us-tax-on-worldwide-incomeA few years ago, one of the clients for my business was a company in Taiwan. My pay came from this Taiwanese company, and was considered foreign income. I had to pay taxes in Taiwan, and since the income amounted to less than $97,600, I didn’t need to pay US taxes on the income as well. I even received a tax deduction for the tax already paid to the Taiwanese government.

This situation added a little bit of a headache to my tax preparation, but it wasn’t too bad. In fact, it was downright reasonable and easy compared to what some expat workers face when they file their US tax returns. If you have a job that takes you around the world, such as being an airline pilot or working on a cruise ship, you might find yourself stuck with a very complex tax return that requires very specific records.

How Much Time Do You Spend Outside the United States?

US citizens living abroad are still required to file their tax returns and pay taxes on foreign income in excess of $97,600. For many expats, this process is as straightforward as our tax code allows it to be. You report your income, fill out the forms, and move on. (Or you have a tax professional do it.)

For some workers, though, it’s not so easy. If you are a worker that sometimes finds yourself in international territory, or you spend some of the time in the United States, as part of your job, things are a little dicier. This is because time spent in the United States and in (or over) international waters isn’t considered foreign income.

So, if you work as a waiter on a cruise ship, the time you are in a US port as part of your job isn’t considered foreign income. And, while you are in international waters, you aren’t earning foreign income. However, once the cruise ship enters foreign waters, and docks in foreign locations, you are earning foreign income. It’s up to you to log the amount of time you spend in different locations so that you can figure out what percentage of your income is truly considered foreign.

The same is true for airline pilots or flight attendants. If you are based in London, England, but you fly to the United States, all the time you flying over foreign land and foreign water is considered time spent working for foreign income. Once you get over international waters, and during the time you are flying over United States land and water, the income is considered domestic. You are supposed to keep records so that you can divvy up your income accordingly.

It’s important to understand this reality, and look for a tax professional who understands this. If you are an expat based in another country, but your work brings you to the United States sometimes, you need to be aware of this reality, keep good records, and choose a tax professional that is well-versed in issues related to foreign income.