they come up with after discussing with their payroll. Cannot do much about totalization agreement, hence option (b). 

I have a head start on this topic after suggestions from you guys, thank you very much. I feel like there are many smaller items also to be thought about which I can look further.


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## Moulard (Feb 3, 2017)

If you have never worked in the US or are unlikely to ever hit the 40 quarters required, then yes, staying out of the US Social Security system is probably warranted. 

It may be difficult to find a US financial institution that is willing to open a bank account for a US Owned Foreign non-resident company (you are a US person and thus your foreign company will be US owned) without the company having an EIN, local address etc and to do so from outside the US. However the fact that you will have US tax identifiers as the director / owner of the foreign LLC may help. This is all way outside my wheelhouse.

As a US citizen there is also a whole world of hurt potentially lying behind controlled foreign company and foreign branch reporting requirements. So you will want to do your research carefully on the matter of whether to treat it as a corporation or a pass-through entity from your US tax reporting obligations. Again this is outside my wheelhouse.

As to payment for services.. this is all standard contractual matters. There are a host of options you can agree upon. I have no doubt they would prefer it all pegged to the USD, invoiced in USD and paid into a US bank account for the sake of simplicity on their side. But it is a contractual matter than in theory can be negotiated. The reality is once you start mix and matching, then currency hedging can come into play as one or other of you starts to mitigate against exchange rate fluctuations. I have known folks who have made a killing when invoicing in USD against a weakening foreign currency and have struggled to make ends meet in the opposite direction.. 
just more food for thought really


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## taxmeplease (8 mo ago)

@Moulard Interesting point about the exchange rate hedging. I will have to look into that once I get the core system started and working one way. Yeah, I might have read somewhere about being the "owner" of the foreign LLC might be sufficient to get payment deposited in personal bank account at US, but need to triple check that. 

On the SE front, I am thinking to try and negotiate with the employer and have them compensate the additional tax on the base salary, so I pay the extra 7.5% tax but on the increased base. I am approaching 40 quarters on the SS, so might as well clear that hurdle first. 

Thank you very much for pointing out various gotchas!


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## Moulard (Feb 3, 2017)

Wise to figure out your cost of living expenses and figure out at what exchange rate would you not meet them - even if only at a back of the envelope sort of calculation...

Then look at historic exchange rates to see what the risk profile looks like. 

If your income is paid in USD and you have sufficient savings in INR you can at least time currency exchanges to your advantage.


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