Many aspects of filing US taxes change drastically when living abroad. However, if you continue to work for an American company abroad as a W-2 employee, one thing will remain consistent: Filing an annual US tax return to report your income.
Navigating the realm of expat taxation can be a perplexing journey. For example, even something that’s straightforward in the US (reporting income from a W-2) becomes a confusing endeavor.
In this article, we dig into how to file and report income from a W-2 with the IRS while working abroad. We also discuss the circumstances in which you can expect to receive a W-2 from your employer.
Important to note: W-2s are not filed with the IRS by US taxpayers. Rather, your employer files a W-2. Then, you receive a copy of the W-2 for use in reporting wages on your tax return.
Working for an American company abroad
Whether Americans working abroad can expect a Form W-2 depends on a number of factors. Below we describe some common employment scenarios US expats commonly find themselves in. We also note whether they can expect to receive a W-2 before filing their US tax return.
Employed by an American firm abroad
If you’re employed by an American firm, you will normally be issued a Form W-2 if you’re:
- working as an employee of the company (in other words, not a contractor) and
- employed by a US-registered entity of the company, rather than an overseas branch or subsidiary registered in another country.
Your employer should provide you with a Form W-2 by January 31st of each year if you meet both of the above criteria. Moreover, if you’re employed by more than one US company, each one should issue you a separate W-2.
Engaged as an independent contractor
If you’re engaged with your company as a contractor, you’re considered self-employed when you file your US taxes. Depending on the nature and amount of your contact work and where your company is registered, you may receive a Form 1099 instead of Form W-2.
This definition applies to US taxes even if a company has contracted you for full-time work. This definition may vary from the local tax interpretation of your contract, depending on which country you reside in.
There are many complexities associated with appropriately taxing Americans who reside abroad and work as full-time contractors for US companies. In an effort to facilitate remote working opportunities for Americans working overseas, many countries have launched digital nomad visas. Digital nomad visas offer qualifying remote workers the opportunity to live and work abroad legally.
Employed by an overseas branch or subsidiary of a US firm (e.g., PwC Mexico)
In this scenario, you’re considered to be employed by a foreign company. You should not expect to receive a W-2 reporting your employment income, which is only a requirement for US-registered companies.
Note: US citizens and permanent residents will still be required to file a US tax return. This rule applies even if an American living overseas does not receive a W-2. All US taxpayers living abroad will likely be able to exclude much (if not all) of their foreign-earned income from taxation by the IRS.
How to file taxes when working abroad
Sometimes, your company takes care of the bill for this and arranges tax preparation for you as a benefit– lucky you! Others, however, are left to navigate the international tax waters solo.
Many US expats feel most comfortable filing taxes from abroad with the help of a US expat tax professional. This is because US expat tax is a highly complex area of US taxation. Many US expats find that non-specialist, US-based accountants struggle to correctly advise and file their tax returns once they move abroad.
There are a couple of steps you can take to avoid any hiccups in filing or the need to file amended returns. We recommend reaching out to a US expat tax provider well in advance of the tax deadline, and ideally right when tax season kicks off in January. This is so that your US tax return can be scheduled for preparation and submitted on time.
In most cases, the US expat tax return is filed after the foreign return is prepared. This is because the foreign return includes key information that will be reported within the US return as part of the expat tax provisions your expat accountant will apply to reduce your US tax bill. In some cases, the foreign tax return is due after the US filing deadline. If that is the case, your expat accountant will simply file an extension so that you are not penalized by the IRS for a late submission.
Social Security taxes when working abroad for a US employer
If you work for an American employer from abroad, you will typically still have to pay US social security and Medicare taxes, even if you also have to pay foreign social security taxes. (The same is true if you are self-employed.)
However, you may live in a country that has signed a Totalization Agreement treaty with the US. In that case, you will only have to pay social security taxes to one of the two countries. Which one you pay to is defined in each treaty based on criteria such as where you work, where your employer is based, and how long you intend to reside there.
