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Foreign Earned Income Exclusion and Simple IRA


Guest lmccormick

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Guest lmccormick

I posted this originally in another area in error. I hope someone can help me here. I am an employer who will have several U.S. folks providing services in IRAQ. They will be able to exclude up to 80K as foreign earned income for federal filing purposes.

We have a SIMPLE-IRA plan. How in the heck will this work? For instance let's say the total annual compensation for an employee is: 120K. He will be excluding 80K (except this is only potentially depending on how long he's in the country etc...). If he decides to max out his contribution (10,000 per year) and we are matching at 3% is it 3% of the entire annual compensation or 3% of the amount which exceeds 80K?

If anyone can offer any guidance etc...that would be great.

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For a SIMPLE IRA, compensation means wages, etc, under Code Section 3401(a)(3) and other compensation subject to federal income tax withholding. Generally, box 1 of Form W-2. However, the payments are exempt (from withholding requirements) if at time of payment (1) it is reasonable to believe employee is entitled to exclusion from income under Code Section 911 or (2) the employer is required by law of the foreign country to withhold income tax on such payment.

See Pub 15, page 31.

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