US citizen living in Japan for Japanese company. How to report maternity leave allowance from government?

[minimiri8]

I'm a US citizen living in Japan working for a Japanese company.

I received maternity leave allowance from the government.

How (where) do I report this on my tax return? 

Also, could I include it as part of my foreign earned income?

Thank you.

[DaveF1006 · Accepted solution]

It depends, if this maternity leave is form the Japanese Government, you would report this under other income. 

1. Click Federal Taxes -> Wages & Income 
2. Scroll down to Less Common Income Go to the last selection, Miscellaneous Income and click Start 
3. Go to the last option, Other reportable income and click Start 
4. When it asks, "Any other reportable income?" say yes and then type in Maternity Leave from Japanese Employer and the amount.

This is not considered foreign earned income because this is a benefit and not considered wages.

[minimiri8]

Thank you Dave for your quick response! It would be great if you could help me with 3 additional questions.

1) You mentioned..."...then type in Maternity Leave from Japanese Employer and the amount."

As I received this money from the Japanese Government, did you mean that I should write Maternity Leave Allowance from Japanese Government (and not Employer)?

2) I will file this by mail and not e-file because TurboTax won't let me as I do not have US income. Do I need to submit documentary proof of my income and maternity leave allowance when I send it by mail? I have never done so in the past few years for my income and  have never got in trouble...but wanted to make sure if I am doing it correctly.

3) Lastly, I followed your directions and inserted the maternity leave allowance I received from the Japanese government under Miscellaneous Income. My federal refund appears as $0. Does this mean I do not owe anything to IRS?

Thank you in advance.

[RobertB4444 · Accepted solution]

1. Yes, @DaveF1006 meant the government, not the employer.

2. You do not need to attach any 'proof of income' papers.  If the IRS wishes to see any of those they will send you a letter.

3. Yes, your foreign earned income credit has wiped out any tax due so you owe zero and they owe you zero.

@minimiri8 

[minimiri8]

Thank you for your reply! I have one last question. 

For the past few years TurboTax has only allowed me to file by mail because I didn’t have any US income. However, this time around, it gives me the option to e-file. Is it because I have entered miscellaneous income (my maternity leave allowance) this time? Am I allowed to e-file even though it’s from a foreign source (paid in Japanese yen , from the Japanese government)? 

[ErnieS0]

I am unsure why TurboTax is allowing you to e-file now but not in the past.

You may have some challenges if you are using TurboTax overseas but give it a try.

TurboTax only accepts Visa, MasterCard, American Express, and Discover cards with a US billing address.

Can I pay my TurboTax fees with a foreign credit or debit card?

No U.S. Credit Card. Unable to Buy TurboTax

You can e-file with a foreign address, but there are restrictions.

• IRS regulations require a US bank account to receive your tax refund, and you'll need a US bank account (or credit/debit card with a US billing address) if paying additional federal taxes owed.
   
• Free products like TurboTax Free Edition and TurboTax Easy Extension require a U.S. or APO/FPO/DPO address upon registration.

Can I e-file with a foreign address?

[minimiri8]

I would like to double check with you.

If I enter it in miscellaneous, I don't find a way to designate it as foreign. 

1) Is it sufficient as long as I write that it's from the Japanese Governement?

2) Also, I converted the amount from Japanese Yen to US dollars. Is this the correct way?

Btw, I used the IRS converstion rate. 

https://www.irs.gov/individuals/international-taxpayers/yearly-average-currency-exchange-rates

3) I noticed that the amount I entered here equates to my adjusted gross income. Is this correct?

Lastly, I found a similar question by someone else. https://ttlc.intuit.com/community/tax-credits-deductions/discussion/where-to-enter-foreign-compensat...

My situation is similar to their #2. The answer by the expert at that time was that the person does not need to report. 

Question: "The parental leave compensation is not taxed by the French government and is a social benefit.  The parental leave compensation is available to parnets of young children who have worked and paid taxes for certain prior periods. "

Answer: "the parenatl leave compensation  could be looked up as a employee benefit  and not connected with your actual work -- i.e. all employees are eligible for it , if needed. This is like sick leave and therefore I would propose that it is not taxable  or recognizable for US tax purposes.  The employer is essentially giving you extra paid leave  -- you are nopt getting extra money  but you are getting without being present at your station of work. So no reporting required"

4) I just want to make sure that I need to report my maternity leave allowance.

[ErnieS0]

In answer to your questions:
 

1. Yes. A description will be fine.
2. Generally, the IRS wants to use the exchange rate prevailing (i.e., the spot rate) when you receive, pay, or accrue an item. However, you can use the annual rate if you earned income equally throughout the year.
3. If all your income was foreign earned income, it would equal your adjusted gross income, unless you elected to use the foreign earned income exclusion.
4. Benefits vary by country and even within a country. I suggest you speak with a local accountant who handles U.S. returns.

[minimiri8]

Thank you for your quick reply! 

I hope this is my last question:

I’ve only had foreign earned income for the past few years, and I have asked for exclusion every year. For this reason, my AGI has been 0 every year. This year, however, as I entered the maternity leave pay from the Japanese government under the miscellaneous income, my AGI equates to the miscellaneous income amount. My federal return is 0, so I don’t think I owe money to the IRS. As this is the first time I see something more than $0 for my AGI, I just wanted to make sure that I won’t later be told that I owe money to the IRS. 

Your response will be greatly appreciated.

[DaveF1006]

You shouldn't owe any money if the income is properly reported. Your AGI should equate to the miscellaneous income amount. My guess is that your miscellaneous income did not exceed your standard/itemized deduction amount and that is why you do not owe.  In 2022, the standard deduction amounts are,  $12,950 for single filers, $25,900 for joint filers or $19,400 for heads of household. 

Another reason why you may not owe tax is that you may have had enough non-refundable tax credits that offset your tax liability for the year. Please refer to this Turbo Tax article for further information regarding non-refundable credits.

Rest assured, Turbo Tax has handled this correctly and this should not raise a red flag with the IRS. For the reasons that are described above, you did not have enough income to generate a tax due.