Prior to moving abroad to work with a US company, schedule consultations with a US expat tax provider and a US financial planner experienced in cross-border planning. Each professional has specialized expertise that can help you navigate your decision – and potentially save you thousands of dollars.
Understanding Form W-2
Employers issue a total of six copies of Form W-2. You, as the employee, receive three of these: Copy B, Copy 2, and Copy C.
Copy B is usually filed with your federal tax return if you submit it by mail. Copy 2 is filed with your state tax return, should you need to file one. For your own records is Copy C, which you should keep for three years after you file the return or pay your tax bill (whichever is later).
Form W-2 is a simple form. The left-hand side of the form contains your name, address, and US social security number, as well as your employer’s name address, and EIN number.
Then, on the right-hand side of the form, you’ll find your total income and any income tax, social security tax, and Medicare tax withheld, along with details of retirement contributions and other deductions.
If you have an in-depth question about a particular line of theForm W-2, Forbes recently updated their excellent box-by-box breakdown.
What is the foreign equivalent of Form W-2?
If you’re employed by a foreign company or an overseas branch or subsidiary of a US company, you won’t receive a Form W-2. That said, you will still need proof of your employment income and any foreign income tax deducted at source when you file your US taxes.
Many countries have a form that serves as an equivalent to the W-2. For example:
- United Kingdom: Form P60
- Canada: T4 slip
- Australia: PAYG payment summary
- Germany: Ausdruck der Lohnsteuerbescheinigung
- Japan: Gensen-Choshu-Hyo
- France: Code general des Impots
Foreign W-2 equivalents showing foreign income taxes paid will normally show income received and taxes deducted at source in a foreign currency, rather than in US dollars. They will need to be converted into US dollars before reporting in a US tax return. This can be done using the IRS Yearly Average Currency Exchange Rates tool on their website.
Working abroad without a W2
Working abroad without a W2 requires awareness of and adherence to two sets of rules: those of your host country and the US. As noted previously in this article, special attention must be given to the minimum filing threshold in the US and the legalities of your work arrangement.
A note on remote work abroad as a US citizen or permanent resident
While remote work offers flexibility, it doesn’t exempt people from researching tax requirements in their host country. US citizens must understand tax residency laws and rates, especially if their work triggers foreign filing obligations. Exploring digital nomad visas is valuable, and meticulously tracking entry and exit dates from countries aid the evaluation of compliance requirements.
In many ways, remote work simplifies many aspects of life. But, when it comes to taxes there can be many complicating factors to hurdle, especially in the beginning. Remote work demands proactive awareness of local regulations to ensure successful navigation of international tax and legal landscapes.
How to report foreign income without a W-2
Reporting foreign income without a W-2 involves understanding how you’re employed. As a reminder, if you’re employed by a foreign company in a foreign country, you’ll need to identify that country’s equivalent to the US W-2. (A few of these were reviewed earlier in this article.)
For freelancers and contractors, a W-2 is not applicable. Indeed, establishing a small business entity, invoicing clients, and complying with foreign filing requirements could be necessary. When reporting your self-employment income to the US, Schedule C is used to report those earnings.
When completing Form 1040, whether you have income from a W-2 or income reported on the foreign equivalent of a W-2, your earnings are input on Form 1040 line 1a.
How to file W2 and 1099 together as a US expat
Some folks have all the hustle! If you’re a US employee working abroad through a US company and doing some gig work on the side, you’ll be on the hook for some extra US filing requirements.
The minimum US tax filing threshold generally considers all income earned abroad, including W-2 income. US citizens and green card holders are required to report their worldwide income to the IRS, irrespective of its source or location. This encompasses income reported on W-2 forms, as well as any other forms of income. Other forms of income may include 1099 income or freelance earnings obtained internationally. It’s crucial to accurately report all sources of income to ensure compliance with tax regulations and avoid potential penalties.