Regardless of your location, we provide online tax preparation and planning services for U.S. Military Contractors.

Military contractors working abroad have the same rules as civilian US Expats. They are required to report all of their worldwide income on their US expat tax return. They are eligible for an automatic extension of time to file until June 15th. They may qualify for foreign earned income from US taxation if they meet the eligibility criteria.There are strict distinctions between military contractors and U.S. military personnel. We have outlined the most important considerations for expat military contractors.

FOREIGN EARNED INCOME EXCLUSION

If military contractors are eligible for the Foreign Earned Income Exclusion (FEIE) they are allowed to exclude foreign earned income (up to $104,100 for the tax year 2018) but in order to claim that they must have a “tax home” in a foreign country and meet mention two tests:

  • Physical Presence Test
  • Bona Fide Residence Test

STATUS OF FORCES AGREEMENTS (SOFA)

If Status of Forces Agreements exists between some host and foreign countries that provide military support for those stationed in the host country. Sometimes these agreements provide US citizens with exclusion from taxation in the host countries, but it says that you are “visiting,”. In that case, IRS interoperate that you do not have a “tax home” in the foreign country. Consequently, you cannot qualify for both an exclusion from host country taxation and the FEIE on your US expat taxes.

SELF EMPLOYED CONTRACTOR VERSUS EMPLOYEE

If you are self-employed (an independent contractor) or an employee contractor with the military, you will still be eligible to qualify for the FEIE. Self-employed contractors, you will receive a Form 1099 at the end of the year, and they will be subject to self-employment tax. Self-employment tax is not reduced by the FEIE but you can deduct business expenses from the 1099 income.

DUE DATE OF TAX RETURN

If you are working overseas on April 15th, you will be eligible for an automatic two-month extension to file your tax return. If paid at least 90% of your tax liability, you will not be charged any penalties. The additional four-month extension can be requested (for a total of six months from the April deadline) by filing Form 4868. This will extend your tax filing date to Oct. 15th.

Additional time to meet the Physical Presence Test, you can request a special extension via Form 2350. This request is not automatic and must be approved by the IRS.

COMBAT/WAR ZONE EXCLUSION

Military contractors are not eligible to exclude income earned in a combat zone from their US expat taxes.

STATE FILING REQUIREMENTS

When you work abroad as a military contractor, you might continue to have a state filing requirement depending on your individual state’s rules and whether you have retained ties to that state. If you left the US for an assignment of longer than one year and did not have any source income to a US state during the tax year, you may not have a filing requirement. However, if you have retained a home, family, or driver’s license in the state, you may continue to have filing requirements.