topic Tax Year Prior to 2020: Report foreign earned income to Form 1040 in Get your taxes done using TurboTax

Tax Year Prior to 2020: Report foreign earned income to Form 1040

Sitkinyu — Mon, 22 May 2023 22:31:30 GMT

I enter my foreign earned income by selecting select "A statement from my foreign employer (could be cash)" option in Turbo Tax. I see the income is shown in Line 1 in Form 1040 correctly. My question is do I need to attach any supporting document, e.g. W2 in my tax return? I don't have W2 for this income.

Re: Report foreign earned income to Form 1040

rjs — Mon, 02 Sep 2019 02:07:00 GMT

You do not have to attach a supporting document to your tax return for your foreign earned income.

Re: Report foreign earned income to Form 1040

pk — Mon, 02 Sep 2019 02:44:52 GMT

@Sitkinyu Agreeing with @rjs as far as the question raised and looking for a little bit more information ro fully understand the situation---- > are you US citizen/Resident ( Green Card )? Which country are your earnings from? Is your employer a local entity or US govt /and admin. unit of US govt ? When did you move to the foreign country? Are you being taxed on your income in this foreign country? If you are not US citizen, which is your country of citizenship ? Is your family with you abroad?

Re: Report foreign earned income to Form 1040

Sitkinyu — Mon, 02 Sep 2019 04:43:24 GMT

I am US citizen. Hong Kong. Local entity. I don't move to the foreign county and I don't work abroad. Foreign country don't taxed me.

Re: Report foreign earned income to Form 1040

rjs — Mon, 02 Sep 2019 14:08:17 GMT

@Sitkinyu wrote:

I am US citizen. Hong Kong. Local entity. I don't move to the foreign county and I don't work abroad. Foreign country don't taxed me.

Please clarify:

What country do you live in?

What country do you work in?

What country is the company located in that is paying you?

If you do not live or work in Hong Kong, what is your connection with Hong Kong?

Re: Report foreign earned income to Form 1040

pk — Mon, 02 Sep 2019 20:43:49 GMT

@Sitkinyu , as I read your answers to my questions, what I get is that (a) you are US citizen; (b) a Hong Kong based entity is employing you to do some work ; (c) you are performing the work in the USA; (d) you are getting paid by the foreign entity ; (e) Hong Kong is not taxing this income.

Thus the situation you have here is self-employment with (possible ) earnings. Therefore

(1) you file a schedule-C to show the income in US$ ( converted using US$ of the day or averages published by treasury or other reputable source ), declare any allowable ( generally meaning ncessary and customary ) expenses associated with earning stream,

(2) you will end up paying Federal, State ( if your State taxes personal income ) and SECA ( at 15.3% for Social Security and Medicare taxes for the self-employed -- on about 92% of the net income. TurboTax will do all the required work and fill out the forms,

(3) in order to be compliant with Pay as you Earn principle, you should be making ESTIMATED federal and state tax payments quarterly.

You do not have to send in any paperwork to prove your earnings from abroad, but must keep bank records / wire transfers etc. in case you get audited. Your income, while foreign sourced, does not require you to claim any special handling because it is not being taxed by the foreign taxing authority. Please also note that if the amounts paid to you rest in any foreign bank accounts owned/operated by you, you may come under the FBAR ( FINCEN 114 ) and/or FATCA ( IRS form 8938 ) reporting requirements.

Hope this has answered your query.

Re: Report foreign earned income to Form 1040

Sitkinyu — Mon, 02 Sep 2019 23:01:42 GMT

What country do you live in? US.

What country do you work in? US.

What country is the company located in that is paying you? Hong Kong.

If you do not live or work in Hong Kong, what is your connection with Hong Kong? email and phone.

I don't run any small business. I don't owned any company. My friend owned a small company in Hong Kong -- providing application software to his users. He ask me to help him to provide a supporting information to his users when they have any questions or problems and pay me a small amount payment each year. Can I just enter this earned income to Turbo Tax as I mentioned in my first post? Without Schedule C?

Re: Report foreign earned income to Form 1040

rjs — Mon, 02 Sep 2019 23:23:32 GMT

You do run a small business. Your self-employment activity is a business. You have to report the income on Schedule C.

The income is not foreign earned income, because you are working in the United States. The fact that you have a client in another country does not make it foreign income. (Your friend's company is a client of your business.) It is U.S. self-employment income, the same as if you were a contractor for a U.S. company.

Re: Report foreign earned income to Form 1040

Sitkinyu — Tue, 03 Sep 2019 17:11:08 GMT

General question:

1. Can a foreign company hire US citizen as their employee or temporary employee?

2. If yes, can the hired employee works in US?

Re: Report foreign earned income to Form 1040

rjs — Tue, 03 Sep 2019 17:51:38 GMT

Yes, a foreign company could do that. But if they have an employee working in the U.S., the company becomes a U.S. employer. They have to follow all the U.S. laws that apply to employers, including withholding taxes from the U.S. employee's pay and issuing a W-2 at the end of the year. They also have to follow the state laws for the state that the employee works in, including withholding state taxes. Most foreign companies would not want to deal with all this red tape for just one U.S. employee.

