Self employed in foreign country

[Kea]

I am amending a return for a new client. Husband and wife are 63 and are Colombian citizens living in Colombia. They are both US residents because they have green cards. They kept their green cards because they plan to move back to the US in a few years.

Last year the husband retired in Colombia and was hired back by his previous employer (a bank) as an independent contractor. He will not qualify for Social Security when he moves here because he did not work in the US anywhere near long enough. But his independent contractor work is subject to $4000 in SE tax. In previous years, he has filed tax returns but has never owed US taxes since his income has always been less than the exclusion. For 2006, his income is still under the exclusion, but because he is now a contractor rather than an employee, his income is subject to SE tax. As an employee in Colombia, he has never been subject to US Social Security tax.

I did not see Colombia on the list of tax treaties. I can't find anything to exempt him from the SE tax. He has not lived in the US for the last 7 years and is not asking for US Social Security during his future US retirement -- he has a pension from the bank.

Are there any exemptions for this type of case? I hate telling him that he owes $4000 for a US Social Security / Medicare system that he can never use and are only subject to because his employment designation changed. Is he better off giving up his green card and starting the process over when he does want to move back?

Thanks.

[bertrans]

Unfortunately, Columbia is not one of the nations which have signed so-called totalisation agreements with the US - had it done so, your client would not be subject to SET, FICA or MEDICARE taxes.

[Pacun]

NO. It is not easy to get a green card. So if he wants to get back to the U.S., he better be taxed as a regular U.S. Citizen. If he is not coming to the U.S. every year, the immigration services might detain him when he tries to reenter because he has relinquish to his green card by overstaying in Colombia... unless he has advanced parole approved by immigration.

If he got his green card because he married a U.S. citizen (for example), and his wife is dead or divorced him, he will not be able to reobtain his green card. If his mother gave him his green and provided his mother is still alive, he would have to wait about 4-8 years to reobtain his green card. If he got his green card because a company offered him a job, he would not qualify because he is not considered a qualified candidate based on his age and the fact that he is retired. As you can see, giving up his green card is not an easy decision and MAYBE he alrealy relinquished to it.

[Kea]

He was in the US for 13 days in 2006. He was also here a few weeks ago, but I do not know for how long.

Thanks.