Overseas 1099 Income

[kccini9]

I'm going to call the IRS on this one, but figured I'd ask here too.

DH is in the military and we are stationed overseas. I currently volunteer at a non-profit on base. The 3 local employees of the non-profit are exempt from paying taxes because we are overseas. I don't know any more than that on them, but they are Americans, not locals. As a volunteer, I am reimbursed childcare expenses. I should be getting a 1099 for this amount. I have no problem claiming this money, but it made me wonder since their exempt from taxes. Is my reimbursement taxable?

[mwcpa]

generally, under the US tax law, US citizens are required to report all income from all sources, unless specifically exempt under the law.

generally, non US entities will not issue a 1099 form.

with that being said....

from IRS publication 503 (http://www.irs.gov/publications/p503/index.html)

"Dependent care benefits. If you received any dependent care benefits from your employer during the year, you may be able to exclude from your income all or part of them. You must complete Part III of Form 2441 before you can figure the amount of your credit. See Dependent Care Benefits under How To Figure the Credit, later. "

"Dependent care benefits. Dependent care benefits include: Amounts your employer paid directly to either you or your care provider for the care of your qualifying person while you work,"

"Exclusion or deduction. If your employer provides dependent care benefits under a qualified plan, you may be able to exclude these benefits from your income. Your employer can tell you whether your benefit plan qualifies. To claim the exclusion, you must complete Part III of Form 2441"

On form 2441... (http://www.irs.gov/instructions/i2441/ar01.html#d0e120)
"U.S. citizens and resident aliens living abroad. If you are living abroad, your care provider may not have, and may not be required to get, a U.S. taxpayer identification number (for example, an SSN or EIN). If so, enter “LAFCP” (Living Abroad Foreign Care Provider) in the space for the care provider's taxpayer identification number. "

So.... you would report the income from self employment, I assume you are truly self employed based on your note (you may though be an employee under local law, please check). Report the income collected on form schedule C.

You would then complete form 2441, claiming a credit for the amount you paid for dependent care.

You would complete form SE related to the net profit from self employment.

I assume you were not able to exclude the income on form 2555 (or 2555-EZ)

[kccini9]

Thank you!