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Hi Jackie,

The IRS rep at the US embassy in Tokyo is wonderful (tel: o3-3224-5466). She's patient with my yearly phone calls as I try to figure out the changing tax process. I've had self-employment income in the US (royalties) plus earned income in Japan, so my case is probably a bit more complicated than average, but as far as I understand.....

Japan has a tax treaty with the US, so that its citizens aren't taxed double. The first $76K of your son's income will be exempt from taxes in the US, as long as he files annual returns. He'll just need to file a couple of extra forms--probably claiming the foreign earned income exclusion will work best for him, but there are a couple of other routes to go.

Overseas, our filing deadline is June 15th, with an easy extension to August, if needed. Because the income exclusion is based on physical presence (or setting up a tax home) in the foreign country for one year, he might want to try and put off filing until he meets this criteria. Any earned income for the tax year in the US is still taxed, obviously.

It's only the first year that can be a bit complicated. After that, it's just paperwork. Japanese taxes are pretty cut and dry--probably his company will take care of them. Tax rates are also a bit lower, overall.

I don't believe he'll have to pay State taxes as he won't have a tax home there anymore. Just federal. He also won't be paying FICA out of his Japanese income. The down side to this is that he also won't be getting any credits toward his own Social Security pension while he works overseas, since that is also based on US earned income. He will probably be paying into the Japanese National pension plan (like SS) here, and if he's not planning to retire here can probably get that money when he finishes his contract. He should check with his company on that one.

Hope this helps!
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