Military spouse unemployment rates hover around 24%. However, this number does not account for the difficulties military spouses encounter when stationed overseas. Military spouse employment is significantly impacted by Status of Forces Agreements and complicated tax laws. We hope to shed some light on some of these complications to make the process of working abroad more accessible.
Status of Forces Agreements
Status of Forces Agreements, also known as SOFAs, are the laws that dictate the rights allotted to U.S. military-connected citizens stationed abroad. These agreements are negotiations between host nations and the U.S., and they vary from country to country. They cover a wide range of topics, but one that has a significant impact on military families is employment laws.
Active duty service members clearly already have jobs that bring them Outside the CONtinental US (OCONUS). Their salaries are taxed as they would be in any other location, paying federal and state taxes. However, spouses who seek to find or sustain employment while living OCONUS are subject to SOFA laws. Because these laws are very complicated and often not a primary concern when preparing to move OCONUS, spouses have earned income here and there “under the table”, unknowingly breaking the law.
Why Are SOFAs So Hard to Find?
Currently, there is no centralized list of SOFAs available online. You can request a copy of the Department of Defense’s “Treaties in Force: A List of Treaties and Other International Agreements of the United States in Force” by calling (202) 512-1205 or emailing [email protected] and requesting the document (ISBN: 9780160807121). Some libraries may also carry copies.
There are some organizations, like National Military Spouse Network, that are asking for increased transparency asking the State Department to publish a centralized resource for military members and their families. However, until that happens it is up to you to do the research before you arrive OCONUS.
An Overview of SOFA Regulations
The summaries below are pulled from government online resources. Because they are not posted via the State Department these items are subject to change. Additionally, with the advent of the “gig” economy, many SOFAs do not address self-employment while living abroad. Please check with your installation’s legal office to obtain additional information.
Examples of SOFA rules by country appear below. The individual SOFAs are lengthy – this is just a quick summary of the employment regulations available online.
Japan
Military spouses can work on the economy, but may be required to pay Japanese taxes in addition to U.S. tax requirements. Currently, you cannot use USPS services or any military-related discounted products in order to conduct on-base businesses (military Exchanges, etc.). No specific rules related to self-employment are listed. Agreement regarding the Status of United States Armed Forces in Japan.
Italy
Italy falls under the NATO SOFA. Military spouses cannot work on the economy without losing their SOFA status or obtaining a visa. You will need to obtain paperwork in order to work for a U.S. company while living in Italy and you will be subject to Italian taxes. This is the most restrictive country on our list. Here is more information about the SOFA agreement with Italy.
Germany
Also under the NATO SOFA. Military spouses can work on the economy and for US-based companies. Income earned on the economy is subject to “limited German taxation.” Those who are self-employed should contact their legal office to confirm requirements as they vary depending upon the services offered. You can learn more in this guide produced by the US Army.
Korea
Spouses may work on the economy and on base. If working on the economy a work visa must be obtained and the income is subject to Korean taxes in addition to US taxes. Self-employment is not addressed. You can learn more here.
Military OneSource suggests military spouses check out the Military Spouse Employment Partnership as well as installation employment options while reaching out to the installation’s legal office to confirm the most up-to-date SOFA regulations.
Tax Benefits While Working OCONUS
For those who are able to find work on the economy or on one’s installation, that income will be subject to taxation by the US and possibly the host country. Tax requirements vary from country to country, which makes this process less straightforward. Because the government knows this is a burden faced by military spouses and other US citizens they offer the following tax credits and benefits:
The Foreign Tax Credit – This policy allows taxpayers to claim a dollar of tax credit for every dollar taxed by the foreign country in which they earn income. This does not apply to government jobs.
The Foreign Earned Income Exclusion – This tax rule can be combined with the Foreign Tax Credit and allows you to “exclude your foreign earnings from income up to an amount that is adjusted annually for inflation ($107,600 for 2020).”
The Veterans Benefits and Transition Act of 2018 – While this Act does not directly apply to foreign taxes it allows military spouses to adjust their state of residence. Prior to this Act, the Military Spouse Residency Relief Act of 2009 said that military spouses did not have to change their residency with each military-related move. However, they were required to be physically present in the state in order to establish residency.
This new law allows military spouses to change their residency to match that of their active duty spouse. This is most useful for those who have residency in states that do not charge personal income taxes like, Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. This benefits spouses working OCONUS, as they would not be required to pay state taxes in addition to federal and international taxes.
Standard of Forces Agreements and tax laws and exceptions are dense and full of legal jargon. We highly recommend that you consult a legal or tax professional before engaging in employment overseas. Your installation’s legal office can offer these services free of charge.
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