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Www taxcut com 4. Www taxcut com   Special Situations Table of Contents Condominiums CooperativesDepreciation Property Changed to Rental UseBasis of Property Changed to Rental Use Figuring the Depreciation Deduction Renting Part of Property Not Rented for ProfitPostponing decision. Www taxcut com Example—Property Changed to Rental Use This chapter discusses some rental real estate activities that are subject to additional rules. Www taxcut com Condominiums A condominium is most often a dwelling unit in a multi-unit building, but can also take other forms, such as a townhouse or garden apartment. Www taxcut com If you own a condominium, you also own a share of the common elements, such as land, lobbies, elevators, and service areas. Www taxcut com You and the other condominium owners may pay dues or assessments to a special corporation that is organized to take care of the common elements. Www taxcut com Special rules apply if you rent your condominium to others. Www taxcut com You can deduct as rental expenses all the expenses discussed in chapters 1 and 2. Www taxcut com In addition, you can deduct any dues or assessments paid for maintenance of the common elements. Www taxcut com You cannot deduct special assessments you pay to a condominium management corporation for improvements. Www taxcut com However, you may be able to recover your share of the cost of any improvement by taking depreciation. Www taxcut com Cooperatives If you live in a cooperative, you do not own your apartment. Www taxcut com Instead, a corporation owns the apartments and you are a tenant-stockholder in the cooperative housing corporation. Www taxcut com If you rent your apartment to others, you usually can deduct, as a rental expense, all the maintenance fees you pay to the cooperative housing corporation. Www taxcut com In addition to the maintenance fees paid to the cooperative housing corporation, you can deduct your direct payments for repairs, upkeep, and other rental expenses, including interest paid on a loan used to buy your stock in the corporation. Www taxcut com Depreciation You will be depreciating your stock in the corporation rather than the apartment itself. Www taxcut com Figure your depreciation deduction as follows. Www taxcut com Figure the depreciation for all the depreciable real property owned by the corporation. Www taxcut com (Depreciation methods are discussed in chapter 2 of this publication and Publication 946. Www taxcut com ) If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows. Www taxcut com Multiply your cost per share by the total number of outstanding shares. Www taxcut com Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock. Www taxcut com Subtract from the amount figured in (b) any mortgage debt that is not for the depreciable real property, such as the part for the land. Www taxcut com Subtract from the amount figured in (1) any depreciation for space owned by the corporation that can be rented but cannot be lived in by tenant-stockholders. Www taxcut com Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. Www taxcut com Multiply the result of (2) by the percentage you figured in (3). Www taxcut com This is your depreciation on the stock. Www taxcut com Your depreciation deduction for the year cannot be more than the part of your adjusted basis (defined in chapter 2) in the stock of the corporation that is allocable to your rental property. Www taxcut com Payments added to capital account. Www taxcut com   Payments earmarked for a capital asset or improvement, or otherwise charged to the corporation's capital account are added to the basis of your stock in the corporation. Www taxcut com For example, you cannot deduct a payment used to pave a community parking lot, install a new roof, or pay the principal of the corporation's mortgage. Www taxcut com   Treat as a capital cost the amount you were assessed for capital items. Www taxcut com This cannot be more than the amount by which your payments to the corporation exceeded your share of the corporation's mortgage interest and real estate taxes. Www taxcut com   Your share of interest and taxes is the amount the corporation elected to allocate to you, if it reasonably reflects those expenses for your apartment. Www taxcut com Otherwise, figure your share in the following manner. Www taxcut com Divide the number of your shares of stock by the total number of shares outstanding, including any shares held by the corporation. Www taxcut com Multiply the corporation's deductible interest by the number you figured in (1). Www taxcut com This is your share of the interest. Www taxcut com Multiply the corporation's deductible taxes by the number you figured in (1). Www taxcut com This is your share of the taxes. Www taxcut com Property Changed to Rental Use If you change your home or other property (or a part of it) to rental use at any time other than the beginning of your tax