Which Country I Pay Taxes To?

[Ahmed4]

Hello All,

I am a Pakistani Citizen and currently a US Resident Alien (met the substantial presence test for 2021). Soon I am leaving the US and going back to Pakistan. I will be working remotely from Pakistan for a US-based company. 

My question is, should I pay taxes to the US, or should I pay taxes to Pakistan on my US-sourced income for the remaining of the tax year (August-December)? 

Second, if I pay taxes to the US, should my US employer withhold taxes from my income?

[Opus 17]

If you are a US resident for 2021, but for no part of 2022, then your US residency ends on the last day in 2021 that you are physically present in the US. 

Look under "last year of residency" in publication 519.

https://www.irs.gov/publications/p519

That makes you a dual-status alien for 2021.  You file as a resident for your residency period and pay tax on all your world-wide income, and you file as a non-resident for the period of time after you leave, and only pay tax on US-source income.  Your income is NOT US-source income if you are physically living and working overseas when the money is paid, even if the employer is based in the US.  

Based on your question, and as long as you will not be a US resident alien in 2022, then your income after you return to Pakistan will not be subject to US taxation.  I can't tell you about Pakistani taxes.

If you are a resident of the US at any time in 2022, you will be considered a full-year resident for 2021 and you will owe US income tax on all your world-wide income, including income paid to you while living and working in Pakistan.  I can't tell you about Pakistani taxes, but if you do pay taxes in Pakistan on the same income, you can claim an offsetting deduction or credit on your US tax return. 

[Ahmed4]

Thank you for this detailed answer.

One last follow-up question: once I reach Pakistan, should I tell my US employer that they do NOT need to withhold any taxes on my income as this is not a US-source income for me anymore? 

[Opus 17]

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@Ahmed4 wrote:

Thank you for this detailed answer.

One last follow-up question: once I reach Pakistan, should I tell my US employer that they do NOT need to withhold any taxes on my income as this is not a US-source income for me anymore? 

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You can do that.  If not, you would still get the difference as a tax refund, but it would be better not to have the withholding in the first place.

If you expect a US tax refund in 2022, you will need to keep a US bank account open in your name, or else the IRS will mail you a US $ check that you will have to find some way to cash or deposit.  There should be ways of establishing an online bank account that can receive US funds and then transfer the funds to your local bank. You will also need a credit card with a US address to pay the Turbotax fees, if you wanted to use Turbotax.