As a US citizen or resident alien residing outside the United States, you are entitled to an automatic extension of time in which to file your 1997 US Federal income tax return until June 15, 1998. However, the automatic extension of time to file your return does not extend the time to pay any tax that might be due or to make your first quarterly 1998 tax payment. These payments were due on April 15, 1998. If you have not made them, you should do so immediately.

We have received several inquiries on our Internet site as to what constitutes "income''. There is a mistaken belief that only salary and bonuses need to be reported to the International Revenue Service. Following is a brief description of some items of income that are taxable.

Salary Salary is your gross pay. If your employer is withholding from your pay such items as salaries tax, hospital levy, a co-payment of medical insurance, etc., these items do not constitute a deduction for US income tax purposes.

Your salary must be reported on a gross basis.

Cash Bonus A bonus can be paid in cash or property. Any cash received should be reported as income in the year it is received, not the year in which it is earned. If you performed services for your employer in 1997 and were informed that you would receive a year end bonus in December, 1997, but the actual cash was not received until 1998, the income is reportable in 1998.

Stock Bonus The receipt of stock from your employer is also a taxable event. However, the open question is when does the receipt of stock constitute taxable income? If your employer attaches "strings'' to the stock, you may not have realized a taxable event. Your employer may have granted you the stock, but indicated that the stock "vests'' over a 3 year period. This simply means that you will not have full ownership of the stock until 3 have passed. For example, if the employer gives you 300 shares of stock on February 1, 1998 with a 3 year vesting, you will have outright ownership of 100 shares of the stock on February 1, 1999, 2000, and 2001, respectively. If the stock has a value of $8 a share on February 1, 1999, you will have taxable income on that date of $800. Your taxable income in the year 2000 and 2001 will be determined by the value of the stock on February 1 of that year.

Automobile Allowance An allowance (usually $350 per month) received from your employer to defray the cost of renting an automobile or scooter is also taxable income. If the vehicle is exclusive used for commuting and personal business, there is no offsetting deduction.

Clubs If your employer is either directly paying, or reimbursing you for the cost of a club membership, this also constitutes taxable income. Since the business use of a club is not a deductible expense there is no offsetting deduction.

Home Leave The reimbursement of your airfare, or the furnishing to you of a ticket(s) for home leave for you and your family constitutes taxable income.

Education Allowance If your employer furnishes you with an allowance or reimburses you for the cost of education at a private school for your children, this constitutes taxable income.

Housing If your employer is providing you with housing, or paying you a housing allowance, you have taxable income. Where housing if furnished by the employer, the fair market value (rental value) needs to be included in your taxable income. In 1997, to the extent that your rental costs (or housing benefit) and other expenses related to the housing such as utilities, insurance, maintenance, taxes, etc. exceeded $9,426, you may be entitled to a foreign housing exclusion.

Pensions Most corporate pension plans in Bermuda do not meet the definition of "qualified plans'' under the Internal Revenue Code, and the employer contribution to the plan must be included in your taxable income.

Additionally, if your plan has "separate accounts'', the investment income earned by the plan each year must be included in taxable income. It is possible that your employer has received expert technical advice on how to insure that you do not realise current taxable income, even though the plan is non-qualified. You should check with your employer as to your plan's taxable status.

Substantiation To the extent that you provided services to your employer in the United States, your employer is required by law (US) to provide you with a Form W-2.

In lieu of receiving such a Form (few local employers will do so) we recommend that you request a letter from your employer listing the income (by category) which you received in 1997.