Re: Report foreign earned income to Form 1040

pk — Tue, 03 Sep 2019 20:23:21 GMT

@Sitkinyu , very much agreeing with @rjs , once foreign company has a sitius in the USA, in addition to meeting state and federal requirements with respect to employee(s), it also has to have EIN, file tax returns, offer retirement and health benefits ( per applicable laws based on number of employees) and also subject to all laws relating to US banking ( thus will be subject to, for example , sanctions against North Korea, China, Iran etc. ). It gets complicated pretty rapidly. Therefore many foreign entities, "employ" US talent as contractors and avoid direct interactions with the USA tax laws and US Treasury.

What are you trying to achieve ?

Re: Report foreign earned income to Form 1040

Sitkinyu — Tue, 03 Sep 2019 23:00:37 GMT

Do you mean that my friend should hires me as contractor instead of employee? Then, I need to file this income using Schedule C. I know the form is used for Self-employee. It is too complicate for me. Is there a simple filling method in Turbo Tax?

Thanks for your important information.

Currently. I don't accept my friend's offer. I need to make sure the income filling has no problem for me. Otherwise, I will reject this offer.

Also, I would say sorry to you that I trouble you so much!

Re: Report foreign earned income to Form 1040

rjs — Wed, 04 Sep 2019 00:15:10 GMT

Your friend will want to hire you as a contractor because hiring you as an employee, if he has no other employees in the U.S., is very complicated for him.

Filing Schedule C is not complicated. TurboTax will guide you through it. If you are just being paid for your personal services it's really pretty simple.

Re: Report foreign earned income to Form 1040

Sitkinyu — Thu, 05 Sep 2019 18:32:57 GMT

Thank you very much. I may consider to register a self employed.

One more question. If I received self employed income in a tax year, and I also received non-self employed income, e.g. dividend and capital gain from stock or mutual fund, do the fed and state tax are calculated differently for these 2 different incomes? Do the Turbo Tax can handle these automatically?

Re: Report foreign earned income to Form 1040

pk — Thu, 05 Sep 2019 20:37:55 GMT

@Sitkinyu , there is no special registration required for "self-employed" -- you just report your incomes on schedule-C ( as mention above by @rjs ) and pay the Self-Employment tax ( also as explained above ). TurboTax is quite capable of handling Self-employment income along with W-2, 1099-DIV ( Dividend income ), 1099-INT ( Interest income ), 1099-B ( Sale/Barter income from sale of stocks/bonds etc. ). You are in good hands with TurboTax-- not to worry

full disclosure --- I am not affiliated with TurboTax, am a volunteer and except for de-minimis gifts etc. have no financial or other interest in TurboTax or Intuit -- all opinions are my own.

Re: Report foreign earned income to Form 1040

rjs — Thu, 05 Sep 2019 20:46:34 GMT

For federal tax there are different income tax rates for different types of income. There is one set of rates for ordinary income, and a different set of lower rates for qualified dividends and long-term capital gains. Self-employment income is taxed at ordinary income rates, but is subject to self-employment tax in addition to income tax.

Here's a short summary of what rates apply to the specific types of income that you asked about.

Ordinary income rates apply to:

Self-employment income
Non-qualified dividends
Short-term capital gains

The lower rates for qualified dividends and long-term capital gains apply to:

Qualified dividends
Long-term capital gains

Self-employment tax, in addition to ordinary income tax, applies to self-employment income.

For state tax, it depends on what state you are in. Each state has its own tax rates. I think that most states tax all income at the same rates. They do not have different rates for different types of income like the federal tax does.

TurboTax does figure this all out automatically.

Re: Report foreign earned income to Form 1040

Sitkinyu — Thu, 05 Sep 2019 21:25:50 GMT

Is the Self-employment tax an addition tax that you mentioned "SECA ( at 15.3% for Social Security and Medicare taxes for the self-employed -- on about 92% of the net income)" in your post?

Re: Report foreign earned income to Form 1040

rjs — Thu, 05 Sep 2019 22:03:46 GMT

Self-employment tax and SECA tax are the same thing. On the tax return it's called self-employment tax.

Re: Report foreign earned income to Form 1040

GrandPapaDau — Mon, 09 Mar 2020 03:30:56 GMT

Hi. I have a small schedule C business with a home office "Legal Research and Teaching". My home office is in the US, I am a US Citizen, some of my income is in the US, but some of my income (and expenses) is earned teaching abroad (Taiwan and China). Both Taiwan and China take taxes out of their respective payments. I also have another job in the US where I get a W2. Where do I report my income from teaching abroad? In the "Less Common Income" "Foreign Earned Income and Exclusion" or in the "Business Income and Expenses (Sch C)" or both? Do I report the foreign income as not eligible for QBI?

Re: Report foreign earned income to Form 1040

VictorW9 — Mon, 09 Mar 2020 03:40:43 GMT

Not schedule C, since you noted that you have been taxed already in Taiwan and China. Implied that you were actually employed in China and Taiwan, similar to receiving a W2 in the U.S. You have the option to use the Foreign Earned Income Exclusion or use the Foreign Tax Credit but you cannot use both. Choose the one that will give you the greatest benefit in your tax return.