year, you must divide yearly expenses, such as taxes and insurance, between rental use and personal use. Www taxcut com You can deduct as rental expenses only the part of the expense that is for the part of the year the property was used or held for rental purposes. Www taxcut com You cannot deduct depreciation or insurance for the part of the year the property was held for personal use. Www taxcut com However, you can include the home mortgage interest, qualified mortgage insurance premiums, and real estate tax expenses for the part of the year the property was held for personal use as an itemized deduction on Schedule A (Form 1040). Www taxcut com Example. Www taxcut com Your tax year is the calendar year. Www taxcut com You moved from your home in May and started renting it out on June 1. Www taxcut com You can deduct as rental expenses seven-twelfths of your yearly expenses, such as taxes and insurance. Www taxcut com Starting with June, you can deduct as rental expenses the amounts you pay for items generally billed monthly, such as utilities. Www taxcut com When figuring depreciation, treat the property as placed in service on June 1. Www taxcut com Basis of Property Changed to Rental Use When you change property you held for personal use to rental use (for example, you rent your former home), the basis for depreciation will be the lesser of fair market value or adjusted basis on the date of conversion. Www taxcut com Fair market value. Www taxcut com   This is the price at which the property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts. Www taxcut com Sales of similar property, on or about the same date, may be helpful in figuring the fair market value of the property. Www taxcut com Figuring the basis. Www taxcut com   The basis for depreciation is the lesser of: The fair market value of the property on the date you changed it to rental use, or Your adjusted basis on the date of the change—that is, your original cost or other basis of the property, plus the cost of permanent additions or improvements since you acquired it, minus deductions for any casualty or theft losses claimed on earlier years' income tax returns and other decreases to basis. Www taxcut com For other increases and decreases to basis, see Adjusted Basis in chapter 2. Www taxcut com Example. Www taxcut com Several years ago you built your home for $140,000 on a lot that cost you $14,000. Www taxcut com Before changing the property to rental use this year, you added $28,000 of permanent improvements to the house and claimed a $3,500 casualty loss deduction for damage to the house. Www taxcut com Part of the improvements qualified for a $500 residential energy credit, which you claimed on your 2010 tax return. Www taxcut com Because land is not depreciable, you can only include the cost of the house when figuring the basis for depreciation. Www taxcut com The adjusted basis of the house at the time of the change in its use was $164,000 ($140,000 + $28,000 − $3,500 − $500). Www taxcut com On the date of the change in use, your property had a fair market value of $168,000, of which $21,000 was for the land and $147,000 was for the house. Www taxcut com The basis for depreciation on the house is the fair market value on the date of the change ($147,000), because it is less than your adjusted basis ($164,000). Www taxcut com Cooperatives If you change your cooperative apartment to rental use, figure your allowable depreciation as explained earlier. Www taxcut com (Depreciation methods are discussed in chapter 2 of this publication and Publication 946. Www taxcut com ) The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts. Www taxcut com The fair market value of the property on the date you change your apartment to rental use. Www taxcut com This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic. Www taxcut com The corporation's adjusted basis in the property on that date. Www taxcut com Do not subtract depreciation when figuring the corporation's adjusted basis. Www taxcut com If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1) under Depreciation (under Cooperatives, near the beginning of this chapter). Www taxcut com The fair market value of the property is considered to be the same as the corporation's adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic. Www taxcut com Figuring the Depreciation Deduction To figure the deduction, use the depreciation system in effect when you convert your residence to rental use. Www taxcut com Generally, that will be MACRS for any conversion after 1986. Www taxcut com Treat the property as placed in service on the conversion date. Www taxcut com Example. Www taxcut com Your converted residence (see previous example under Figuring the basis) was available for rent on August 1. Www taxcut com Using Table 2-2d (see chapter 2), the percentage for Year 1 beginning in August is 1. Www taxcut com 364% and the depreciation deduction for Year 1 is $2,005 ($147,000 × . Www taxcut com 01364). Www taxcut com Renting Part of Property If you rent part of your property, you must divide certain expenses between the part of the property used for rental purposes and the part of the property used for personal purposes, as though you actually had two separate pieces of property. Www taxcut com You can deduct the expenses related to the part of the property used for rental purposes, such as home mortgage interest, qualified mortgage insurance premiums, and real estate taxes, as rental expenses on Schedule E (Form 1040). Www taxcut com You can also deduct as rental expenses a portion of other expenses that normally are nondeductible personal expenses, such as expenses for electricity, or painting the outside of the house. Www taxcut com There is no change in the types of expenses deductible for the personal-use part of your property. Www taxcut com Generally, these expenses may be deducted only if you itemize your deductions on Schedule A (Form 1040). Www taxcut com You cannot deduct any part of the cost of the first phone line even if your tenants have unlimited use of it. Www taxcut com You do not have to divide the expenses that belong only to the rental part of your property. Www taxcut com For example, if you paint a room that you rent, or if you pay premiums for liability insurance in connection with renting a room in your home, your entire cost is a rental expense. Www taxcut com If you install a second phone line strictly for your tenant's use, all of the cost of the second line is deductible as a rental expense. Www taxcut com You can deduct depreciation on the part of the house used for rental purposes as well as on the furniture and equipment you use for rental purposes. Www taxcut com How to divide expenses. Www taxcut com   If an expense is for both rental use and personal use, such as mortgage interest or heat for the entire house, you must divide the expense between rental use and personal use. Www taxcut com You can use any reasonable method for dividing the expense. Www taxcut com It may be reasonable to divide the cost of some items (for example, water) based on the number of people using them. Www taxcut com The two most common methods for dividing an expense are (1) the number of rooms in your home, and (2) the square footage of your home. Www taxcut com Example. Www taxcut com You rent a room in your house. Www taxcut com The room is 12 × 15 feet, or 180 square feet. Www taxcut com Your entire house has 1,800 square feet of floor space. Www taxcut com You can deduct as a rental expense 10% of any expense that must be divided between rental use and personal use. Www taxcut com If your heating bill for the year for the entire house was $600, $60 ($600 × . Www taxcut com 10) is a rental expense. Www taxcut com The balance, $540, is a personal expense that you cannot deduct. Www taxcut com Duplex. Www taxcut com   A common situation is the duplex where you live in one unit and rent out the other. Www taxcut com Certain expenses apply to the entire property, such as mortgage interest and real estate taxes, and must be split to determine rental and personal expenses. Www taxcut com Example. Www taxcut com You own a duplex and live in one half, renting the other half. Www taxcut com Both units are approximately the same size. Www taxcut com Last year, you paid a total of $10,000 mortgage interest and $2,000 real estate taxes for the entire property. Www taxcut com You can deduct $5,000 mortgage interest and $1,000 real estate taxes on Schedule E (Form 1040), and if you itemize your deductions, you can deduct the other $5,000 mortgage interest and $1,000 real estate taxes on Schedule A (Form 1040). Www taxcut com Not Rented for Profit If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. Www taxcut com You cannot deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year. Www taxcut com Where to report. Www taxcut com   Report your not-for-profit rental income on Form 1040 or 1040NR, line 21. Www taxcut com For example, if you are filing Form 1040, you can include your mortgage interest and any qualified mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Schedule A (Form 1040) if you itemize your deductions. Www taxcut com   If you itemize your deductions, claim your other rental expenses, subject to the rules explained in chapter 1 of Publication 535, as miscellaneous itemized deductions on Schedule A (Form 1040), line 23, or Schedule A (Form 1040NR), line 9. Www taxcut com You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income. Www taxcut com Presumption of profit. Www taxcut com   If your rental income is more than your rental expenses for at least 3 years out of a period of 5 consecutive years, you are presumed to be renting your property to make a profit. Www taxcut com Postponing decision. Www taxcut com   If you are starting your rental activity and do not have 3 years showing a profit, you can elect to have the presumption made after