Foreign income and tax in foreign country

[jimtony]

Hi, I'm a Norwegian citizen living in USA. I got my green card March this year and planning to file jointly with my spouse (US citizen) for 2022.

I'm working 100% remotely for a company in Norway, and at the moment all my taxes and social security is being paid to Norway as well.

There is a tax treaty between USA and Norway, and I believe all my income for 2022 should be taxed to USA, as well as social security.

Would TurboTax be able to calculate what I need to pay to IRS and Social security (+ state tax if applicable)?

And is it when filing the 2022 tax return this should be paid? I also believe I need form 8802 from IRS to determine my US residency that I can provide to the Norwegian tax authorities (so I can claim my tax refunded from Norway and pay to the US instead).

From January 2023 I plan to start as self-employed instead. From what I've read this seems to be the easiest solution for those who work remotely for a foreign company.

[tagteam]

@pk?

[pk]

@jimtony  for your ref. below are links to  (a)  the totalization agreement between US-SSA and Norway- National Insurance -->

https://www.ssa.gov/international/Agreement_Texts/norway.html#agreement

and  (b) Tax Treaty between US and Kingdom of Norway --> https://www.irs.gov/pub/irs-trty/norway.pdf

Assuming that your employer in Norway did NOT send /re-assign you to the USA, you being a Green Card ( Immigrant ) in the USA, you come under the  tax and Social Security laws of the USA. 

Generally US considers earnings to be sourced where the work is performed and so does Norway for  most part ( there are carve outs).

1. Thus based on the fact that you are working remotely for an entity in Norway ( even if they consider you an employee-- which would be wrong under the treaty ), you would be considered a self-employed  / contractor performing tasks for a foreign entity.

2. This would also mean that your home state  ( where you are domiciled, driver's license etc. ), would consider your income as in-state sourced . Most states tax  you on your world income and give credits for taxes paid to other states ( US) for any out-of state sourced income

3. Yes , you will have to file form 8802 to request a certificate of residency  ( 6601) for treaty condition assertions, that will allow you to stop paying taxes and  social security to Norway.

4. Prior to your moving to USA, any income for the year 2022 earned in Norway would be  taxed by Norway. However, from the day you entered USA with your Green Card, you are resident  of USA and  taxed on your world income by the USA.  Since your earnings in the USA ( as a self-employed) has not been withheld -- you need to make estimated payments  for federal  and State taxes quarterly -- i.e. you must meet your obligations quarterly or be subject to interest and penalties. There are ways around this, though.

5. Can TurboTax do all this for you ?  YES.  

6. Without more information  ( when did you enter the country, did you come in with green card  or with a K-Visa and if so when , approximate  first date of earnings in the USA,  rough quarterly income, are you the sole earner or your spouse works ,  if working does he/she  uses a zero deduction on W-4 etc. etc. ) we cannot  really guide you as to how much your quarterly estimated payments should be .    Or you can use current version of TurboTax ( 2021 ) to compute  a dummy return ( Joint) using 2021 brackets but 2022 estimated incomes and use that  for estimated payments . Or you can seek a tax professional familiar with international situations.

Does this help?  Is there more I can do for you?

pk

[jimtony]

Thank you so much for the reply. Very very informative.

You are assuming right, my employer did not send me to the US, so I will be under the tax and social security laws of USA.

I came on a K1 visa May 2021, but the green card was first issued March 2022. Taxation and social security payment should start January 1. 2022 (I think?).

During 2022 I've lived in MA until June, and moved to FL after this. For the first 6 months I assume my taxes should be paid to MA, and FL from July?

When it comes to the form 8802, should this be filed already now, or should I file this when doing the taxes for 2022 next year?

The quarterly payments (taxes and social security), should this have already started this year? If so, is there a way of starting this from next year?

If not possible I would most likely need to loan money to pay the taxes and social security and then get my refund from Norway next year. Not that I know exactly how I should do this since I'm getting paid as an employee on a Norwegian payroll right now.

Maybe I already from September this year should start invoicing my Norwegian employer as a self-employee instead.

If you have any suggestions regarding the quarterly payments, I would appreciate your input. Next year would be easy, but since I'm more than halfway through 2022 already I have to admit I'm very unsure how everything should be done.

Great that TurboTax can do everything of this. That's gonna make everything easier later on.

Regarding point 6;

Entered on K1 May 2021. Been working remotely since that day. Green card issued March 2022. Since I will file jointly I assume my tax period will start from January 1. 2022.

My quarterly income would be around 15-16k (depending on the currency). My spouse works as well, and I believe he is not using zero deduction.

I have played with numbers for previous year to get indication how things would look like.

