Please note: the following is intended as informal advice on paying taxes while on Princeton in Asia. PiA is not authorized to give tax advice, nor should this document be considered legal tax advice, which can only be given by an accountant. If this information is inaccurate or should change, PiA cannot be held liable for any discrepancies or penalties incurred.
Who Has To File:
The U.S. government requires you to pay income taxes on overseas earnings, regardless of whether you have paid taxes in the foreign country. You must file a U.S. tax return by April 15th if your gross income, including both U.S. and foreign earned income is:
- More than $10,300 (as of 2015) in earned income AND your parents are not claiming you on their income tax return as a dependent.
- More than $6,300 (as of 2015) in earned income OR more than $1,050 in unearned income (2015 figure, e.g. investment income) OR if your combined earned and unearned income is more than the larger of $1,050 or your earned income (up to $5950) plus $350, and your parents are claiming you on their income tax return as a dependent. (See 1040 Instructions.)
Many fellows will meet these criteria, especially those in Hong Kong, Korea, Singapore, in business posts, and those who worked in the States prior to going abroad.
Before You Go:
It is important to familiarize yourself with tax rules pertaining to foreign earned income Before going abroad, you should obtain a copy of the IRS Publication 54: Tax Guide for U.S. Citizens and Resident Aliens Abroad. This publication is free and can be obtained at your local IRS office or online at http://www.irs.gov. The IRS also has a website pertaining specifically to American Citizens living abroad at: https://www.irs.gov/Individuals/International-Taxpayers/U.S.-Citizens-and-Resident-Aliens-Abroad.
Once you are overseas, you can receive updated tax information by contacting the U.S. embassy or consulate in your area or by checking the IRS website.
Tax Assistance Overseas:
All tax forms and publications can be obtained from U.S. embassies and consulates. They may also be able to provide taxpayer assistance in completing these forms. Please be sure to consult your embassy or consulate far enough in advance of any tax deadlines. PiA is not legally able to give tax assistance while you are overseas or back in the States.
Some General Guidelines:
1. Foreign Earned Income Exclusion – If you are working overseas and meet the physical presence test (see below), the IRS allows you to exclude your foreign earned income up to a maximum of $100,800 (2015 figure) in a calendar year. This exclusion will be calculated on a pro-rated basis for fellows who begin working overseas after the beginning of the calendar year. To claim the exemption, you will need to file Form 2555 or 2555-EZ along with your tax return Form 1040.
2. Physical Presence Test – If you are physically present in a foreign country or countries for 330 full days during a 12-month period, you will qualify for the exclusion under the physical presence test. This 11-month period must either begin or end during the year in which you are filing taxes, but does not have to correspond to a calendar year. Many of your contracts are between 11 and 12 months and thus you should qualify. For those on 9-10 month contracts, you may wish to travel after your contract ends in order to meet the minimum 330 days. Note- in order to claim the exemption, you must have met the physical test by the time you file your return. That means that you cannot file your return until 330 days after you have arrived in Asia. If you have visited the States during the year, you will have to wait an entire calendar year after you arrived.
3. When To File – If you are living outside of the United States on tax day (April 15th) and your main place of business is outside of the U.S. (which it is), you will receive an automatic extension to file your taxes by June 15th. When you file your return, make sure to include a letter indicating that you were eligible for this extension because you were working overseas on April 15th.
4. Additional Extensions – Most of you will not meet the physical presence test until after the June 15th deadline. You have three options:
- You can request an extension by filing form 4868 with the IRS. A four-month extension (until August 15th) is automatically approved, but you must file Form 4868 (Application for Automatic Extension of Time to File U.S. Tax Return). See http://www.irs.gov for more information.
- Those needing additional time (beyond August 15th) are required to petition for approval by the IRS by filing Form 2688 (Application for Additional Time to File U.S. Individual Tax Return) by August 15th. Note that all extensions after April 15th still require you to pay interest on any tax owed.
- You can also file a standard 1040 Form by April 15th and pay any necessary taxes. Once you have met the physical presence test of 330 days, you can file an amended return (Form 1040X) and receive a refund.
5. Where to File – All income tax returns and requests for extensions should be filed with the Internal Revenue Service Center. Check http://www.irs.gov for a mailing address or do e-file online.
A small handful of our Asian partner institutions will provide you with some form of documentation about your earnings, as well as any taxes deducted from your salary. These documents can be used in lieu of a W-2 form when you file your taxes. Most will not, especially in countries such as China, Vietnam, and Thailand where most fellows will get paid in cash without any written documentation.
- If your host institution pays you, ask the school or organization for an official letter (on letterhead) that indicates your full name, the salary you received in local currency during the calendar year, and any local taxes that were deducted. The letter should include an official signature as well. Include this letter when filing your tax return in lieu of a W-2. You should also include a cover letter with your return indicating that this document is in lieu of a standard W-2 and explain the exchange rate you used in calculating your earnings in U.S. dollars on your return. Note- you should request this letter BEFORE leaving Asia. It is obviously much easier to obtain in person than it is 6 months later by mail.In the event that you cannot obtain this letter from the host organization, some previous fellows have typed up their own substitute letter including the same information and submitted it accordingly.
- If you are given a stipend through PiA, the PiA office will issue you a stipend receipt letter documenting this income. It is the fellow’s responsibility to make a copy of the signed receipt before returning it to the PiA office. We will not be issuing you a 1099 but the stipend should be considered income for tax purposes.
For those of you who receiving grant money for a summer internship through PiA, this is considered taxable as a non-qualified scholarship and should be reported as such on your personal tax return. At the time of receipt of your stipend, PiA will issue you a letter that will serve as notification of the taxable income, but will not issue any further statements beyond this. According to IRS Publication 970 (available at www.irs.gov) nonqualified scholarships and fellowships should be included on Line 7 of Form 1040. Please refer to IRS Publication 901 (listing all the tax treaties if you are a non-resident alien), IRS Publication 970 (Tax Benefits for Education) for information on the taxation of scholarships, or your own tax adviser for any additional details.