Business & Self-employment: TQ Questions Explained

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Did you earn wages from a non-US Employer?

You are required to report your worldwide income to the IRS. This question refers to wages - meaning income you received as an employee.

Please note that if you earned income while being self-employed (such as a freelancer or independent contractor),  you should answer  YES to the question 3.43 Were you self-employed during the tax year (either abroad or in the US)?. 

Next, you will see  Self-Employment Income tab at the left.

This income is treated and reported differently from wages.

For an overview of what the IRS considers self-employment vs employee, please see:

or ask your tax professional if you are unsure.

Amount of personal income tax on self-employment income

Please note that every type of tax - including a tax on self-employment income - is reported on a "cash basis".

This means that you report tax actually paid on this type of income within the period from Jan 1 through Dec 31 - whether this is tax paid on prior year income or current year income.

Lastly - In the case where you have both incomes from an employer and self-employment, we will use the aggregated amount of income tax on all earnings. There is no need to break it down into a tax on wages and tax on self-employment.

Have you previously filed Form 2555?

Form 2555 is the form that processes foreign earned income exclusion.

If you have previously filed U.S. tax return as an expat then you will see it among other filed forms.

If this is your first expat tax return then the answer should be  No.

If we filed your previous return - please pick the option  Previous Return Filed by TFX.

Foreign employer name

You have to provide the name and address of the foreign business or organization you work for in so that the IRS can contact them in case they want to verify your employment and payment details.

For example, if you work for a state-owned university called   Top University, the answer to this question should be Top University.

Please note - if you are   SELF EMPLOYED, your clients ARE NOT your employers and should not be reported here.

If the employer has changed its name subsequent to your employment, please put down "Current Name (formerly Old Name)".

Please note - if you had multiple employers during the year, you can indicate them all. Just click the + Add Employer button below and it will let you add another employer's details.

Amount Your Employer Contributed (if known)

Please note - we only need the amount that   your employer contributed to your foreign employer pension plan.

If some of the amount is yet unvested -   please only provide the vested amount.

The contributions that   you made yourself have no bearing on your U.S. tax return.

For example - if you are enrolled into a company pension plan where the Company contributed $10,000 and you contributed $5,000, the figure you should provide in this question is $10,000 (the amount contributed by your company). Your personal contributions are not needed.

Employer retirement plans in certain countries are considered IRS-qualified. If you have a plan established in one of those countries (i.e. Germany, UK, Netherlands, Belgium), you are not required to report employer matching contributions. However, we recommend reporting employer match even if not required because we may utilize it to improve your tax position for the future years. Your tax preparer will determine whether it is worthwhile to report it now or not.

If you have a contract with the foreign employer - what is the contract expiration date?

If

  1. You have a contract with a foreign employer
  2. That contract has no expiration date

Please put Jan-01-1900 as the answer to this question.

You may also click the Pencil icon and provide an explanation in writing about the nature of your contract.

Gross wages/salary earned with this employer during the tax year

Please indicate gross wages.

Gross means the number before any kind of withholding (or deductions - such as taxes/pension contributions/social security/etc). It does not matter what kind of withholdings took place -mandatory or voluntary contributions, deductions, taxes, social security, etc. You will have a chance to provide all these withholdings in follow-up questions.

This includes wages, bonus, holiday/vacation pay, sick days pay. Please report gross amount disregarding pension contributions.

Freelance payments are reported as Self-Employment Income

If you also had freelance payments (i.e. from self-employment), they should be reported on Self-Employment Income tab. To see it, answer Yes to the question 3.43 Were you self-employed during the tax year (either abroad or in the US)? 

Compensation for work-related travel

If received compensation for work-related travel (such as mileage compensation for use of a private car) - you don't have to include it in gross pay.

Were you self-employed during the tax year (either abroad or in the US)?

Self-employed - a situation in which individual works for himself or herself instead of working for an employer that pays a salary or a wage. A self-employed individual earns their income through conducting profitable operations from a trade or business that they operate directly.

It is important to note that being self-employed is a different situation than simply being a business owner. A business owner is someone who owns a company but does not work with the day-to-day operation of the company. If you are an owner, director, or officer of a foreign company (LTD, SARL, Empresa, etc.) - you are not self-employed. Please provide business details in the  Other Income tab.

In contrast, a person who is self-employed owns their own business, of which they are also the primary or sole operator. Furthermore, there are often different taxation-related implications for being self-employed versus being a normal employee or a business owner.

Read more at Investopedia

Did you receive foreign unemployment benefits?

Please note - maternity leave payment or severance/redundancy payout is not considered as unemployment benefits. They should be reported as regular income.

Did you receive stock-based compensation from your employer?

