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aliceyy
Level 1

1099 NEC declare as foreign income

Hi, I need to declare my 1099-NEC as foreign earned income. However, I don't see an option to categorize it as foreign earned income. I only saw the option to classify income as foreign earned for W2s.

 

The result is that when I get to the end of the foreign earned income section, it says "Have you reported all your income?". The reason is that since I can't classify my 1099-NEC as foreign earned, I entered in the self-employment income directly into the "foreign earned income" section. But the software thinks that this is different income from my 1099-NEC, so it thinks I have unreported income.

 

What should I do to set my 1099-NEC to foreign earned?

13 Replies
pk
Level 12
Level 12

1099 NEC declare as foreign income

@aliceyy  are you saying that you are working as self-employed  in a foreign land?  In that case which country?   And how did you get a 1099-NEC ?    The only way that can happen is a mistake by a US entity paying a foreign contractor -- that business should not  issue a 1099-NEC or MISC .   Please tell more of the situation

aliceyy
Level 1

1099 NEC declare as foreign income

Hi that's correct. I'm working remotely in the UK for a US company. I'm not a foreign contractor because I am a US citizen and only moved to the UK at the start of the job.

aliceyy
Level 1

1099 NEC declare as foreign income

Just for extra info, to prove that this is allowed: @pk 

How to hire an independent contractor who is a US citizen but lives abroad

The general rule is that US citizens are subject to the same tax rules regardless of their location. The IRS will still consider an independent contractor as a US citizen if the service is provided abroad, and even if the contractor has spent sufficient time to be considered a tax resident of another country. That said, the company should issue a Form 1099-NEC (given they paid the contractor more than $600 within a year) as it would to any US resident contractors. 

 

https://www.letsdeel.com/blog/all-you-need-to-know-when-hiring-independent-contractors-2020#:~:text=....

ReneeM7122
Level 6

1099 NEC declare as foreign income

You are correct.  !099 MISC and 1099 NEC are issued to U.S. persons only.  A non-U.S. person would complete form W-8BEN and receive Form 1042-S if the payment is U.S.- sourced.

 

U.S. law treats U.S. persons and foreign persons differently for tax purposes. Therefore, it is important to be able to distinguish between these two types of taxpayers.

 

United States Persons

The term ''United States person'' means:

  • A citizen or resident of the United States
  • A domestic partnership
  • A domestic corporation
  • Any estate other than a foreign estate
  • Any trust if:
    • A court within the United States is able to exercise primary supervision over the administration of the trust, and
    • One or more United States persons have the authority to control all substantial decisions of the trust
  • Any other person that is not a foreign person.

Foreign Persons

A foreign person includes:

  • Nonresident alien individual
  • Foreign corporation
  • Foreign partnership
  • Foreign trust
  • A foreign estate
  • Any other person that is not a U.S. person

Generally, the U.S. branch of a foreign corporation or partnership is treated as a foreign person. Refer to Internal Revenue Code section 7701(a)(31) for the definition of a foreign estate and a foreign trust.

 

For more information, visit this IRS link .

 

@aliceyy

aliceyy
Level 1

1099 NEC declare as foreign income

Thanks so much for your reply @ReneeM7122 . So it is correct to receive a 1099-NEC for work done outside the US, in a foreign country, while a US citizen. Unfortunately it seems that TurboTax doesn't have an option to declare 1099-NEC as foreign income. I called the TurboTax helpline directly and they told me that the money is not foreign income if it was from a US company, which I don't think is correct.

DaveF1006
Employee Tax Expert

1099 NEC declare as foreign income

According to IRS.gov, you can declare your wages as foreign income and exclude it if:

  • A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year,
  • A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or
  • A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.

If you fall under these parameters:

  1. You will report the 1099-NEC in the self-employment section of your return and report the income from it.
  2. Go to federal>wages and income>less common income>show more
  3. Foreign Earned Income and Exclusion>start or revisit
  4. Next screen you will select A Form 1099-MISC or other self-employment income. The program will assume that you reported the income already as i outlined above
  5. The next screen will ask your foreign gross profit. This is your income that was reported on the 1099-NEC.
  6. Now go through the rest of the qualifying questions in the program to determine if you are eligible for the exclusion. Keep in mind, when you reported the 1099-NEC in the self-employment section, you will need to pay your self-employment tax BUT your income may be excluded if you qualify for the exclusion.
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aliceyy
Level 1

1099 NEC declare as foreign income

Hi @DaveF1006 . Many thanks for your detailed answer. I am indeed 

  • A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.

