How are you filing taxes?

[kdavid]

You've all been incredibly helpful thus far, so a tremendous thank you to all that have contributed.

On $12,000 of foreign earned income, Federal income tax would be about $300, filing separately with no other income.

Can you please explain to the noobie how you calculated this number? I've never done my own taxes before.

I thought I'd owe a whole lot more than just $300, seeing how I'd have to pay social security, etc, or is that not mandatory? Is there a general ballpark figure that everyone is taxed? Can I for all purposes just say "This year I made x so I'll be taxed y%" ?

[Shuiwu Daifu]

First off, $300 is Federal income tax. Social Security tax is another ball game.

You get the $300 estimate as follows. Take your gross income of $12,000 and subtract both the standard deduction of $5,450 (married, filing separately) and one personal exemption of $3,500 (more if you have dependents). That gives net taxable income of $3,050, on which Federal income tax is $308 according to the 2008 Tax Table (married, filing separately).

When you're working overseas, Social Security tax only comes into play when you're either self-employed or employed by a "U.S. employer."

If you're self-employed, you pay Social Security tax at a rate of 15.3 percent of your gross self-employment earnings, up to $102,000. You can deduct half this tax when computing your income for Federal income tax purposes. So if that $12,000 is all self-employment income, you'll owe $1836 self-employment tax. And you can reduce your taxable income by half that amount, $918, to $2132 (on which Federal income tax would be $214).

If you're employed by a U.S. employer, your employer should be withholding Social Security tax from your wages.

U.S. taxes are going to tag you for the rest of your life, no matter where you are or what you are doing.

You won't stay a newbie for long.

[kdavid]

So, seeing how I'm paid entirely in cash and with no paper trail, how is the IRS or anyone else going to verify or double check on what I actually made?

And one more thing about Social Security, if I'm neither self-employed nor employed by a "US employer", then does mean that I don't have to pay for social security?

Edited February 24, 2009 at 01:10 PM by kdavid

[imron]

That depends on whether the IRS ever stumbles upon this thread, and on how many other kdavids are there in China that run a TESOL course in Harbin

[kdavid]

That depends on whether the IRS ever stumbles upon this thread, and on how many other kdavids are there in China that run a TESOL course in Harbin

Well, if they ever did happen to stumble upon this thread they should know that I do plan on doing everything by the book. I only ask questions about these "grey" areas to ensure that I don't do anything like that.

I'm an upstanding law abiding citizen who is obviously interested in paying his taxes.