Telecommuting for a foreign company

The simple answer is yes, you can apply for a foreign tax credit (Form

Less abbeviated, that is Form 1040 Schedule SE.

The simple answer is yes, you can apply for a foreign tax credit (Form

Time to grab a form SS-8 and complete it; then see what the relationship is.

They're in Russia. Why would they pay any attention to an SS-8?

He's working for a foreign company who does not have a presence in the US other than this one telecommuting employee. The company can care less about US requirements. I have seen this many times. The US employee is on the hook for both halves of the employment taxes unless he can convince his employer to abide by US and State requirements for employment taxes, unemployment insurance, disability, withholding, etc... Never happen.

responding to

I've been studying about self-employment tax and I have some questions:

1. So, in the US I'm considered self-employed, therefore in any form (like 1040) or any immigration form I have to say I'm self-employed, not 'computer programmer'?
2. When I file the tax return at the end of the year, where should I put my income? On line 12 (Form 1040), plus I have to attach Schedule C-EZ? Then I put the amount of self-employment tax on line 57 and attach Schedule-SE? Do I need to attach any other forms?
3. As I understand I have to pay estimated taxes quarterly. Can I instead pay monthly using the EFTPS? Do I need to file any forms when I pay estimated taxes?
4. The amount of a monthly payment would be: salary x 0.9235 x 0.153. Correct?

Thank you again!

On your income tax return where it asks for occupation, it really does not much matter.

I can't answer for other agencies.

First fill out schedule C or C-EZ.

The profit from that form will go to 1040 line 12 and to schedule SE as well.

Form 1040-ES works fine, but if you can get EFTPS to work for you, go for it.

Rather than salary, I prefer the term net schedule C profit, since you might have expenses to reduce profit.

Then half the SE tax will be used on the front of form 1040 to reduce your adjusted gross income, thereby reducing income tax. Those instructions are part of scchedule SE.

This is a grey area. Foreign employer compensation (FEC) paid to an employee in the U.S. goes on Line 7 of the 1040. Schedule SE is used to compute your social security and medicare taxes. The schedule does not make you self-employed. If you are not an employee of the foreign company, then you would report your income on Schedule C and you could deduct your ordinary and necessary business expenses on that schedule. As an employee, your unreimbursed employee expenses would go on Form

The original post used the term "...employee...". Whether IRS would accept that depends on facts and circumstances that are not set out and need further information regarding the relationship. "employment"

We need further information regarding the duties, responsibilities, authority, degree of control or independence and so forth.

As you can see, there are a number of possibilities and there are at least 2 others that come to mind that have not been mentioned.

Please tell us more of the details to further understand this, and we can better advise you.

responding to

They're in Russia. Why would they pay any attention to an SS-8? =========They're HERE if they have an employee here. That's the problem.

Yeah, we know. Employee fills out SS-8, it says he's an employee. He writes to employer saying they have to pay and file US employment taxes. Employer writes back saying "please, not to be being absurd."

Now what? There's no recourse against the employer. The suggestion that the employee should file as though self-employed seems the least bad option.

If your employer was in the US, you'd definitely be an employee, and your employer would pay half of your FICA as well as some unemployment taxes. If they provided health insurance and other benefits, the benefits would be non-taxable to you.

You can certainly ask them to pay all that. Good luck.

It's the IRS that will be writing to the employer. The employer can respond or not. If the Service makes a determination in the taxpayer's favor, he'll be required to pay his share of FICA taxes

Why wouldn't the foreign tax credit limitation be zero? There is no foreign source income since the services are all performed in the U.S. Does the treaty resource the income?

You raise a good point but it is not just a matter of sourcing. Forgetting for a moment that we are probably dealing with an employee who is flying under the radar in order that his employer not comply with the myriad of federal and state laws to do business in the US, the ultimate question is whether the employee could file a Russian income tax return, invoke the tax treaty between the US and Russia, ask for a full refund of withheld taxes and get the refund. If the answer is Yes... then there can be no foreign tax credit from the US. If the answer is No.... then there can be a foreign tax credit.

It makes sense that if he can get a refund of the Russian tax, there would be no foreign tax credit available. It would not be a compulsory payment if he paid but could get a refund.

In the case where he is required to pay the Russian tax, my question is will he be subject to double tax? If he is required to pay the Russian tax, he can put the tax on the Form 1116 as a foreign tax paid. However, won't the foreign tax credit limitation still be zero (unless he has other foreign source income in that basket)? Isn't it likely, therefore, that he will not be able to claim a foreign tax credit under any circumstance?

Yes, I thought about that. But, if he can't get a refund using the tax treaty, then the Russians consider this income to be earned in Russia. As such, it would be foreign source income (IMHO). I would enter it on the 1116 as foreign compensation. The treaty calls for a credit to avoid double taxation albeit limited by US or Russian tax law as long as the law doesn't change the general principle of double tax avoidance.