Have you worked for an employer outside the U.S. during the past tax year? It may have been steady employment or a brief gig. If so, and you're a U.S. citizen or resident alien, you will need to report the income to the IRS. Unless the foreign income is exempted by U.S. law, you must pay if you live inside or outside the United States.
This is regardless of whether you receive a W2 or 1099 form from the foreign employer. Along with applying to earned income (e.g., wages and tips), US federal income taxes apply to unearned income. Unearned income includes interest, dividends, capital gains, pensions, rents, royalties, and other sources. So you're asking yourself, "how do I file taxes for work done for an international company?" Let's find out now.
Individual Taxpayer Categories for U.S. Citizens or Permanent Residents
A lawful permanent resident is someone with a "green card." They have been granted the right to live in the U.S. indefinitely and enjoy the right to work here. They may not vote here, though. For tax purposes, permanent residents' filing expectations are virtually identical to those of U.S. citizens. Thus, we will refer to them in this article as if they were U.S. citizens.
Salaried Employees Working for Foreign Businesses Abroad
In today's highly connected digital world, it's not that hard to live in a country where you are a U.S. citizen or permanent resident while working for a company owned and operated by and located in another country. Nonetheless, regardless of any tax for international work in the employer's country, U.S. citizen and resident earnings must be filed with the IRS—just as any payments from U.S. employers.
For anyone who does not qualify for the Foreign Earned Income Exclusion (discussed below), all income earned abroad should be reported on Form 1040, Schedule C (Profit or Loss From Business). This form is for reporting both income and expenses, so when preparing your US taxes, be sure not to omit any business-related costs incurred while working abroad.
You need Schedule C to report what is called "self-employed income," which includes earnings from another country, even if it was a regular, salaried job. Self-employment status also extends to needing to pay self-employment tax.
Self-Employed and Freelancers
How do I file taxes for work done for an international company if I'm a freelancer or self-employed? IRS income reporting requirements apply to anyone considered self-employed, whether they worked in a different country, are independent business owners, or are freelancers. These requirements are written to ensure that members of these worker categories pay taxes that are fundamentally equivalent to what they would pay if they worked for any other employer operating in the U.S.
Those who work partially or exclusively as freelancers might have to report a mix of work done for U.S. and international clients. While that mix might represent various types of work, reporting this type of work is one purpose of the 1099-MISC form, which serves as a sort of "catch-all" to report income not accounted for on other standard tax forms.
Salaried Employees Working Abroad for U.S. Businesses
Did you know that the U.S. taxes all its citizens, no matter where they are? If you're working abroad for a branch of a company headquartered in the U.S., you might be surprised to be following the same tax processes as always. But taxes will be a bit easier for you, too, since the employer provides the W2 form and other tax documents and automatically deduct taxes from your take-home pay — just like at home.
All Types of Employees Working for Foreign Businesses in the U.S.
How do I file taxes for work done for an international company if that company does business in the U.S., and that's where I'm located? Those employed in the U.S. by a foreign employer often are exempt from Social Security and Medicare tax withholding, provided there is a "totalization agreement."
Such agreements occur between two countries. They spell out which country should require specific taxes, like FICA, when it comes to taxation for international work.
Foreign Earned Income Exclusion (FEIE)
To qualify for this exclusion, you must meet specific requirements connected to your time's duration and purpose in another country. You might be allowed to exclude some of your international work taxes when filing your U.S. taxes. For the 2020 tax year, you could be eligible to exclude up to $107,600 of your foreign-earned income, and for 2021, the amount will be $108,700.
Eligibility for FEIE
Eligibility for the foreign-earned income exclusion (FEIE) involves meeting three criteria. First, your "tax home" must be outside your home country. A tax home is the vicinity of your international employer. It's where you are a permanent or indefinitely engaged employee or are self-employed. Your official domicile can be a different place, though.
Second, you must have foreign-earned income, meaning that you must fit one of the following categories:
- A U.S. citizen who is a bona fide resident of another country for a whole tax year
- A U.S. permanent resident who is a citizen or national of a country with which the United States has an active income tax treaty and is a bona fide resident of a different country for a full tax year
- A U.S. citizen or 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
These criteria refer to the "bona fide residence test" and the "physical presence test." Other rules could affect your eligibility for the foreign-earned income exclusion. IRS Publication 54 provides more complete information regarding the eligibility of specific taxpayers and their circumstances.
Self-Employment Taxes for International Work
Don't forget that if you are a self-employed U.S. citizen or resident, in most cases, the self-employment tax rules are the same for those living in the United States as for those living abroad. Self-employment tax (15.3%) is a social security and Medicare tax on net earnings from self-employment. You owe this tax if those earnings are at least $400.
"How Do I File Taxes for Work Done for an International Company and Get It Right?"
There are many more nuances to the IRS tax code affecting Americans who work outside the U.S. than we could capture here. But if you believe your tax situation is complicated by your employment status, we recommend hiring a tax attorney or accountant. In fact, if you have to ask yourself, "How do I file taxes for work done for an international company?"
you might benefit from a few tax consultations, to begin with, and then learn as you go. Meanwhile, If you need to prepare some W-2 forms, we can help with that. Check out our W2 page for more information on the details.