Pay taxes on contracting for an overseas company?

September 8, 2010 1:52 PM

Stupid tax question: I live in the U.S. If I'm paid on a contract basis for consultant work by an overseas corporation, do I have to pay income tax on that money? In this equation, am I just a regular-joe 1099 contractor?

I really should be able to figure this one out, but the Googles, they fail me. My searches are overwhelmed by results for the military and U.S. citizens working abroad.

posted by Cool Papa Bell to Work & Money (8 answers total)

Worthless tax answer: When in this position, I did pay tax, and the IRS didn't refuse it.
posted by chesty_a_arthur at 2:02 PM on September 8, 2010

IANAL. Short answer is yes, you do owe income tax. The foreign tax exemption only applies if you are actually living and working outside the country. If the corporation you work for has a US presence, then absolutely. It's hard for me to come up with a scenario that doesn't end up with you as a 1099 contractor.
posted by Zophi at 2:08 PM on September 8, 2010

I'm in the same boat. Yes, you still need to pay taxes on that overseas income. If you're paying taxes to an overseas government on that income, you can claim credit for that on your US taxes with form 1116. I could have taken a small credit last year but my tax guy dissuaded me, saying the requirements surrounding it have gotten extremely onerous.

If the US has a tax treaty with the other country, the IRS might find out about your income anyhow. If they don't, it's possible the IRS would never get wise, but it's up to you whether you want to risk it.
posted by adamrice at 2:08 PM on September 8, 2010

Yes. As a U.S. citizen, you have to pay tax on income from any source worldwide, unless there is a specific exception. The only possible exception special to this case is that you might be able to claim a credit for taxes, if any, paid to another government on this income.
posted by grouse at 2:11 PM on September 8, 2010

Yes. Your tax liability is based on your declared location of residence. In your case, the US of A.
posted by Thorzdad at 2:49 PM on September 8, 2010

I asked that of my tax accountant and was told that I did. Any money you earn while living in the US, you have to pay taxes on. Sad to say.
posted by ErikaB at 3:23 PM on September 8, 2010

Another voice to add to the consensus but I wanted to clarify that even though you are a "regular-joe 1099 contractor", unless the company has a U.S. presence, they will not issue a 1099, so you'll have to just enter the money into your Schedule-C.

If the company isn't paying taxes to the U.S. government, then they are not required to issue 1099s or report to the U.S. government how much they paid you.
posted by camcgee at 5:38 PM on September 8, 2010

Short answer: Yes.

Slightly longer answer to the question you didn't ask: If you're a 'regular Joe-contractor' you owe it to yourself to have an accountant do your taxes. They will save you more money than their fees and they will keep you out of trouble. They should also be happy to answer any questions you have throughout the year.
posted by Ookseer at 10:48 PM on September 8, 2010