Reply To: US Expatriate Taxation on sabbatical

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#5148
Anonymous
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As you pointed out the salary received while on sabbatical is fully taxable in the U.S. assuming that you are not required to perform any services overseas and it is based on prior service.

As regards you Sub S income, you did not state the nature of income. If it is relating to services performed in the U.S. you need to issue yourself a W-2 and get no FEIE or other foreign service benefits. If the contract states that you are required to perform services for your client in China, your Sub S corp needs to issue you a W-2 and if you qualify for the Section 911 FEIE or housing deductions then the income qualifies as Sec 911 is based on the sourcing of income, which is where the service is performed, regardless of where the income is paid or received.

So if your customer/client pays your Sub S corp in the U.S., and your Sub S corp deposits the money into your U.S. bank personal account, the salary is foreign source IF you perform the services outside the U.S. Compensation allocable to days worked in the U.S. does not qualify.

Be sure to check the tax laws in China and if you pay a tax on compensation earned in China it may qualify for the US foreign tax credit.

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