 Reporting
tax from Brazilian internship
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 Dear
Tax Talk,
I'm a college student who worked abroad over
the summer and am only now starting to consider the tax ramifications.
I worked in Brazil for a three-month internship. I received a stipend
of about $3,000 in cash as well as a visa reimbursement of $120
in cash. Half of the $3,000 stipend was specifically allocated for
food expenses. Additionally, I was housed in a hotel for three months,
paid for directly by the company (value of around $3,000).
Although the company paid a gross-up to account for taxes in Brazil,
as I understand it the United States and Brazil have no reciprocal
tax treaty. On which of the above sources of income do I owe tax?
(I have seen that there are some exemptions for housing when it
is at "the convenience of the employer," but I am unaware
of exactly how that works.)
On any portion that I owe taxes, do I pay both
the employee and employer portion of Social Security?
-- Paul
 Dear
Paul,
If I got a great summer job offer in Brazil,
I wouldn't stop to think about the tax consequences either. Fortunately,
they're probably not as bad as you think. Although there is no treaty
with Brazil, you can still claim a credit for the taxes that were
paid by your employer.
You would need to report the grossed-up wages as income
on your Form 1040 on the appropriate wage line (line 7 of Form 1040).
You won't have a W-2 to attach, but that is not required to report
the amount as wages. You would not owe the employee or the employer
share of FICA taxes, as these amounts are not paid by individuals
but rather they are withheld and paid by employers. The wages would
not be subject to self-employment tax since you were not self-employed.
You would claim a credit for the foreign income taxes
withheld on Form 1116. The form is kind of complex, so you may want
to see a tax preparer. Since you were only on a temporary assignment,
the value of the hotel would not be considered income to you, neither
would the visa reimbursement. The cost of your meals, travel expenses
and incidental expenditures would be considered employee business
expenses that could be claimed on Form 2106 as an itemized deduction.
However, if you don't otherwise itemize your deductions,
these expenditures probably won't be enough to make sense itemizing.
Additionally, by claiming these expenses, you will be reducing your
foreign tax credit on Form 1116.
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