Do Actors Pay U.S. Taxes on Foreign Income? (Common Examples)

Do U.S. and Foreign Actors Pay U.S. Taxes? (Common Examples)

Do U.S. and Foreign Actors Pay U.S. Taxes?  

Unlike almost every other country across the globe, the United States does not follow a residence-based tax model for individuals. Instead, the U.S. follows a tax system based on the individual’s U.S. person tax status. While it is referred to as citizenship-based taxation, it is not limited to only U.S. Citizens. It also includes Lawful Permanent Residents and foreign nationals who meet the Substantial Presence Test. Taxpayers who fall into these three categories of U.S. person may be required to pay U.S. taxes on their worldwide income. For example, while a U.S. actor who works overseas may have to pay U.S. tax on their foreign income, a foreigner who qualifies under the Substantial Presence Test in the United States may have to pay U.S. tax on both their foreign and U.S. income. Some Taxpayers may qualify to make a treaty election (or may otherwise qualify for an exception to paying U.S. tax on their worldwide income), but the baseline position is that all income is taxable to U.S. persons. Let’s look at some common examples to assist taxpayers.

U.S. Actor Working Abroad

Just because an actor works overseas does not mean they can avoid paying U.S. tax on the income that is being generated abroad. This can become very complicated, especially in the situation where a U.S. citizen may be working overseas for an overseas studio on a foreign production that has nothing to do with the United States other than the fact that the actor is a U.S. Citizen or a Lawful Permanent Resident.

• • • Example: Scott is a U.S. citizen actor who was recently hired to work on a movie production in a foreign country. This is the only income that Scott has earned throughout the year. Even though Scott is working overseas and being paid by foreign production company for his work, he is still considered a U.S. person for tax purposes and would include this income on his U.S tax return.

    • Example: Michelle is a U.S citizen actress who was recently hired to work on a TV show in a foreign country. She only works on the foreign production for four months out of the year and she paid taxes in the foreign country. Nevertheless, Michelle must still include this foreign income on her U.S. tax return and then claim a foreign tax credit to try to reduce or eliminate any double taxation.

    • Example: David is a U.S. Lawful Permanent Resident who was hired as an actor and a producer on a project and will be spending the entire year in a foreign country. The foreign country is a treaty country and therefore David may qualify to be treated as a non-resident alien for U.S. tax purposes and only have to pay U.S. tax on his US sourced income as opposed to his worldwide income.

Foreign Actor Working in the U.S.

Just as it can be complicated for a U.S. actor working abroad, it is equally as complicated for a foreign actor who is working in the United States. However, there may be more leeway for the foreign actor depending on what type of U.S. person status he has.

• • • Example: Brenda is a foreign actress who was hired to work in the United States on a new movie, but will also be travelling back to the foreign country to continue working on the foreign television show of which she is a regular. She received a visa and will be in the United States for eight months out of the year. Brenda would meet the Substantial Presence Test and be required to report her worldwide income on her U.S. tax return

    • Example: Janine is a foreign actress who is a dual citizen of the United States and a foreign country. Even though she lives most of the year overseas, pays taxes in the foreign country and only worked in the United States on a project for three months, since she is a U.S. citizen she is required to report both her foreign and U.S. income on her U.S. tax return. If she already paid taxes overseas, she may qualify for a foreign tax credit.

    • Example: Nevin is a foreigner who is only in the United States for three months on a temporary visa to work on a television show. He was not in the United States at all in the past two years. Since he is not a U.S. citizen or Lawful Permanent Resident, Nevin may not meet the Substantial Presence Test — and may only have to pay U.S. tax on his US-sourced income and not his worldwide income.

Tax Treaty 

Depending on whether the taxpayer is working in a country that is a treaty country can impact whether or not he may qualify to be treated differently than if he resides in the United States. If the taxpayer qualifies under a treaty to be taxed as a non-resident alien instead of as a US person then he will only be taxed on his US-sourced income and not his worldwide income.

Substantial Presence Test (SPT)

Many foreigners come to the United States temporarily for work and they do not obtain citizenship or green card. If they are only in the United States temporarily on a visa such as an O-1 Visa, they may be able to avoid having to pay U.S. tax on their worldwide income if they do not meet the substantial presence test — or if they do, if they qualify for an exception such as the closer connection exception.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and/or other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs. Prior Year Non-Compliance

Once a Taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, Taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.