What are the rules for taxing employees who work abroad?
In Tennessee, the rules for taxing employees who work abroad are based on the source of their income. All income that is earned abroad is subject to Federal income tax in the same way as income earned in the United States. The foreign earned income exclusion applies to employees who are working abroad and are foreign citizens living in certain foreign countries for at least 330 full days in a 12-month period. In addition, if the employee pays taxes in a foreign country, they may be eligible to receive a credit for any taxes paid, as long as the foreign country has a tax treaty with the United States. This is known as the Foreign Tax Credit. The employee would need to provide proof of the taxes paid to the foreign country to receive this credit. If the employee is living in a foreign country, but not working there, their income is still subject to US tax. However, the income earned may be exempt from US taxation under certain conditions, such as if the taxpayer qualifies for the Foreign Earned Income Exclusion or if the income is from a foreign source. This is known as the Foreign Tax Credit. Overall, taxes for employees who work abroad in Tennessee are based on the source of their income and they may be able to claim tax incentives such as credits and exclusions. It is important to note that these rules may be subject to change so it is recommended that employees consult with a tax professional to understand their obligations and any potential tax incentives.
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