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foreign employees 401(k) participation?


TMcfall
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We have a company that is a US based company with the majority of their employees residents of the US. However, they have a number of employees that are residents of the Philippines. Are the employees located in the Philippines able to participate in the 401(k) plan?

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What does your retirement plan’s governing document provide?  As many BenefitsLink mavens say, RTFD—Read The Fabulous Document.

A plan might exclude “employees who are nonresident aliens and who receive no earned income . . . from the employer which constitutes income from sources within the United States[.]”  See Internal Revenue Code of 1986 (26 U.S.C.) § 410(b)(3)(C).

If your plan provides such an exclusion, the plan’s administrator might consider—for each otherwise eligible employee—the answers to three questions:

Is this employee a U.S. citizen?  (One who resides in the Republic of the Philippines might be a U.S. citizen.)

Is this alien a U.S. resident?  (Even one who resides elsewhere might also be a U.S. resident.)

Is this non-resident alien’s wages from the employer U.S.-source income?

The United States’ Federal tax law, some of which refers to U.S. nationality and immigration law, provides plenty of details on these and related questions.

  • Haha 1

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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7 minutes ago, Peter Gulia said:

What does your retirement plan’s governing document provide?  As many BenefitsLink mavens say, RTFD—Read The Fabulous Document.

A plan might exclude “employees who are nonresident aliens and who receive no earned income . . . from the employer which constitutes income from sources within the United States[.]”  See Internal Revenue Code of 1986 (26 U.S.C.) § 410(b)(3)(C).

If your plan provides such an exclusion, the plan’s administrator might consider—for each otherwise eligible employee—the answers to three questions:

Is this employee a U.S. citizen?  (One who resides in the Republic of the Philippines might be a U.S. citizen.)

Is this alien a U.S. resident?  (Even one who resides elsewhere might also be a U.S. resident.)

Is this non-resident alien’s wages from the employer U.S.-source income?

The United States’ Federal tax law, some of which refers to U.S. nationality and immigration law, provides plenty of details on these and related questions.

@Peter Gulia The employee is NOT a US citizen nor are they a US Resident. The employee was hired to work remotely in the Philippines. My assumption is that IF the employee is paying social security tax then they would in fact be able to participate. However, at the moment I am unsure if the wages from the employer are US -source income.

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A curious statement "IF the employee is paying social security tax then they would in fact be able to participate".

Excuse my ignorance but how can they pay social security tax if the income is not US based? Not an expert, just thinking out loud.

Peter asked the right questions.

I had employees living oversees and being paid from US company (they were not US citizens) and they had to be included.

May be not the same situation as yours?

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