Professional Corporation
U.S. Tax Filing Guide for Employees Assigned from Korean Companies
U.S. Expatriates: Do You Understand Your Tax Filing Obligations? From Korean and U.S. tax obligations to employer tax reimbursement policies, here are the essentials every assigned employee should know. |
When assigned to the U.S., most expatriates focus on visas and moving arrangements. Taxes are easy to overlook. It may seem that working in the U.S. automatically exempts you from Korean tax, but that is not the case.
An expatriate living in the U.S. may have simultaneous obligations in Korea and the U.S. Without advance understanding and preparation, unnecessary double taxation or penalties for missed filings may result.
Which Country Must You Pay Tax To?
Korea generally uses a 183-day rule. Spending at least 183 days in Korea during the tax year, or having family living there, can classify you as a Korean tax resident with a duty to report worldwide income.
The U.S. uses the Substantial Presence Test. You are considered a tax resident if present for at least 31 days in the current year and at least 183 weighted days over the latest three years. In that case, worldwide income must be reported on Form 1040.
The U.S.–Korea tax treaty helps prevent double taxation. Foreign tax credits can offset tax paid in one country against the other country’s tax. These benefits are not automatic and must be claimed during filing.
Annual Tax Filing Dates to Remember
When | Filing Item | Notes |
January–February | Receive W-2 and withholding statements | Check U.S. and Korean documents separately |
April 15 | U.S. Form 1040 and FBAR deadline | Pay tax due by this date |
May 31 | Korean comprehensive income tax deadline | Apply the foreign tax credit |
October 15 | Final U.S. extended deadline | Including Form 8938 (FATCA) |
Do Not Miss Foreign Account Reporting: FBAR and FATCA
FBAR requires attention separately from the income tax return. If combined foreign financial accounts, including Korean bank and brokerage accounts, exceeded $10,000 at any time during the year, report them annually by April 15 on FinCEN Form 114.
🚨 A nonwillful failure to file an FBAR can result in a penalty of up to $10,000 per violation. A willful violation may carry the greater of $100,000 or 50% of the account balance. |
When the Company Pays Your Tax: Tax Equalization
Many companies apply tax equalization to expatriates. The employee bears only the hypothetical tax that would have been owed while working in Korea; the employer pays the difference if actual tax exceeds that amount.
The arrangement therefore prevents the employee from losing out because a U.S. assignment increases taxes. Coverage and calculations vary by employer, so confirm the company’s policy with HR before departure.
Typical Tax Equalization Coverage |
› Income tax on base salary, assignment allowances, and performance bonuses |
› Income tax on housing allowances |
› Income tax on children’s education allowances |
› Full fees of the company-designated accounting firm |
What Is a Gross-Up Calculation?
Gross-up frequently accompanies tax equalization. When the company pays an employee’s taxes, that payment itself becomes income and generates additional tax. A gross-up works backward through this tax-on-tax effect to increase the payment so the employee receives the intended net amount.
Suppose the employer wants to provide a $10,000 after-tax bonus. At a 30% tax rate, simply paying $10,000 leaves $7,000. A gross-up calculates the required pretax payment so exactly $10,000 remains after tax.
Item | Amount (Assuming a 30% Tax Rate) |
Payment without gross-up | $10,000 |
Tax withheld (30%) | −$3,000 |
Net payment | $7,000 ← Shortfall |
Calculated grossed-up payment | $14,286 |
Tax withheld (30%) | −$4,286 |
Net payment | $10,000 ✓ Target met |
The formula is: Grossed-up payment = Target after-tax amount ÷ (1 − Effective tax rate). The combined Korean and U.S. effective tax rate and foreign tax credits under the treaty must be considered, requiring a professional accountant’s calculation.
Key Gross-Up Checks |
› Confirm whether employer-paid tax creates additional taxable wages |
› Work backward using the combined Korean and U.S. effective tax rate |
› Determine the final gross-up after foreign tax credits |
› Confirm which items the employer policy covers, such as allowances, bonuses, and moving costs |
› Recalculate annually for tax rate changes |
U.S. Social Security Taxes May Be Exempt
Expatriates covered by Korea’s National Pension can use the U.S.–Korea Totalization Agreement to obtain exemption from U.S. Social Security tax of 6.2% and Medicare tax of 1.45% for up to five years.
The benefit requires obtaining and submitting an A-1 certificate from Korea’s National Health Insurance Service before assignment. Retroactive relief can be difficult if the assignment starts without an advance application, so prepare before departure.
Timing is essential in tax filing. Missed deadlines or incomplete documents can cause penalties and surcharges to accumulate. Begin preparing with a professional accountant as soon as the U.S. assignment is decided. |
Expatriate filings are far more complex than an ordinary employee’s annual tax settlement. Seek professional help with FBAR, FATCA, foreign tax credits, and tax equalization reconciliation.
Contact a Cross-Border Accounting Firm
🇺🇸 U.S. Contact Dow & Sohn CPAs 📍 3435 Wilshire Blvd Ste 3005 Los Angeles, CA 90010 📞 213-487-3690 | 🇰🇷 Korea Contact Opus Advisors 📍 Gangnam-gu, Seoul 6 Teheran-ro 79-gil 📞 010-5424-3690 💬 KakaoTalk: Opus Advisors |
U.S.–Korea Tax & Accounting Support
Planning U.S. expansion or reviewing a cross-border tax or accounting matter? Speak with our U.S.–Korea team.