What is a 673 Form?
If US employers want to claim an exemption from the US income tax withholding on wages they earn as they live in a foreign country, they will file Form 673. This form will help you to exclude a part of your income from being subjected to the income tax withholdings if you continue to make money from a US employer as you live overseas.
If you believe you can earn the overseas income and housing exclusions as an overseas US employee, you must fill in form 673. When you are hired, you need to complete this form, and for each year, those conditions will apply to you. Then it will be your employer’s responsibility to keep your form completed and up-to-date in your personnel file. They will either stop withholding taxes from your paychecks or adjust their withholdings to show the new information.
How To Fill Form 673 ?
For filling this form, you have the introduction section in the first part. There you have to provide your 1st name, middle, and last names. Also, you need to provide your social security number. It is the same as the number of other IRS forms.
- In this part, you should give proof that you will be living in a foreign country in one of the two different ways. You can qualify based on a bona fide residence test or a physical presence test. So you must live in the foreign country for a full calendar year in a bona fide residence test. For example, if Form 673 is filled for 2022, it will be compulsory for you to be a resident of a different country from January 1, 2022, to December 31, 2022.
- The physical test is the more flexible and more appropriate option for many taxpayers. So you will be required to spend 330 of 365 days in any 12-month time abroad.
In this section, you should provide 8 items.
- Rent : So the yearly rent you pay for your residence must be provided by you.
- Utilities : this includes the bills like electricity, water, gas, and other essential bills. In these bills, telephone charges are not included.
- Real and personal property insurance : The details of expenses you pay for your honest and personal property insurance.
- Nonrefundable Fee for securing a leasehold : You may have to pay the application fee. This Fee is paid to secure the nonrefundable lease. This potentially refundable security deposit is not added.
- Household Repairs : Any expenses you had to make a household repair or maintain the house regularly included.
- Estimated base housing amount for qualifying period : Evaluate the estimated base housing amount.
- Estimated Housing cost amount.
- Estimated Qualified housing expenses.
In part 3, you have to assert formally that :
- The estimated housing cost you calculated in part II and the amount you have reported on any other statements presented with other employers is not more than your total estimated housing cost amount.
- If you become disqualified from these exclusions, you must inform your employer quickly and present them with the necessary changes.
Benefits Of Form 673
If you fill the form 673, you will be qualified for the tax exemption for a year. You then don’t have to pay double taxes.
Consequences of not filling Form 673
You don’t break any law if you don’t file Form 673. While working abroad, if you don’t file form 673, you will not qualify for a tax exemption for a year. The most damaging result of not submitting the form is paying double taxes.
For someone who doesn’t wholly form 673, your hirer will withhold part of your pay for taxes. After submitting the form, if your tax withholding does not change, it can be because your employer still believes you don’t qualify for the exemption. To understand the issue, call your employer and have your CPA or accountant contact them on your behalf to check the issue.
If you filled the form and you are not eligible, you will be paying the total amount of federal and state income taxes that are needed at the end of the tax year. Filing out one tax return is not easy, and things can become messy as you start throwing in all the different forms needed to be completed as you work abroad.