US Expat Tax Considerations for Military Contractors


This was originally published March 20, 2013 and was updated June 21, 2014 with information relevant to the 2013 and 2014 tax years. 

In this brief video, Greenback Expat Tax Services President and CEO David McKeegan points out some of the key information military contractors will need to know as they determine the best way to file their US expat taxes. Watch the video below or continue reading to learn more about what steps military contractors should take regarding US tax filings.

VIDEO TRANSCRIPT

I’m David McKeegan from Greenback Expat Tax Services and I wanted to speak to you today about military contractors. The first thing I want to do is explain that there is a difference between a military employee, an active military service member and a military contractor. A military contractor is someone who is either self-employed as an independent contractor or they’re under contract with a business who has a contract with the military.

If you’re an independent contractor or you’re employed by a company under contract with the military, then you will be eligible for the Foreign Income Earned Exclusion and the Foreign Tax Credit. That’s going to allow you to exclude $97,600 of your income for the 2013 tax year, ($99,200 for 2014 tax year), or offset any taxes you pay locally. There is more information on our website about the Physical Presence test and the Bona Fide Resident test. We will have more videos coming out about those.

There are a few things you want to know if you’re a military contractor. Keep an eye out for the SOFA agreement, which is the status of forces agreement, this could say, depending on which country you’re in, that as a military contractor you are visiting so you do not have a tax home in that foreign country. If that’s the case, you should speak to an expert about whether you can establish a tax home somewhere else or find out if you are going to have to pay US taxes on all of your earnings.

As you probably guessed, you do need to establish a tax home in order to qualify for the foreign earned income exclusion or the foreign tax credit. The tax home needs to be a primary place of business in a foreign country. And you have to intend to stay there for at least one year, which is also a requirement of the Physical Presence Test. You have to be working inside a foreign country for a minimum of 330 days in a 365-day period.

If you are a military contract working overseas, you don’t have to have your taxes filed by April 15th, but you do have to have any monies you owe in tax paid by April 15th in order to avoid any interest or penalties on that money. If you’re a contractor or an expat, your filing date is June 15th, 2015.

If you need more time, you can file an extension. You can file the Form 4868, which will give you an extension until Oct. 15th or if you need more time to qualify for the Physical Presence Test you can file the Form 2350. That will give you more time to meet the Physical Presence Test rules.

A couple things that you should note. As a contractor, you’re probably not going to qualify under the Bona Fide Residence Test because contracts have expiry dates and if you have an expiry date the IRS assumes you’ll be returning to the United States so you’re not a Bona Fide Resident. Also, if you’re an active duty personnel and you’re overseas in a combat zone you may be able to avoid paying income tax on the income you earned while in that combat zone. We have more information about that on our blog as well.

If you have any questions, please feel free to get in touch.

Need Help with Your US Expat Tax Return?

For more in depth information, you can refer to another blog post on military contractors, as well. If you have questions about whether you need to file taxes or if you would like help completing your US expat tax return, please contact us.

Copyright Greenback Expat Tax Services March 22, 2013

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