# Foreign earned income reported on W2



## sosasami

Hi,
I have a technical question regarding how to fill in my 1040 in this specific case:

I am a dual citizen US / Israeli living in Israel.
I get some Restricted stock units as a benefit from my company and due to some tax rules, my company deducts taxes on their vest in the US even though it's actually foreign sourced income (I live and work in Israel).

Effectively I have a W2 with some tax paid in the US which I would like to claim back as I've also paid tax on the same income source in Israel and have enough tax credits to cover that income.

The question is - how do I report the income on my 1040? 
If I report it as a standard W2 income it is treated as US sourced and I can't get Foreign tax credits on them.. If I just report that as part of my foreign income, how would I report the tax paid in the US? which box would I report it on?

Many Thanks.


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## mlvoros

hello - did you ever get a reply to this question or learn what to do - I am in the same situation in Belgium with stock in the US... Thanks


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## Bevdeforges

I think one of the issues here is that stock normally isn't "W-2 income" - however, just because you get a W-2 (or 1099) with US taxes withheld doesn't mean you don't report the income in its normal category (or line on the tax form), including taxes withheld.
Cheers,
Bev


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## BBCWatcher

Wouldn't you be able to claim a foreign tax credit on your (possibly amended) Israeli tax return for the U.S. tax paid?


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## StewartPatton

sosasami said:


> If I report it as a standard W2 income it is treated as US sourced and I can't get Foreign tax credits on them.


This is where the train jumps the tracks--the above is absolutely not the case. Reporting of income on a W-2 (or any other form, for that matter), the source of the income, and whether the income is "foreign earned income" for purposes of the foreign earned income exclusion are all separate matters. Stated another way, just because income is reported on a W-2 does not mean it is U.S. source income. If the income is compensation for services you performed outside the U.S., then it is foreign source income.




> If I just report that as part of my foreign income, how would I report the tax paid in the US? which box would I report it on?


You would (i) file IRS Form 2555 to claim the foreign earned income exclusion, (ii) file IRS Form 1116 to claim the foreign tax credit, or (iii) do both (if you have foreign earned income in excess of the foreign earned income exclusion amount).

Ack, just realized I'm a couple of years late for OP. But maybe someone will find this helpful.


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