Your answers helped me a lot.

If you could review my answer regarding form 8802 and payments for current year that would be highly appreciated.

Thank you very much,

regards,

Jim

[pk]

@jimtony , having gone through your response to my questions, what I get is  ( in addition to my earlier notations):

1. You , Norwegian citizen, entered US with K-1 visa in May 2021.  You continued to work for your employer ( in Norway )   remotely  and lived in MA  till June 2022.

2. From June XX, 2022 you moved to FL and continued to work remotely for your employer in Norway.

3.Your employer in Norway has been considering you an employee  and therefore has withheld  required  Norwegian taxes and Social Security there in Norway.

3. This opens up the issue of work permit:

                           (a) After admission to the USA, you must have filed a form I-765 requesting permission to work --- this would have given  you a permit to work for  90 days  -- so from June 2021  till  Sept. 2021  OR

                           (b) you filed a form I-765 along with form I-485 ( for a green card ) --- this would have given you work permit for  12 months  and renewed  every year till Green Card decision is made.

I am assuming that you followed path (b) above  and therefore are authorized to work.

Note that in either case  you would have been treated as a Non-Resident Alien  till passing of  Substantial Presence Test or granting of the  Green Card.

4. Whether you are permitted to work or not , you obviously continued to work remotely for your  foreign employer.

Therefore  you need to recognize  your  US based income for the period of the first six months  ( 183 days from admission ) and then world income thereafter ( since you would be Resident Alien for tax purposes , even without Green Card).  

5. Because  you performed the work remotely , the income is US sourced  and  under the treaty  US has the right to tax that income.

What this means is that for the  tax year 2021, you could file as a dual status taxpayer i.e. 1040-NR for the period  May through  Oct of 2021 and 1040 for the period  Nov through Dec. 2021.   You could also file the whole year as Resident for tax purposes -- this would  make  filings easier, allow the use of standard deduction and may also allow filing as joint with your spouse -- obviously, this would necessitate and amendment of his already filed return. Else you can file on your own -- you already have an SSN.  This would also mean that you would have to pay  interest and possible penalty for late paying ( you have till Oct 15th  for the new 2021 without failure to file penalty) .  This also would mean that you would be liable for MA taxes for the year 2021.

6. For 2022, it is much easier, since you are planning to file joint -- the only complication would be that you would have to file MA  ( but not FL since FL does not have individual income tax).

7.The filing of the form 8802 is not connected to your  tax filings --- you file this to prove to Norway that you were a resident of US during the period May through Dec of 2021 and hopefully can get all your taxes and Social Security back.  Note that as a Self-employed you pay roughly 15.3% of your  net earnings ( that is gross invoice less any allowable expenses, of which there not that many ).

8. Note that all this monies being paid in Norway bank account implies that you need to file FBAR     ( www.fincen.gov , form 114--online only  ) for both 2021 once you became a resident for tax purposes.  

9. An argument could be made that  ( assuming that you did not apply for work permit ) the remote work  did not generate any income here in the USA --  and you had closer connection to Norway at least till passing the SPT, getting married and applying for  Green Card etc.  ---- but in my opinion  this weak and more likely to fail than sustain.

It is a difficult situation and I would advise you to seek a tax professional  familar with international taxing and treaty assertions.

Did I forget anything ?

Is there more I can do for you ?

pk

[jimtony]

Hi,

Very grateful with your answers. 

1: Correct.

2: Correct.

3: Yes. More because we was unsure how everything should be done. We looked at establishing an entity in the US, but realized the self-employed route is easier to do. It is a small company with only 6 employees (myself included). I filed for I-765 together with the I-485 after I got married. Due to covid-19 there is a huge backlog. Ended up getting the I-485 before my I-765, so yes, I did follow path b. But at the same time not authorized to work. 

4: I believe a lot of people has been in the same situation as me. During 2021 all income I earned was only spent in Norway (mortgage, HOA, insurance, electricity etc). My spouse provided for everything in the US. Therefore I’m not sure if taxes made of the income during this period should be paid to USA. But it makes sense to pay it to the US since the work is performed from USA even though none of the money is spent here. This comes to your last section where you advise me to seek a professional who are familiar with this type of situation. Do you have anyone you could recommend?

5: This is the tricky part. I would for sure need a professional who could look into this. I know my spouse filed jointly for 2021, so I believe I have to do the same. At the same time I’m not sure if I qualify to file jointly since I worked physically in Norway (January to end of May 2021), and Norway would have their right of claiming tax of this income.

But a professional might be able to sort this out for me. At least all your answers and input helps a lot to point me to the correct direction.

