This section is only applicable to U.S. Taxpayers.
If you are a U.S. citizen or resident alien living outside the United States, your worldwide income is subject to U.S. income tax, regardless of where you live. Taxes must be paid as you earn or receive income during the year, either through withholding or estimated tax payments. If you did not pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax. Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the tax return for the prior year, whichever is smaller. Please refer to the
Internal Revenue Service Publication 505, Tax Withholding and Estimated Tax for additional information
.
In accordance with the payroll processing agreement with your Center, AIARC will withhold federal income taxes excluding FICA from your monthly pay during the year based on the information submitted by you in Forms W-4, 673, and Salary Reduction Agreement (SRA) (see descriptions of the forms below) at the beginning of the calendar year. These forms allow you to manage the tax amount withheld from your monthly pay. If AIARC does not receive the completed forms at the time of your payroll enrollment, AIARC will withhold taxes as if you are single with no withholding allowances, in accordance with the guidelines of the Internal Revenue Service (IRS).
The general purpose of each form is described below:
- Form W-4 – Employee's Withholding Certificate
Use IRS Form W4 to help determine the appropriate level of federal tax withholding for the year or use this form to claim “exempt” from withholding altogether. This form is divided into five steps, reviewing your marital status, number of dependents, etc. Depending on your circumstances, steps two through four may or may not apply to you. For information about Form W-4, please refer to the Frequently Asked Questions on the IRS website. In order to keep your “exempt from withholding” status, you must complete a new form every year as required by the Internal Revenue Service.
- Form 673 – Statement for Claiming Exemption from Withholding on Foreign Earned Income
Use Form 673 to determine if you are eligible for an exemption from U.S. income tax withholding on wages earned abroad because of the foreign-earned income exclusion and the foreign housing exclusion. For more information, refer to figure 4 A on page 12 of Publication 54.
- This form will guide you through two tests to establish your eligibility for this exemption – the bona fide residence test or the physical presence test. For more information, refer to pages 13 through 15 of Publication 54.
- This form will also guide you in estimating the amount of your exclusion from taxable income, which relates to foreign earned income and foreign housing costs.
AIARC will use the information in this form to adjust monthly withholding from your pay to account for these two exclusions from taxable income. You are required by the Internal Revenue Service to complete this form each year. For information about foreign income exclusions, please refer to the Internal Revenue Service Publication 54 , Tax Guide for U.S. Citizens and Resident Aliens Abroad. In the FAQ section on AIARC's website, refer to the question “How do I estimate the amount of the foreign housing exclusion that I can take?” to find the dollar limits for the exemptions and review a sample calculation for the housing exclusion.
- Sec. 403 (b) Salary Reduction Agreement Form
You may be able to reduce your taxable income by making voluntary (employee) contributions to the 403 (b) U.S. Retirement Plan. Use the SRA Form to authorize a new voluntary contribution or to confirm a continued voluntary contribution from your monthly pay. For 2025 pre-tax voluntary contributions are limited to $23,500 for employees under age 50 and $31,000 for employees aged 50 and above. Based on the information that you provide, AIARC will perform the maximum contribution tests to determine if your requested voluntary contribution amount will exceed the allowable limit. For more information about the 2024 limits on retirement contributions, please refer to the Internal Revenue Service Website. In the FAQ section of this website, you can find the limits for the retirement contributions.
If you have any doubt about your eligibility for exemption or about the appropriate withholding for you, it is recommended that you seek professional tax advice.
Please note that if the Internal Revenue Service issues a notice to AIARC to withhold taxes for a specific amount and/or timeframe because the Internal Revenue Service has determined that you have not submitted the appropriate tax withholding, AIARC will comply with the Internal Revenue Service notice. It will be your responsibility to resolve any withholding or tax issues directly with the Internal Revenue Service.