As a U.S. citizen or legal permanent resident, the IRS is in charge of collecting a cut of your income. Even if you work or live outside the U.S., Uncle Sam will want its rightful share of your earnings because you’re a citizen. Taxpayers typically use a W-2 to declare earnings. While some foreign companies provide a W-2, others may not. If you work for a company that doesn’t provide this formal documentation, you might wonder how to report foreign income without a W-2. A financial advisor can help you determine what your tax obligations are, and they can be especially helpful if you have a complicated situation.
What Is a W-2?
Employers use the W-2 Form to report employees’ earnings and salary information to the IRS. In addition, the W-2 Form includes taxpayers’ tax withholdings (federal, state and local), employer benefits like your health insurance, health saving account contributions and more pertinent tax information.
Generally, if you work for an employer in the U.S., you will receive a W-2 the following year. Therefore, your W-2 is extremely important when filing your taxes.
Are You Required to Report Foreign Income?
When looking at what to do with foreign income, keep in mind that individuals who qualify as U.S. persons and have sufficient income to report must file their taxes annually using a 1040 Form. The IRS defines a person of the U.S. as either a:
- Legal Citizen
- Legal Permanent Resident
- Foreign National who spends a significant time in the U.S., pass what’s called the substantial presence test.
Since the IRS follows a worldwide income model, the IRS requires taxpayers to report both domestic and foreign income. So, in addition to reporting income from U.S. or foreign employment, taxpayers must also report income like retirement income, investments and foreign life insurance policies.
Standard Foreign Versions of W-2 Form
When you work for a foreign company, you’ll want to determine if that country has a form similar to the U.S. W-2. Typically, countries that charge an income tax will have a form that can take the place of a W-2. Here are some examples of countries that have a form like the W-2 include:
- Canada: T4 slip
- Mexico: Form 37
- Great Britain: Form P60
- Japan: Gensen-Choshu-Hyo
- Singapore: IR8A
- Germany: Ausdruck der Lohnsteuerbescheinigung
- Switzerland: Salary Certificate
- Philippines: BIR Form 2316
- France: Code General des Impots
- Australia: PAYG payment summary
Therefore, if you work for a country with an applicable tax form, you can usually use it when preparing your taxes. Remember, some countries have varying tax years that may not align with the tax year in the U.S. In this case, filing your taxes might not be as simple as copying and pasting your income. You may need to request the year-to-date information on your pay stub. This way you can accurately report your income for the U.S. tax year.
How to Report Foreign Income Without a W-2
So, what happens if you work for a country that doesn’t have a foreign version of the W-2 Form? In this case, you will typically have to calculate your income independently. You must look at your paystubs, bank records, investment reports, travel receipts and other relevant information to calculate your income and taxes owed to the IRS.
From there, you can calculate your exclusions and tax credits. The IRS provides tools to help you avoid paying taxes twice: Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credit FTC. The FEIE helps taxpayers identify if their income qualifies for the foreign income exclusion, which may allow you to exclude your foreign income from your taxes.
To determine if you qualify, you must fill out Form 2555 for the FEIE and Form 1116 for the FTC. You’ll include both forms when you file Form 1040. Depending on your situation, you may need additional documentation to report your income. For example, the IRS may require copies of statements from foreign accounts even if you can provide a W-2. In addition, additional documentation will be required for taxpayers who own an international company (or a share of one) or hold investments like mutual funds abroad.
The Bottom Line
If you earn any income from a foreign company and are a U.S. citizen, you must report your earnings to the IRS. For a taxpayer that doesn’t have a W-2, you can provide other documents such as bank statements to report your income. However, the tax code is highly complicated and ever-changing. For this reason, it’s wise to have a tax professional on your side who can help you navigate the process, so you don’t encounter surprises along the way.
Tips for Tax Planning
- A financial advisor could help create a tax strategy for your international investments and foreign income. If you don’t have a financial advisor, finding one doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Some taxpayers are confident taking the DIY approach and filing their taxes using the instructions from Form 1040. At the same time, others choose to pay for a tax prep program to simplify the process. Because of the complexities of the ever-changing tax code, using tax prep software may make filing your taxes less complicated. Check out our roundup of the best tax software to see which service is suitable for your tax-prep needs.
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