you have the 5 years of experience required by the test. Www taxcut com You may choose to postpone the decision of whether the rental is for profit by filing Form 5213. Www taxcut com You must file Form 5213 within 3 years after the due date of your return (determined without extensions) for the year in which you first carried on the activity or, if earlier, within 60 days after receiving written notice from the Internal Revenue Service proposing to disallow deductions attributable to the activity. Www taxcut com More information. Www taxcut com   For more information about the rules for an activity not engaged in for profit, see Not-for-Profit Activities in chapter 1 of Publication 535. Www taxcut com Example—Property Changed to Rental Use In January, Eileen Johnson bought a condominium apartment to live in. Www taxcut com Instead of selling the house she had been living in, she decided to change it to rental property. Www taxcut com Eileen selected a tenant and started renting the house on February 1. Www taxcut com Eileen charges $750 a month for rent and collects it herself. Www taxcut com Eileen also received a $750 security deposit from her tenant. Www taxcut com Because she plans to return it to her tenant at the end of the lease, she does not include it in her income. Www taxcut com Her rental expenses for the year are as follows. Www taxcut com   Mortgage interest $1,800     Fire insurance (1-year policy) 100     Miscellaneous repairs (after renting) 297     Real estate taxes imposed and paid 1,200   Eileen must divide the real estate taxes, mortgage interest, and fire insurance between the personal use of the property and the rental use of the property. Www taxcut com She can deduct eleven-twelfths of these expenses as rental expenses. Www taxcut com She can include the balance of the allowable taxes and mortgage interest on Schedule A (Form 1040) if she itemizes. Www taxcut com She cannot deduct the balance of the fire insurance because it is a personal expense. Www taxcut com Eileen bought this house in 1984 for $35,000. Www taxcut com Her property tax was based on assessed values of $10,000 for the land and $25,000 for the house. Www taxcut com Before changing it to rental property, Eileen added several improvements to the house. Www taxcut com She figures her adjusted basis as follows:   Improvements Cost     House $25,000     Remodeled kitchen 4,200     Recreation room 5,800     New roof 1,600     Patio and deck 2,400     Adjusted basis $39,000   On February 1, when Eileen changed her house to rental property, the property had a fair market value of $152,000. Www taxcut com Of this amount, $35,000 was for the land and $117,000 was for the house. Www taxcut com Because Eileen's adjusted basis is less than the fair market value on the date of the change, Eileen uses $39,000 as her basis for depreciation. Www taxcut com As specified for residential rental property, Eileen must use the straight line method of depreciation over the GDS or ADS recovery period. Www taxcut com She chooses the GDS recovery period of 27. Www taxcut com 5 years. Www taxcut com She uses Table 2-2d to find her depreciation percentage. Www taxcut com Since she placed the property in service in February, the percentage is 3. Www taxcut com 182%. Www taxcut com On April 1, Eileen bought a new dishwasher for the rental property at a cost of $425. Www taxcut com The dishwasher is personal property used in a rental real estate activity, which has a 5-year recovery period. Www taxcut com She uses Table 2-2a to find the percentage for Year 1 under “Half-year convention” (20%) to figure her depreciation deduction. Www taxcut com On May 1, Eileen paid $4,000 to have a furnace installed in the house. Www taxcut com The furnace is residential rental property. Www taxcut com Because she placed the property in service in May, the percentage from Table 2-2d is 2. Www taxcut com 273%. Www taxcut com Eileen figures her net rental income or loss for the house as follows: Total rental income received  ($750 × 11) $8,250 Minus: Expenses     Mortgage interest ($1,800 × 11/12) $1,650   Fire insurance ($100 × 11/12) 92   Miscellaneous repairs 297   Real estate taxes ($1,200 × 11/12) 1,100   Total expenses 3,139 Balance $5,111 Minus: Depreciation     House ($39,000 × . Www taxcut com 03182) $1,241   Dishwasher ($425 × . Www taxcut com 20) 85   Furnace ($4,000 × . Www taxcut com 02273) 91   Total depreciation 1,417 Net rental income for house   $3,694       Eileen uses Schedule E, Part I, to report her rental income and expenses. Www taxcut com She enters her income, expenses, and depreciation for the house in the column for Property A. Www taxcut com Since all property was placed in service this year, Eileen must use Form 4562 to figure the depreciation. Www taxcut com See the Instructions for Form 4562 for more information on preparing the form. 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Understanding your CP31 Notice

