Can a US citizen be on US payroll if they live abroad?

U.S. Citizens Residing Overseas and U.S. Payroll Systems

U.S. citizens residing overseas can indeed remain on a United States payroll system. However, there are tax implications and reporting requirements that must be considered under U.S. tax law. The key tax provision that applies to U.S. citizens living abroad is 26 U.S. Code § 911, which provides for the Foreign Earned Income Exclusion and the Foreign Housing Exclusion or Deduction.

Key Points from 26 U.S. Code § 911

- Foreign Earned Income Exclusion: U.S. citizens or residents living abroad may be eligible to exclude a certain amount of their foreign earned income from U.S. taxation. This is subject to certain conditions and limits which are adjusted annually for inflation.

- Foreign Housing Exclusion/Deduction: In addition to the income exclusion, taxpayers may also qualify to exclude or deduct certain amounts paid for household expenses that occur as a consequence of living abroad.

- Administrative and Penal Provisions: There are specific administrative and penal provisions related to these exclusions, as referenced in sections 6001, 6011, 6012(c), and other provisions of subtitle F.

Considerations for U.S. Citizens on U.S. Payroll While Abroad

1. Tax Residency: The individual's tax residency status will determine their tax obligations. If they are considered a tax resident of the U.S., they are subject to U.S. tax on their worldwide income.

2. Income Source: The source of the income (whether it is from U.S. or foreign sources) can affect the tax treatment. Income from U.S. sources is generally subject to U.S. tax.

3. Tax Treaties: The U.S. has income tax treaties with many countries that may affect the taxation of U.S. citizens abroad. These treaties can provide relief from double taxation.

4. Reporting Requirements: U.S. citizens must file U.S. tax returns if their income exceeds certain thresholds, regardless of where they live or where the income is sourced.

5. Foreign Tax Credit: If taxes are paid to a foreign country, the taxpayer may be eligible for a foreign tax credit to offset U.S. tax liability on the same income.

6. Social Security and Medicare Taxes: Depending on the circumstances, U.S. citizens working for a U.S. employer abroad may still be subject to Social Security and Medicare taxes.

Conclusion

While the provided information chunks do not directly address the permissibility of remaining on a U.S. payroll system while residing overseas, they do provide the framework for understanding the tax implications of such an arrangement under 26 U.S. Code § 911. It is permissible for a U.S. citizen to remain on a U.S. payroll while living abroad, but they must comply with all applicable U.S. tax laws and reporting requirements.

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Sources:

26 U.S. Code § 911 - Citizens or residents of the United States living abroad 26 U.S. Code Chapter 1 - NORMAL TAXES AND SURTAXES 26 U.S. Code Subchapter N - Tax Based on Income From Sources Within or Without the United States 26 U.S. Code Part III - INCOME FROM SOURCES WITHOUT THE UNITED STATES 2023-12-11

26 U.S. Code § 893 - Compensation of employees of foreign governments or international organizations 26 U.S. Code Chapter 1 - NORMAL TAXES AND SURTAXES 26 U.S. Code Subchapter N - Tax Based on Income From Sources Within or Without the United States 26 U.S. Code Part II - NONRESIDENT ALIENS AND FOREIGN CORPORATIONS 2023-12-11

Internal Revenue Bulletin: 2012-20 2012-05-13

Internal Revenue Bulletin: 2005-19 2005-05-08