Can 1099-NEC income be declared as foreign income for the exclusion.

Forum|Forum|2 years ago
October 14, 2023
1 reply
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Client/sister is married and lives in the UK year round with her spouse and child. She works for an American company but her income is declared on a 1099-NEC. According to her she reports her income to the taxing authority but doesn't pay tax on it. Inc is below the $120,000 exclusion limit. Can I exclude her income on the 1040 and if so is the SE tax also excludable.

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J

jeffmcpa2010

Level 10

Not sure about your first question, but I had a client with overseas income from a US based employer receive a W-2 with not SS or Medicare withholding. (Was Ministry related)

Wages were excludable, but they did have to pay the Self Employment Tax .

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TaxGuyBill

Level 15

Yes, self employment income can be part of the Foreign Earned Income Exclusion.

For self employment, is her income covered under the UK Social Security System? You would need to real the Totalization Agreement, and *IF* it is not subject to US Social Security, she would need to get a "certificate of coverage" from the UK for you to include on the US tax return.

https://www.ssa.gov/international/agreements_overview.html

https://www.irs.gov/government-entities/federal-state-local-governments/totalization-agreements

https://www.irs.gov/pub/irs-utl/2019ntf-30.pdf#page=17

Don't forget about things like FBAR, FATCA, and if she is working as an 'entity' (LLC, etc.), which all adds more forms.