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Question for the Money Doctors

Question submitted on Feb 25, 2013.

Question

My daughter has been working as a teacher in Iraq since October2012. She will be there two years. She is paid by the university and no taxes are taken out. She will make under the 92,000 in a year. She filed taxes for 2011 and will file each year. Does she still owe any state taxes (lives in VA) she own no home. Any other taxes she needs to pay? She will be out of the country 330 days

Answer

US citizens are taxed on their worldwide income, regardless of where they live or earn their income. Presuming that your daughter is a US citizen, she should file a US income tax return. If she has no family or residence in the States, she will not likely have a state filing requirement, but she should inquire as the rules vary from State to State.

Included in the income tax filing requirement is Form 8938, Statement of Specified Foreign (non-US) Financial Assets. In addition to the income tax, US citizens may be required to file Form TD 90-22.1 if they own a foreign account worth over $10,000 during the tax year.

IRS Publication 54 is always a good reference tool for US citizens working abroad. The publication discusses special tax rules for U.S. citizens who work abroad or who have income earned in foreign countries.

IRS Publication 54 discusses several tax provisions applicable to US citizens working abroad, such as:

  • Foreign earned income exclusion
  • Foreign housing exclusion and deduction
  • Foreign moving expenses
  • Foreign tax credit
  • Tax treaty benefits

That being said, please note that the income tax rules applicable to expatriates are very complex and that you would be well served by contacting a CPA/PFS who will be able to help you analyze the tax rules and whether or not you are eligible for treaty benefits. Visit www.findacpapfs.org to find a CPA/PFS near you.


For additional information visit http://www.360financialliteracy.org/