I am particularly interested in the case that the USA citizen is working in Kazakhstan for a Kazakhstan employer. Thanks!
What liability does a USA citizen who works outside of the USA for a non-USA employer have to pay Social Security and MediCare taxes since no USA taxes are withheld by the non-USA employer?
Answers
US Citizens, regardless of where they work are subject to Income
I have to disagree -- as with many things, it depends, but if the US person is working for a foreign company, FICA & Medicare are generally not applicable. (http://www.irs.gov/Individuals/International-Taxpayers/Persons-Employed-by-a-Foreign-Employer).
If working abroad for a U.S. employer, yes, FICA & Medicare are withheld. There is a difference between being employed by US firm XYZ, Inc. and the foreign entity of a US-headquartered firm, XYZ Foreigncountry Pte Ltd. (Note: firms can choose to have their foreign affiliates withhold FICA from US citizens.)
Totalization agreements muddy the picture some, but from a US citizen's perspective I think they are more to prevent you from having to contribute to foreign countries' social security programs if you work abroad, but are not likely to ever benefit from them. There is no US-Kazakhstan totalization agreement anyway.
Wayne is correct on federal income tax. It's harder to generalize about states, but foreign-earned income is likely excluded if you are non-resident for the whole year, with complexities if you're a part-year resident.
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Andrea, my answer was for the most part quick, as the Gentleman needs a definitive ruling from his tax expert and/or IRS/State Revenue Agency.
From a Fed Tax standpoint, he'll have to pay W/H, FICA & Med. Whether he needs to contribute the employer's share he'll have to check (I think so, but I am no expert here).
If he pays tax in the foreign country (he should give them a IRS 6166 which may avoid this); then he will get a credit on his US taxes (with declining value as he contributes more and more to foreign income (check with your tax expert)).
States/Localities, I agree 100%, each one of the 50 like to tweak their laws just a little differently.
He should definitely talk to a tax
From KPMG: "Based on the definition of American employer above, U.S. employees performing services outside of the U.S. for a non-U.S. employer are exempt from the FICA." Source: http://www.us.kpmg.com/microsite/tax/ies/tea/autumn2008/article3.asp
I worked abroad for a few years for local entities, with taxes done by Big 4 tax folks (courtesy of my husband's US company), and my SSA statement shows a gap (zero) for those years.
Note that if an expat *wants* to continue paying into SSA in order to have more years of income credits, it can be done by paying self employment tax, both employee and employer.
From irs Pub 54 (2012)
"Exemption From Social Security and Medicare Taxes
The United States may reach agreements with foreign countries to eliminate dual coverage and dual contributions (taxes) to social security systems for the same work. See Bilateral Social Security (Totalization) Agreements in chapter 2 under Social Security and Medicare Taxes. As a general rule, self-employed persons who are subject to dual taxation will only be covered by the social security system of the country where they reside. For more information on how any specific agreement affects self-employed per- sons, contact the United States Social Security Administration, as discussed under Bilateral Social Security (Totalization) Agreements in chapter 2.
If your self-employment earnings should be exempt from foreign social security tax and sub- ject only to U.S. self-employment tax, you should request a certificate of coverage from the U.S. Social Security Administration, Office of International Programs. The certificate will establish your exemption from the foreign social security tax."
At this point I'd talk to a Tax Lawyer to make sure.
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