Your refund check was returned to us, so you need to update your address.

Printable samples of this notice (PDF)

Tax publications you may find useful

How to get help

Calling the 1-800 number listed on the top right corner of your notice is the fastest way to get your questions answered.

You can also authorize someone (such as an accountant) to contact the IRS on your behalf using this Power of Attorney and Declaration of Representative (Form 2848).

Or you may qualify for help from a Low Income Taxpayer Clinic.
 


What you need to do

Update your address in one of the following ways:

  • Online: Go to Where’s My Refund? to complete your change of address online, you’ll need your Social Security number, filing status, and the amount of your refund.
  • By phone: Call the number listed on your notice.
  • By mail: Complete and mail the Contact information section that came with your notice.

Answers to Common Questions

When will I receive my refund check?
You should receive your refund 3-4 weeks after you submit your correct address. For information about your refund, go to Where’s My Refund? or call the IRS toll free at 1-800-829-1954. You’ll need to provide your Social Security Number (or Individual Taxpayer Identification Number), your filing status and the exact whole dollar amount of your refund.

What do I need to do to get my refund through direct deposit next year?
When filing your tax return, complete the requested banking information in the "Refund" section of your tax form if you want to direct deposit the entire amount into one account. If you want to deposit into more than one account, you must file Form 8888, Direct Deposit of Refund to More Than One Account, with your return.

Since my refund check was returned, can I request that you mail it to my work address instead?
Refund checks are mailed only to the address of record, which is the address provided on the tax return or the result of a permanent address change request submitted after the return is filed.

I filed jointly, but my spouse and I are now divorced. Where will you send the refund? Can you send us two checks?
A refund check is mailed to the address of record, which is the address provided on the tax return or the result of a permanent address change request submitted after the return is filed.
 
The IRS issues one check per return.


Tips for next year

To receive your refund more quickly, consider requesting your refund through direct deposit. You can even request that your refund be distributed to separate accounts, such as checking, savings, or retirement accounts. To request this, use Form 8888, Direct Deposit of Refund to More Than One Account.

Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions that you may qualify for. In many cases you can file for free. Learn more about e-file.

