U.S. Taxation of Employees of Foreign Governments and International Organizations

This article explains how U.S. federal tax rules apply to individuals working in the United States for foreign governments (including embassies, consulates, and qualifying foreign government offices) and for international organizations (such as the United Nations and the World Bank, when designated by Executive Order).

Core rule

In general, compensation for services performed in the United States for a foreign government or international organization is treated as U.S.-source income and is subject to U.S. tax unless a specific exemption applies.

The key factor: the worker’s U.S. tax and immigration status

1) U.S. citizens

Foreign embassies and international organizations are generally not required to withhold income tax or employment taxes or issue Forms W-2 for U.S. citizen employees. As a result, U.S. citizen employees must:

• Report the compensation as wages on Form 1040, and
• Pay self-employment tax (Social Security and Medicare) on that income.

Importantly, the individual is treated as self-employed only for self-employment tax purposes, not for other tax purposes—meaning they generally cannot claim Schedule C deductions for that income or use it to establish certain retirement plans. Because there is usually no withholding, they may need to make estimated tax payments using Form 1040-ES.

If a U.S. citizen performs services outside the United States for a foreign government or international organization, they still report the income for U.S. income tax purposes, but generally do not owe self-employment tax on that specific compensation and may qualify for the foreign earned income exclusion under IRC §911 if requirements are met.

2) Lawful permanent residents (green card holders)

Lawful permanent residents are generally subject to U.S. tax on worldwide income. When employed in the United States by a foreign government or international organization, they typically must:

• Report the compensation as wages, and
• Do not pay self-employment tax on that specific compensation.

As with U.S. citizens, withholding is generally not required, so estimated tax payments may still be necessary.

3) Nonimmigrant visa holders

Only certain visa categories may be authorized to work for foreign governments or international organizations in the United States (including A and G visa categories). Some visa holders qualify as “exempt individuals” for the Substantial Presence Test, meaning their days in the U.S. may not count toward becoming a resident for tax purposes.

Nonimmigrant employees are generally subject to U.S. tax on their compensation unless they qualify for an exemption under:

• The Vienna Conventions (diplomatic/consular provisions),
• A bilateral consular agreement,
• A tax treaty, or
• Internal Revenue Code §893.

IRC §893: The primary statutory exemption discussed

IRC §893 may exempt wages, fees, or salary received by qualifying employees of foreign governments or international organizations, but it:

• Applies only to employees (not independent contractors),
• Does not apply to certain commercial arrangements and entities, and
• Does not apply to pensions paid to former employees.

Foreign government employees must generally satisfy multiple requirements, including “similar services” and reciprocity standards. International organization employees generally face a narrower set of requirements.

USCIS Form I-508: the waiver that can eliminate §893 relief

The webinar emphasized the impact of USCIS Form I-508, which is used in certain situations involving lawful permanent residence and diplomatic/official employment status.

Signing Form I-508 generally means the individual waives privileges and immunities associated with the occupational status, including the ability to claim the IRC §893 exemption going forward:

• Compensation before signing may still qualify for §893 if requirements are met.
• Compensation on or after signing generally does not qualify under §893.

However, signing Form I-508 generally does not affect exemptions based on international agreements (such as treaties or international organization charters) when those exemptions are not dependent on the Internal Revenue Code.

Key takeaways

• U.S. citizens working in the U.S. for foreign governments or international organizations generally report wages and pay self-employment tax.
• Green card holders generally report wages but are not subject to self-employment tax on that compensation.
• Nonimmigrant visa holders are generally taxable unless a treaty-based exemption or IRC §893 applies.
• Signing Form I-508 typically eliminates eligibility for IRC §893 going forward, but it does not usually affect independent treaty or charter exemptions.