I followed your steps

1) Reported the income from the 1099-NEC in the self-employment section

2) Went all the way through the Foreign Earning Exclusion. Got to this final screen.

Screenshot 2021-02-22 at 23.51.59.png
To clarify, I only have 2 income sources W2, and 1099-NEC. I declared both and declared W2 as foreign income. From the error message it looks like I should not  declare the1099-NEC in the self-reported income section ("They should be entered here and nowhere else"). Thoughts?
LinaJ2020
Employee Tax Expert

1099 NEC declare as foreign income

You should first enter your 1099-NEC , the Schedule C and then the foreign income section.  

 

To enter 1099-NEC, here are the steps:

  • Sign into your account, select Pick up where you left off
  • From the upper right menu, select Search and type in 1099nec and Enter
  • Select the Jump to 1099nec
  • Follow prompt

To enter Schedule C info, follow these steps:

  • Sign into your account and select Pick up where you left off
  • At the right upper corner, in the search box , type in schedule C and Enter 
  • Select Jump to schedule C 
  • Follow prompts

 

Then you will need to enter as a foreign income, follow here:

  • At the right upper corner, in the search box , type in foreign income and Enter 
  • Select Jump to foreign income 
  • Next screen, Did You Make Any Money Outside the United States? answer Yes 
  • On screen, What Form(s) Was Foreign Income Reported On ? select  A Form 1099-MISC or other self-employment  income and Continue

Per IRS, a qualifying individual may claim the foreign earned income exclusion on foreign earned self-employment income.  The excluded amount will reduce the individual’s regular income tax, but will not reduce the individual’s self-employment tax. 

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pk
Level 12
Level 12

1099 NEC declare as foreign income

@aliceyy , while agreeing with the  post from @DaveF1006 ,  your comment about two incomes ( W-2 and 1099-NEC/MISC )  needs a little clarification --- I would see this situation  occurring when  a US person , employed by a US entity  works in the USA for part of the year  ( and thus being  given a W-2 ) and part of the year working from abroad ( thus being given an income statement  of erroneously a 1099-NEC/MISC).  Note that the W-2 wages cannot be  excluded as the work was done  in the USA while the 1099-NEC portion of the earnings can indeed be  "foreign sourced" because the work was performed abroad.  Also the physical presence test  12 month  ( test period) will need to  overlap a calendar year.    Is this your situation ?

Note that for purposes of  form 2555 ( Foreign Earned Income  exclusion ),  you will have to make sure that the  net foreign income  ( Gross income less any allowable expenses  ) is declared as foreign  gross earnings for purposes of  FEI .

aliceyy
Level 1

1099 NEC declare as foreign income

@LinaJ2020  Thanks for the details!! Unfortunately, it didn't work :( 

I filled in my 1099-NEC. I don't have any Schedule C income (only 1099-NEC -- I am not a business owner or sole proprietor), so I didn't add anything to Schedule C. Then I did the foreign income,  2 ways both with error.

In the first I ticked off W2 and "A Form 1099-MISC or other self-employment  income" in my foreign income. That got the same error as above so I went back only ticked off "A Form 1099-MISC or other self-employment  income". It still has the same error as in my previous reply.

If it helps at all, I am using TurboTax IRS FreeFile.

aliceyy
Level 1

1099 NEC declare as foreign income

@pk Hi pk. Both of these were done abroad. I thought W2s and 1099s can be given to US citizens working abroad. Can you show me somewhere that says the contrary?

teresamorgan0301969
Level 5

1099 NEC declare as foreign income

Hello @DaveF1006 @pk @LinaJ2020 @ReneeM7122 

I have a T4-E form and I only see where to add a foreign income but nowhere to add 'more' foreign income, I searched T4 forms but nothing populated. How do I add more than one foreign income?

Thank you,

Teresa M. 

pk
Level 12
Level 12

1099 NEC declare as foreign income

@teresamorgan0301969 , I am not familiar with T-4E  form , other than a cursory look at what  information it provides.  All I get  is that this  is to tell  the actual benefits  you received from the  insurance.   I am not clear whether this  is only health insurance re-imburesemnt ( in which  case this would not be  taxable income to the extent  you used  standard deduction or reconciled with your claim of medical expenses  if you itemized )  or is it also covering pension disbursement ( which may be taxable ).  Please  tell more  as to the actual situation, what you are trying to do  ( US  federal return  or what ), are you US person ( citizen/Greencard/resident for tax purposes) and where is your tax home for 2020.

 

I will await  your response--yes ?

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