Employees working for a foreign government or an international organization are subject to some special tax rules. The tax treatment of their compensation can vary according to whether the employee is a U.S. citizen, a dual citizen, a green cardholder (lawful permanent resident), or a foreign citizen without a green card.
If you are a U.S. citizen working in the United States for a foreign government or international organization, you must report this compensation as wages on Form 1040 and pay self-employment tax on the compensation under the Self-Employment Contributions Act (SECA). Self-employment tax is computed on Schedule SE, Self-Employment Tax, and is also reported on Form 1040. Although you are subject to self-employment tax on this employee compensation, you are not "self-employed" for any other federal tax purposes. You may not claim deductions for expenses on Schedule C and are not qualified to establish a Simplified Employee Pension (SEP) Plan and there is no allowable deduction for contributions to any such plan. Rules of contributing to SEP/IRA plans are explained in IRS Publication 560, Retirement Plans for Small Business, and Revenue Ruling 73-384 for additional information.
If you are a U.S. citizen working outside of the United States for a foreign government or international organization, you must report the foreign source compensation as wages on Form 1040 but are not subject to self-employment tax on this compensation.
Beginning in 2018, you may no longer claim deductions for unreimbursed employee business expenses arising from your employment. This is a change from 2017 and prior law when such deductions were allowed to be claimed on Schedule A, Itemized Deductions, on the Form 1040. These expenses were referred to as "miscellaneous itemized deductions subject to the 2 percent of adjusted gross income limitation." These employee business expense deductions are not allowed in 2018. See the 2018 instructions for the Form 1040, Schedule A for additional details.
Generally, if you expect to have tax due at the end of the year you must make estimated tax payments because your compensation is not subject to withholding. Estimated payments are made using Form 1040ES, Estimated Tax for Individuals. Forms are due on the following four dates: April 15th, June 15th, September 15th, and January 15th of the following year. There is a penalty for failure to make required estimated tax payments on a timely basis.
Generally, the rules are the same as for U.S. Citizens.
Green Card Holders (Lawful Permanent Resident)
If you are a green card holder working for a foreign government or international organization, you generally must report your earnings as wages but are not subject to self-employment taxes on those earnings and may not voluntarily pay self-employment tax on those earnings.
If you expect to have income tax due at the end of the year, you must make estimated tax payments because your compensation is not subject to withholding. Estimated payments are made using Form 1040ES, Estimated Tax for Individuals. Forms are due on the following four dates: April 15th, June 15th, September 15th, and January 15th of the following year. There is a penalty for failure to make estimated tax payments on a timely basis.
Foreign Citizens without Green Cards
If you are a foreign citizen who does not have a green card (i.e., a nonimmigrant) working for a foreign government or international organization in the United States, you are not subject to self-employment tax and may also be exempt from U.S. income tax on your foreign government or international organization compensation under the provisions of an international agreement (if one exists) such as a tax treaty, a consular agreement or the agreement establishing the international organization; or by meeting the requirements of U.S. tax law. You should check with your tax preparer and/or foreign government or international organization employer to find out if you are eligible for any tax exemptions.
Note: The tax exemptions discussed above do not apply to any other U.S. source income you may earn. If you are receiving other U.S. source income such as interest, dividends, rents, or royalties, you generally must report this income on Form 1040-NR, U.S. Nonresident Alien Income Tax Return. Estimated tax payments may be required depending on the amount received. However, tax treaty exemptions may apply to this income.
Note: The term “international organization” means a public international organization entitled to enjoy privileges, exemptions, and immunities as an international organization under the International Organizations Immunities Act (22 U.S.C. 288-288f).