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Withholding From Foreign Persons

In general, a foreign person is subject to U.S. tax on U.S. source income. Foreign "persons" include nonresident aliens, foreign partnerships, foreign corporations, foreign estates, and foreign trusts. The tax generally must be withheld from the payment made to the foreign person. A withholding agent is the person responsible for withholding tax on payments made to a foreign person. U.S. Source Income The income of foreign persons subject to U.S. income tax is divided into two categories: certain income that is effectively connected with a U.S. trade or business; and certain U.S. source income that is not effectively connected with a U.S. trade or business. Effectively connected income is ta

Self-Employment Taxes for U.S. Workers Abroad

A recent fact-sheet issued by the IRS contains rules regarding self-employment tax for U.S. taxpayers working abroad that you may find helpful. If you have become an independent contractor, either for a new employer or a foreign employer with no ties to the U.S., you may be liable for U.S. self-employment taxes. As a self-employed individual working abroad, you are required to pay (subject to exception if a "totalization agreement" discussed below in further detail, applies) in addition to income tax, U.S. self-employment tax: both the "employer" and "employee" share of social security and Medicare taxes. You must file a Schedule C with your U.S. income tax return and self-employment tax pai