Hello, I was searching for some guidance on tax implications. I am a US citizen living in Japan as a non-permenant resident <5 years. I recently have started working part time from small business employee in USA and recieved my first paycheck. I am a W-2 employee and state taxes + social security are witheld from the paycheck, but not federal tax because it is under the threshold. <1000 usd/month. I would appreciate any guidance about how I should file taxes here in Japan and what I should anticipate. Also, I would like to protect my employer (who is family) as they may not be aware of tax implications they may have to pay. So I would like to relay them any prudent information. Thank you.
by AdHoliday7721
2 comments
Don’t be a W-2 employee. You are exposing your employer to Japanese labor and taxation laws. Work as independent contractor and no withholdings in US.
>how I should file taxes here in Japan
It sounds like you are earning Japan-source employment income. (The sourcing of employment income for tax purposes is based on the location of the employee.) In that case, you would file an income tax return in Japan after the year has ended and pay your Japanese income tax liability at that time. You will receive a bill for the residence tax on your income from your municipality the following June.
>state taxes + social security are witheld
I doubt that state taxes are required to be withheld from employment income paid to an employee working overseas. The business may need to pay state taxes as a result of your employment, but you should not personally have any state tax liability (since you are not a resident of the relevant state and you are not performing work in that state).
If you prefer not to have social security withheld, you can obtain a certificate of coverage (see [here](https://www.nenkin.go.jp/service/shaho-kyotei/shikumi/shinseisho/usa/usa1.html#:~:text=Application%20for%20Certificate%20of%20Coverageof%20National%20Pension%20and%20National%20Health%20Insurance%20under%20the%20Japan%2DU.S.%20Social%20Security%20Agreement)) from the Japanese Pension Service and provide that certificate to your employer. With that certificate, your employer can stop withholding social security.
>not federal tax because it is under the threshold
If you exceed the threshold you can submit [Form 673](https://www.irs.gov/forms-pubs/about-form-673) to your employer to prevent them from withholding federal income tax.
When you file your US tax return, you will use the FEIE and/or claim a foreign tax credit to avoid paying US income tax on the employment income. So ultimately your only actual income tax liability will be to Japan.