6: Great 🙂

7: Got it. Don’t think it should be a problem to get it back. I will at least file the form 8802 for that period in 2021, and then continue for the full years after 2021.

8: I have put my SSN in all financial institutions (related to FACTA) in Norway, so I think this is reported automatically. Not sure is FACTA and FBAR is the same thing. Will look more into that.

9: I did apply for the work permit, but as mentioned earlier, a huge backlog ended up that it never got issued. Totally agree with you, more likely that it would fail to prove that I had closer connection to Norway. 

I’m so thankful for all the answers and guidelines. 

It’s been a pain to try to do things right. Several calls to IRS, Skatteetaten (Norwegian tax administration), Social security etc). The only answer I have got so far from the authorities is that my health insurance coverage in Norway became invalid from the day my green card was issued. I could apply to be a voluntary member, but they said it was more or less likely to fail since I have chosen to work from/in USA and not being sent out as a temporarily employee etc.

Is there any professional you would recommend?

Regards,

Jim

[pk]

@jimtony  thank you for taking time to respond. I think I understand a little bit more of the situation and all the efforts you have gone through to play by the rules.

I do not know any tax professional in FL . However, IRS site does provide a list of tax professionals  ( Attorneys, CPAs, EAs, and registered  ones ) by zip code.  -->https://irs.treasury.gov/rpo/rpo.jsf.

A comment in your repose that perplexed me  -- you said your spouse filed "joint" for 2021 and therefore you probably have to do the same.  Your spouse filed joint with whom ?  One can jointly file only with a spouse and for the whole tax year -- if you are married by  the last day of the tax year ( US uses  calendar year generally), you are considered married for the whole year.  And joint means recognizing income of both the spouses.

If you need more help, you are welcome to add to this thread  and I will circle back.

pk

[jimtony]

@pk. I’m the one who has to thank you.

I will check on IRS’ website.

Yes he did, and I realize we have to change that one since my income was listed to 0.

What I’m not sure of when it comes to my tax return is where to put which number related to my income. If all of it should be put in under foreign income, or if I should put it in as self-employed, or if I need to split it up on each post since 5 months of the work was done when being physically in Norway (January 1 through May 29).

I believe work that has been done while residing in Norway should be taxed to Norway.

And also if I should tax everything to USA from June 2021 or if it starts after the SPT which would be December 2021?

We got married in June 2021, so I believe I qualify to file jointly for the whole year.

Again, thank you very much 🙂

Regards,

Jim

[pk]

@jimtony  since you entered the country on 5/29/2021,  5/30/2021 ( the first full day in the USA ) is when your presence counting starts.  Thus any earnings before that day is not subject to US taxes ( you did not exist for US tax purposes ). So you became resident for tax purposes  sometime in Nov 2021 ( exact date depends on when you reached 183 days present in the USA) implying you were technically a dual status person.  Thus till the date of passing SPT ( 183 days  present in the USA ) only US sourced income is recognized for US tax purposes.  IF you have had no other income  then your off-site/remote work  for your Norwegian entity for the  year 2021,  then all earnings   ( i.e. before 5/30/2021 ) are not recognized for US purposes. Thereafter till passing the SPT ( Nov/XX/2021 ) only US sourced income ( i.e. earned  while working/executing  in the USA ) is taxable to US. From the SPT date ( i.e. passing SPT) onward your world income ( foreign and domestic ) are taxed by the USA. 

Thus in your particular case ( based on all that you have posted so far ) for a joint filing, your income before entering US, is not subject to USA taxes and are not recognized on your return. Thereafter you recognize your income  ( from remote working ) as US sourced  and taxable to US.

Note that you do not file a new return for the joint one filed for 2021 -- you amend the return updating the income sourced to US during the period 05/30/2021  through 12/31/2021.   If Norway also taxed you on this portion of income, then you claim foreign tax credit for this  ( you essentially have to resource this for purposes of form 1116)  or plead  with Norway to return the taxes paid  because you were not a resident there  ( form 8802 for IRS certificate  6601 ) as discussed earlier.  For this amended return you may be able to do it yourself, IMHO

Also note that because you were a remote worker, you enter yourself as a self-employed -- use Schedule-C. This will allow you to recognize the income and also deduct any associated expenses --related to this income stream ( see IRS docs on self-employment income ) --->  https://www.irs.gov/businesses/small-businesses-self-employed/self-employed-individuals-tax-center

This will also mean that you have to pay FICA tax equivalent ( called SECA at 15.3 % of net income ).

Does this make sense ?  If you need more help on this , you are welcome to add to this post or PM me  --- but no personally identifiable information please  ( even in PM -- PM just allows a fuller discussion that may be specific to your case and of not general interest )

pk