# US Tax Return: Inputting foreign wage as W2 on Line 1 possible?



## JohnM4285 (Apr 26, 2021)

Good morning,
After the very valuable advice received in this forum my friend decided to proceed with the 1040 submission for 2020 and correct her status by using the streamlined procedure. 

However, we are struggling with completing a 1040 and schedules and hope someone could help with some more advice. My friend is a US citizen living permanently abroad. Although she does not live in a high tax jurisdiction, she would like to avail herself of the child tax credit and additional child tax credit and therefore use the Foreign Tax Credit (Form 1116) and NOT the Foreign income exclusion (Form 2555).
However, if she inputs her foreign earned wage as “Other Income” the Additional child tax credit is not available. Can she input her wage as a W2 income on Line 1? If she does that the program computes the additional child tax credit correctly. The employer is a foreign company and she will not be able to attach a W2. One other problem is that the foreign Taxes paid ($920) that she includes under Foreign Tax Credit as General Income does not show in the summary. What do we do wrong? I’m attaching a screen shot of the data we input in the system. 
Some background: She is filing as Married filing separately because her husband is a NRA. She has no assets or income to report in the US. Her child qualifies as a dependent.
On a related note, she also earns some interest from two bank accounts which she would like to include. Should this be included on Line 2b of the 1040?

Any help is much appreciated. Kind regards,
John


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## Bevdeforges (Nov 16, 2007)

JohnM4285 said:


> Can she input her wage as a W2 income on Line 1? If she does that the program computes the additional child tax credit correctly. The employer is a foreign company and she will not be able to attach a W2. One other problem is that the foreign Taxes paid ($920) that she includes under Foreign Tax Credit as General Income does not show in the summary. What do we do wrong?


If she wants to take the FTC, she'll have to fill out and submit a form 1116.

But otherwise, yes, she should input her "earned income" (i.e. wages/salary) on line 1. The fact that it's foreign income means she doesn't have a W2 to submit. There may be someplace in the tax preparation software to indicate that this is a foreign source wage - which should give you a side form to indicate the employer. But the amount of foreign tax withheld doesn't go directly onto the 1040 form. 

The 1116 form isn't a particularly "easy" form to submit - but that's where she indicates the taxes she has paid on foreign income. There are also a couple alternative ways of declaring that - either the actual tax she wound up paying (i.e. from whatever tax returns or declarations or assessments for the year), or if she chooses to take what was withheld from her pay and then receives a refund from her country of residence, that may have to be declared the following year as "income" to some extent.

Take a look at the instructions for the form 1116 for more details.


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## Moulard (Feb 3, 2017)

Expanding on what Bev says, 

For foreign wages, what you want to look for under the income will be something like Foreign Employer Compensation.

A quick check of the taxslayer faq states...



> o enter FEC, from the main menu of the tax return (Form 1040), select:
> 
> Income Menu
> Wages, Salaries, Tips (W-2) or IRA/Pension Distributions (1099R, RRB-1099R)
> ...


It will provide a W2 like form for data entry about your income employer etc.

This income on this psuedo-W2 will end up on line 1.

Form 1116 isn't "hard", but the instructions for it are extremely convoluted and difficult to follow...

What I suggest your friend does is to go to the IRS website and download a copy of Pub 514 that dates from 2013 or earlier. It was the last year that the form had a couple of worked examples (one simple, one comprehensive) in it which are slightly easier to follow.

In essence what you do on the form is to proportional divide your income, deductions, US taxes owed, and foreign taxes paid or accrued into two (or sometimes more) categories.. The worked examples show you how to do that.. 

She will also need to be aware that once she uses Form 1116 she will not be able to use Form 2555 for the next 5 years.


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