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US Income and Social Security Taxes

For expatriates in Japan, the tax situation can be a confusing thing. They must deal with home country taxes and pension taxes, as well as Japanese taxes and pension systems. This page aims to clear up some of the confusion with information about the US system.

A short summary:

  • US citizens must pay income taxes, which can be excluded.
  • US citizens must inform the Department of Treasury of foreign assets over $10,000.
  • US citizens are not exempt from Social Security tax unless they have a Certificate of Coverage from the Japanese pension system (日本年金 – nihon nenkin).

Income Tax

The IRS requires all income-earning US citizens and permanent residents to file taxes, regardless of location.

According to the IRS, foreign income earners should file Form 2555, Foreign Earned Income Exclusion, along with Form 1040. Include foreign earned income as Wages (line 7) on the 1040, then subtract that as a negative Other Wages (line 21) on the 1040.

However, this is only valid up to amounts over $90,000, depending on the year. Housing expenses can also be claimed on this form.

Filers can also use Form 1116, the Foreign Tax Credit. However, as this is a credit, rather than an exclusion, Form 2555 may be more beneficial. Filers also may not claim both the Form 1116 credit and the Form 2555 exclusion for the same income.

Married couples can file jointly.
Other related forms may be Form 1118 (Foreign Tax Credit for Corporations) or Forms 5471, 8858, 8865 (regarding business issues). See IRS publications 54 or 514 for more information.

As always, US taxes are due by April 15th to this address, if no check is enclosed:

Department of the Treasury 
Internal Revenue Service Center 
Austin, TX 73301-0215 USA

Or this address, if a check or money order is enclosed:

Internal Revenue Service Center 
P.O. Box 1303 
Charlotte, NC 28201-1303 USA

Taxes can be easily done by using FreeFileFillableForms, a service from the IRS. However, this service requires users to understand the forms they are filling out–there is no advice at hand. If that service has any problems, and there are often many, then TaxActOnline is a reasonable backup.

Foreign Bank Accounts

The Department of Treasury requires all US citizens and permanent residents to file a statement on foreign bank accounts if their foreign accounts contain more than $10,000 combined. This applies to regular bank accounts, mutual funds, and all other financial accounts.

Married couples may not file jointly.
This form is due by June 30.

As of 2013, the Department of Treasury now requires citizens to file form FinCEN Report 114. This form must be opened using Adobe Acrobat Reader and can be electronically sent online. Access the form here.

Pension and Social Security

The US has agreements with many countries so that citizens do not need to pay social security to multiple countries, and so pensioners can receive income regardless of where they worked.

However, citizens must pay the US social security and medicare tax if they are not enrolled in a host country’s program. This is separate from normal income taxes and cannot be excluded through any forms.

A Certificate of Coverage (Japanese) can be obtained from a Japan Pension Service Branch Office that exempts US citizens from paying taxes, however. This form should be included with normal 1040 IRS tax submissions. Those that wish to contribute extra can use Form 1040 Schedule SE for a greater social security payout, although it may be better to contact the Social Security Office rather than contribute to double pension systems.

JPS branch offices can be found here (Japanese and English).

Expatriates returning to their native country must apply to withdraw from Japanese systems.

Or, citizens can be exempted from a host country’s program if they have a certificate from the US Social Security Office. This certificate can be obtained by sending a request with this information:

  • Name and Address
  • Place and Date of Birth
  • Citizenship
  • US and Foreign Social Security Numbers
  • Employer Name and Address
  • Dates of Foreign Assignment

To this address:

Social Security Administration 
Office of International Programs 
P.O. Box 17741 
Baltimore, MD 21235-7741

The procedure for obtaining pension exemption in Japan is this, from the Japan Pension Service:

  1. Apply for and receive Certificate of Coverage (American) to in the home country.
  2. Present Certificate to the JPS office or municipal office when required (when asked to enroll in the pension system).
  3. Those without a certificate will be enrolled in the Japanese pension system.

However, those living in Japan for more than five years cannot be exempted from enrolling in the Japanese Pension system.

Those enrolled in the Japanese system that are sent temporarily to work in another country can contact a JPS branch office to obtain a Certificate of Coverage (Japanese) to be exempted in this new host country.

Some things to note:

  • Three months under the Japanese system are equivalent to one US SS credit.
  • US SS beneficiaries can receive benefits in Japan through the Japanese system, which can be claimed starting three months before retirement.
  • Those who wish to transfer Japanese system credits to the US SS system need at least 6 credits worth, or 18 months of working.