Page Last Reviewed or Updated: 19-Mar-2014

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Www taxcut com 2. Www taxcut com   Withholding Tax Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Income Tax Withholding Statement. Www taxcut com 30% Flat Rate Withholding Social Security and Medicare TaxesGeneral Information Bilateral Social Security (Totalization) Agreements Topics - This chapter discusses: Withholding income tax from the pay of U. Www taxcut com S. Www taxcut com citizens, Withholding tax at a flat rate, and Social security and Medicare taxes. Www taxcut com Useful Items - You may want to see: Publication 505 Tax Withholding and Estimated Tax Form (and Instructions) 673 Statement For Claiming Exemption From Withholding on Foreign Earned Income Eligible for the Exclusion Provided by Section 911 W-4 Employee's Withholding Allowance Certificate W-9 Request for Taxpayer Identification Number and Certification See chapter 7 for information about getting this publication and these forms. Www taxcut com Income Tax Withholding U. Www taxcut com S. Www taxcut com employers generally must withhold U. Www taxcut com S. Www taxcut com income tax from the pay of U. Www taxcut com S. Www taxcut com citizens working abroad unless the employer is required by foreign law to withhold foreign income tax. Www taxcut com Foreign earned income exclusion. Www taxcut com   Your employer does not have to withhold U. Www taxcut com S. Www taxcut com income taxes from wages you earn abroad if it is reasonable to believe that you will exclude them from income under the foreign earned income exclusion or the foreign housing exclusion. Www taxcut com   Your employer should withhold taxes from any wages you earn for working in the United States. Www taxcut com Statement. Www taxcut com   You can give a statement to your employer indicating that you expect to qualify for the foreign earned income exclusion under either the bona fide residence test or the physical presence test and indicating your estimated housing cost exclusion. Www taxcut com   Form 673 is an acceptable statement. Www taxcut com You can use Form 673 only if you are a U. Www taxcut com S. Www taxcut com citizen. Www taxcut com You do not have to use the form. Www taxcut com You can prepare your own statement. Www taxcut com See a copy of Form 673, later. Www taxcut com   Generally, your employer can stop the withholding once you submit the statement that includes a declaration that the statement is made under penalties of perjury. Www taxcut com However, if your employer has reason to believe that you will not qualify for either the foreign earned income or the foreign housing exclusion, your employer must continue to withhold. Www taxcut com   In determining whether your foreign earned income is more than the limit on either the foreign earned income exclusion or the foreign housing exclusion, if your employer has any information about pay you received from any other source outside the United States, your employer must take that information into account. Www taxcut com Foreign tax credit. Www taxcut com   If you plan to take a foreign tax credit, you may be eligible for additional withholding allowances on Form W-4. Www taxcut com You can take these additional withholding allowances only for foreign tax credits attributable to taxable salary or wage income. Www taxcut com Withholding from pension payments. Www taxcut com   U. Www taxcut com S. Www taxcut com payers of benefits from employer-deferred compensation plans, individual retirement plans, and commercial annuities generally must withhold income tax from payments delivered outside of the United States. Www taxcut com You can choose exemption from withholding if you: Provide the payer of the benefits with a residence address in the United States or a U. Www taxcut com S. Www taxcut com possession, or Certify to the payer that you are not a U. Www taxcut com S. Www taxcut com citizen or resident alien or someone who left the United States to avoid tax. Www taxcut com Check your withholding. Www taxcut com   Before you report U. Www taxcut com S. Www taxcut com income tax withholding on your tax return, you should carefully review all information documents, such as Form W-2, Wage and Tax Statement, and the Form 1099 information returns. Www taxcut com Compare other records, such as final pay records or bank statements, with Form W-2 or Form 1099 to verify the withholding on these forms. Www taxcut com Check your U. Www taxcut com S. Www taxcut com income tax withholding even if you pay someone else to prepare your tax return. Www taxcut com You may be assessed penalties and interest if you claim more than your correct amount of withholding allowances. Www taxcut com This image is too large to be displayed in the current screen. Www taxcut com Please click the link to view the image. Www taxcut com Form 673 30% Flat Rate Withholding Generally, U. Www taxcut com S. Www taxcut com payers of income other than wages, such as dividends and royalties, are required to withhold tax at a flat 30% (or lower treaty) rate on nonwage income paid to nonresident aliens. Www taxcut com If you are a U. Www taxcut com S. Www taxcut com citizen or resident alien and this tax is withheld in error from payments to you because you have a foreign address, you should notify the payer of the income to stop the withholding. Www taxcut com Use Form W-9 to notify the payer. Www taxcut com You can claim the tax withheld in error as a withholding credit on your tax return if the amount is not adjusted by the payer. Www taxcut com Social security benefits paid to residents. Www taxcut com   If you are a lawful permanent resident (green card holder) and a flat 30% tax was withheld in error on your social security benefits, the tax is refundable by the Social Security Administration (SSA) or the IRS. Www taxcut com The SSA will refund the tax withheld if the refund can be processed during the same calendar year in which the tax was withheld. Www taxcut com If the SSA cannot refund the tax withheld, you must file a Form 1040 or 1040A with the Internal Revenue Service Center at the address listed under Where To File to determine if you are entitled to a refund. Www taxcut com The following information must be submitted with your Form 1040 or Form 1040A. Www taxcut com A copy of Form SSA-1042S, Social Security Benefit Statement. Www taxcut com A copy of your “green card. Www taxcut com ” A signed declaration that includes the following statements. Www taxcut com   “I am a U. Www taxcut com S. Www taxcut com lawful permanent resident and my green card has been neither revoked nor administratively or judicially determined to have been abandoned. Www taxcut com I am filing a U. Www taxcut com S. Www taxcut com income tax return for the taxable year as a resident alien reporting all of my worldwide income. Www taxcut com I have not claimed benefits for the taxable year