Examples include:

  • Employee stock (i.e. shares)
  • Restricted stock
  • Stock options

If you participate in a company Employee Ownership Plan and are issued matching shares for your own contribution, these shares are considered as   Stock-Based Compensation. They are reported separately from your regular income - please answer YES to this question.

Also, note - Employer Stock units that are not fully vested (i.e. your full ownership is contingent upon certain conditions such as vesting or future performance targets) do not need to be listed until stocks are unconditionally yours.

Likewise - if you were granted conditional stock units in the past and they became unconditionally yours during this tax year - you have to list them here.

Lastly - if you were provided company stock at a discount (for example 50% off) - the discount is not treated as compensation at the time of the purchase. Instead, if the purchase price included a discount from the market value, then you will report ordinary income at the time of stock disposition. This will be separate from the potential capital gain or loss resulting from the stock sale.

Did your employer provide an allowance on top of direct salary (car, education, home leave, etc)

Please note - if your employer pays for medical insurance, you don't have to report it.

Legal & professional Fees

Legal and professional fees are deductible if related to the income-producing activity.

I.e. for rental property - yes; for personal residence - no.

Are you a U.S. government employee?

If you were a US government employee for only part of the year, the answer should be YES.

Then provide information about the second employer (if you had one) and add an explanation in the Text Entry tab.

Do you want to itemize your business expenses?

This part of the TQ is optional as we may not require itemizing your expenses to reduce your tax due.

However, if reporting gross business income causes U.S. tax (income tax or self-employment tax) - it is in your best interest to itemize business expenses and reduce taxable income. 

Is Employer a foreign company, a foreign subsidiary of a U.S. company, or a U.S. company?

If you work for a subsidiary of a U.S. company but are not sure whether it counts as a Foreign Company or a U.S. subsidiary, your pay statement would be the indicator.

If payment is received on W2, then this is U.S. company.

If you receive a foreign pay stub - then answer this question as working for a foreign company.

Did your employer pay for your residence?

This means that your employer gave you money to compensate for your own expenses for foreign housing.

If you don't have an employer - please skip this question.

This question should only be answered with a YES if the payment for residence IS NOT already included in the W2/paystub.

If it is and you also include it here, we will end up double-counting it.

If the answer is YES, we need to add employer housing assistance to your income.

Please note - If your employer paid for only part of your rent, the answer should still be YES. Provide the amount paid by employer here. Then provide the full amount of rent paid when you answer the question "If you rent your housing - what was the rent and utilities you paid on foreign residence for the entire year?"

If your employer requires you live on their campground or place of work, this is excludable income. To be excludable, the meals and lodging must have been provided for your employer’s convenience and on your employer’s business premises. In addition, you must have been required to accept the lodging as a condition of your employment. If you lived in a camp provided by, or on behalf of, your employer, the camp may be considered part of your employer’s business premises. 

Did you perform work as a consultant or independent contractor for a U.S. firm?

It is required to report your worldwide income to the IRS.

Self-Employment Health Insurance Premium

If you are self-employed and purchase a health insurance plan for yourself and your family members, you may deduct the cost of annual health insurance plan (also referred to as "premium") from gross business income.

You cannot deduct out of pocket medical expenses, such as payments to doctors/hospital/medications as business expenses. Only the price that you pay for the health insurance plan is deductible.

Did you receive wages during the year from a U.S. employer?

It is required to report your worldwide income to the IRS.

How much did your employer pay for your residence during the tax year?

Please note - if your employer requires that employees live on the campgrounds of their place of work, this is excludable income (i.e. it won't count towards your reportable gross income). However, we cannot simply ignore it. We will have to put it on one line of the tax return and then subtract on another line.

In addition, you must have been required to accept the lodging as a condition of your employment. If you lived in a camp provided by, or on behalf of, your employer, the camp may be considered part of your employer’s business premises. See Exclusion of Meals and Lodging in Pub. 54 for details.

If the cost of employer-provided housing is unknown - please give us the Fair Market Value of the comparative housing in your area (i.e. your best guess as to how much this property would cost if you were to rent it yourself).

You can obtain this information online or from a local Real Estate agent.

Employer's street address in the resident country

Please provide employer current address if it has changed since the filing year.

Did your employer provide your residence during the filing year?

This means you lived on employer's quarters rent free. If you don't have an employer - please skip this question.

We ask this because the IRS requires this information on your tax return. 

If your employer offers residence where they pay it partially, please answer YES and provide amount paid by the employer in the following question.  We will account for your own share and for the employer share of rental payment. 

Soc. Sec or Employer ID of childcare provider

Please note - expenses paid to foreign provider also qualify as a deduction. 

If childcare provider is foreign - please write FOREIGN instead of SS#.

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