A W-2 form is an official IRS document used to report wages and taxes withheld for employees in the United States. While U.S. expats living abroad might not expect to receive a W-2, there are specific circumstances in which they would need one. Here's an explanation:
1. Employment by a U.S.-Based Employer
- If a U.S. expat works for a U.S.-based company, either remotely or while temporarily abroad, they may be classified as a regular employee. In this case, their employer is required to issue a W-2 form annually to report:
- Wages or salary paid.
- Federal, state, and local taxes withheld.
- Social Security and Medicare contributions (if applicable).
- Even if the expat works from outside the U.S., the employer might still withhold U.S. payroll taxes, depending on tax treaties and the employer’s compliance obligations.
2. Short-Term Employment in the U.S.
- If the expat spent time working physically in the United States during the tax year, any income earned during that period is likely subject to U.S. employment laws. The employer would issue a W-2 for that portion of the income.
3. Dual Employment or Secondment
- Some expats have dual employment arrangements where they split duties between a U.S. employer and a foreign employer. The U.S. employer would issue a W-2 for the portion of income earned under their jurisdiction.
4. Tax Filing and Compliance
- As a U.S. citizen, the expat must file a tax return (Form 1040) reporting worldwide income. The W-2 form provides essential details about their U.S. earnings and withheld taxes, which are needed for accurate filing.
5. Foreign Earned Income Exclusion (FEIE)
- Expats may qualify for the Foreign Earned Income Exclusion (FEIE) under certain conditions, allowing them to exclude a portion of their income earned abroad from U.S. taxation. A W-2 helps determine:
- The amount of wages that qualify as foreign-earned.
- How much tax was already withheld by the employer, potentially leading to a refund.
6. State Tax Considerations
- Some states require individuals to continue filing state taxes while living abroad. If a W-2 shows state tax withholdings, this information will be necessary for state tax filings.
Why a W-2 Is Important for Expats
- U.S. Tax Reporting: It ensures compliance with IRS regulations and helps calculate any tax owed or refunds due.
- Foreign Tax Credits: If U.S. income is taxed abroad, the W-2 helps document income that may qualify for foreign tax credits.
- Social Security and Medicare Contributions: If the expat is still contributing to U.S. Social Security, the W-2 shows the amounts withheld.
