Originally Posted by pengyou
So, will I have to pay US taxes on the $22,000 for 2015? and would I have to pay social security taxes on it? I have read somewhere that there is a "means" rule, that says if the forgiven debt is less than my net worth, I can also be excluded from paying taxes. Is that true?
So, will I have to pay US taxes on the $22,000 for 2015? =====>>As you can see, it depends; aslongas your US taxes exceed your FEIE on f2555, then yes you need to pay the difference to IRS(when your US tax liability > your FEIE); the rules for filing U.S. income tax returns and paying estimated taxes(if you file Sch C/SE on your return in US) are the same whether you are in the US or abroad. You need to pay US taxes on income you earned overseas in the same way you pay taxes on income you earned in the US. In other words,FICA taxes may apply to WAGES you earned for services in a foreign country aslongas you are working for a U.S. employer; You are working for a foreign affiliate of a U.S. employer under a voluntary agreement that was entered between the U.S. employer and the U.S. Treasury Department; you were working in one of the countries with which the U.S. has entered into a bilateral Social Security agreement. So UNLESS you meet any of the exceptions above, FICA taxes will not be withheld from your foreign wages. Aslongas your FEIEC exceeds $100,800 in 2015, I guess you can even claim foreign tax credit ( foreign tax deduction)on your US return either on 1040 or SCh A of 1040.
and would I have to pay social security taxes on it?=======>As mentioned above; you do not pay social taxes (or self employment taqxes as a self employer filing Sch C/SE) on the other income reported on 1040 line 21; fica taxes are imposed only on your earned income, i.e. wages, salaries, commissions or etc.
note; you may have to pay quarterly estimated taxes if you are working abroad for a foreign employer, since foreign employers generally don't withhold U.S. taxes from your wages. In general, your estimated tax is the total of your estimated income tax and self-employment for the year minus your expected withholding for the year. Don't include the income you expect to exclude when you estimate your gross income. In order to figure out your estimated tax liability, you can subtract your estimated housing deduction from your income. However, you may be subject to a penalty on the underpayment if the actual deduction or exclusion is less than you expected. In general, many TPs do not pay quarterly estimated taxes (UNLESS they have huge tax liaiblities)to IRS due to lower amount of penalties and interest that they need to pay to IRS.
I have read somewhere that there is a "means" rule, that says if the forgiven debt is less than my net worth, I can also be excluded from paying taxes. Is that true?====>>Not quite sure , so, you mean, if your forgiven debt is less than your net worth, then, you can also be excluded from paying taxes on the forgiven debt??? No I do not think so. please read my first comment;as said previously, If you filed for bankruptcy protection, you do not need to report the canceled debt as income , so no need to pay tax on it; ALSO, your forgiven debts canceled when you were insolvent. This is the most sweeping exception, because debt is generally only canceled when debtors are "insolvent" -, IRS-speak for being broke. Take note, however, the exclusion applies only up to the amount by which you are insolvent. Say, you owed $27K in credit card debt, which you settled by paying $5K. you received a Form 1099-C showing canceled debt income of $22K ($27K minus $5K). You had no other debts. Your assets at the time were worth $10K. Canceled debt: $22K; Total assets: $10K; Insolvency amount: $12K . You report $12K ($22Kminus the $10K insolvency amount) as income on your tax return.