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David,
We are an accounting firm in Ohio in the United States. We have a client that is still officially a resident of the United States (his home is here and his wife lives here). During 2003, he worked for a Canadian company but was stationed in Mexico for the majority of the year. He never actually performed any work in Canada. He comes home for a week every six weeks.
He earned about $25,000 during the year. No tax forms were issued to him and no taxes were withheld. Would we need to pay taxes to Canada or Mexico? If so, we are assuming we could receive a credit for the foreign taxes paid. If not, would the income reported in the United States be subject to self-employment tax? Any help you can provide would be helpful as we are not sure where to even start with this -
Thank you,
SXXXXXXXXXXXXXXXXX
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david ingram replies:
Glad to help:
I presume he was working in Mexico with an FM visa.
Your client is taxable first in Mexico on his earnings in Mexico. Then you convert his earnings to US dollars and put them on his joint 1040. Any tax paid to Mexico becomes a foreign tax credit on his 1040 and is claimed on form 1116.
There is no tax liability to Canada although from your description, it appears that the Canadian Company might have deducted Canadian Taxes. If so, he would file a Canadian T1 and claim all the taxes back. You would likely do well to retain us at this point.
This is our usual type of return and you could spend 40 hours trying to work through the forms.
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