Legal Question in Tax Law in California

Re: Foreign Payments

Thanks for your posting. The IRS has some rules that apply in your situation. For one, you generally must report your foreign income in terms of U.S. dollars and you must pay taxes due on it in U.S. dollars.

There is also a foreign income exemption. If you live and work abroad, you may qualify to exclude all or part of your foreign earnings from United States tax. Foreign earned income is defined as pay, such as wages, salaries, and professional fees, for personal services performed in a foreign country during the time your tax home is in a foreign country and you meet either a bona fide residence test or a physical presence test. The place where you perform the services is what defines your income as foreign, not where or how you are paid. For instance, income received for personal services performed in France is foreign earned income, even if the employer is American and your pay is deposited in an American bank. Wages paid by the U.S. government to its employees are not eligible for the exclusion. However, amounts paid to independent contractors by the U.S. government may be eligible for the exclusion.

You should check out the forms and circulars on the irs' website, www.irs.gov, or email or call me at 714-568-1560 for more information.