under an income tax treaty as a nonresident alien. Www taxcut com ” Social Security and Medicare Taxes Social security and Medicare taxes may apply to wages paid to an employee regardless of where the services are performed. Www taxcut com General Information In general, U. Www taxcut com S. Www taxcut com social security and Medicare taxes do not apply to wages for services you perform as an employee outside the United States unless one of the following exceptions applies. Www taxcut com You perform the services on or in connection with an American vessel or aircraft (defined later) and either: You entered into your employment contract within the United States, or The vessel or aircraft touches at a U. Www taxcut com S. Www taxcut com port while you are employed on it. Www taxcut com You are working in one of the countries with which the United States has entered into a bilateral social security agreement (discussed later). Www taxcut com You are working for an American employer (defined later). Www taxcut com You are working for a foreign affiliate (defined later) of an American employer under a voluntary agreement entered into between the American employer and the U. Www taxcut com S. Www taxcut com Treasury Department. Www taxcut com American vessel or aircraft. Www taxcut com   An American vessel is any vessel documented or numbered under the laws of the United States and any other vessel whose crew is employed solely by one or more U. Www taxcut com S. Www taxcut com citizens, residents, or corporations. Www taxcut com An American aircraft is an aircraft registered under the laws of the United States. Www taxcut com American employer. Www taxcut com   An American employer includes any of the following. Www taxcut com The U. Www taxcut com S. Www taxcut com Government or any of its instrumentalities. Www taxcut com An individual who is a resident of the United States. Www taxcut com A partnership of which at least two-thirds of the partners are U. Www taxcut com S. Www taxcut com residents. Www taxcut com A trust of which all the trustees are U. Www taxcut com S. Www taxcut com residents. Www taxcut com A corporation organized under the laws of the United States, any U. Www taxcut com S. Www taxcut com state, or the District of Columbia, Puerto Rico, the U. Www taxcut com S. Www taxcut com Virgin Islands, Guam, or American Samoa. Www taxcut com   An American employer also includes any foreign person with an employee who is performing services in connection with a contract between the U. Www taxcut com S. Www taxcut com government (or any instrumentality thereof) and a member of a domestically controlled group of entities which includes such foreign person. Www taxcut com Foreign affiliate. Www taxcut com   A foreign affiliate of an American employer is any foreign entity in which the American employer has at least a 10% interest, directly or through one or more entities. Www taxcut com For a corporation, the 10% interest must be in its voting stock. Www taxcut com For any other entity, the 10% interest must be in its profits. Www taxcut com   Form 2032, Contract Coverage Under Title II of the Social Security Act, is used by American employers to extend social security coverage to U. Www taxcut com S. Www taxcut com citizens and resident aliens working abroad for foreign affiliates of American employers. Www taxcut com Once you enter into an agreement, coverage cannot be terminated. Www taxcut com Excludable meals and lodging. Www taxcut com   Social security tax does not apply to the value of meals and lodging provided to you for the convenience of your employer if it is reasonable to believe that you will be able to exclude the value from your income. Www taxcut com Bilateral Social Security (Totalization) Agreements The United States has entered into agreements with some foreign countries to coordinate social security coverage and taxation of workers who are employed in those countries. Www taxcut com These agreements are commonly referred to as totalization agreements and are in effect with the following countries. Www taxcut com Australia Greece Norway Austria Ireland Poland Belgium Italy Portugal Canada Japan Spain Chile Korea, Sweden Czech South Switzerland Republic Luxembourg United Denmark Netherlands Kingdom Finland     France     Germany           Under these agreements, dual coverage and dual contributions (taxes) for the same work are eliminated. Www taxcut com The agreements generally make sure that you pay social security taxes to only one country. Www taxcut com Generally, under these agreements, you will only be subject to social security taxes in the country where you are working. Www taxcut com However, if you are temporarily sent to work in a foreign country and your pay would otherwise be subject to social security taxes in both the United States and that country, you generally can remain covered only by U. Www taxcut com S. Www taxcut com social security. Www taxcut com You can get more information on any specific agreement by contacting: Social Security Administration Office of International Programs P. Www taxcut com O. Www taxcut com Box 17741 Baltimore, MD 21235-7741 If you have access to the Internet, you can get more information at: http://www. Www taxcut com socialsecurity. Www taxcut com gov/international. Www taxcut com Covered by U. Www taxcut com S. Www taxcut com only. Www taxcut com   If your pay in a foreign country is subject only to U. Www taxcut com S. Www taxcut com social security tax and is exempt from foreign social security tax, your employer should get a certificate of coverage from the Office of International Programs. Www taxcut com Covered by foreign country only. Www taxcut com   If you are permanently working in a foreign country with which the United States has a social security agreement and, under the agreement, your pay is exempt from U. Www taxcut com S. Www taxcut com social security tax, you or your employer should get a statement from the authorized official or agency of the foreign country verifying that your pay is subject to social security coverage in that country. Www taxcut com   If the authorities of the foreign country will not issue such a statement, either you or your employer should get a statement from the U. Www taxcut com S. Www taxcut com Social Security Administration, Office of International Programs, at the address listed earlier. Www taxcut com The statement should indicate that your wages are not covered by the U. Www taxcut com S. Www taxcut com social security system. Www taxcut com   This statement should be kept by your employer because it establishes that your pay is exempt from U. Www taxcut com S. Www taxcut com social security tax. Www taxcut com   Only wages paid on or after the effective date of the totalization agreement can be exempt from U. Www taxcut com S. Www taxcut com social security tax. 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