Overview

• All U.S. citizens are required to include foreign income on their income tax return, regardless of how the money was received. The fact that you did not receive a W-2 or 1099 for the wired funds as you would have with a job is not an acceptable excuse for not claiming the income when you report your earnings. However, your reporting of the money wired to you is for information purposes only if it is a gift, as foreign gifts are not treated as income. It is only if you are being paid for services through wired transactions that such income is subject to income tax.
  
  

Gifts

• A gift tax is an IRS tax on the transfer of property (including cash) by one person to another, where no tangible item exchanges hands and there is no expectation return -- this means that the person who is giving the money or property is doing it without the expectation of receiving something in return. If the person who is wiring you money is doing so without expectation of receiving something in return, then the giver is often subject to a gift tax. However, the giver would only be taxed if he or she were a U.S. citizen living abroad. If he or she were a citizen of another country, the U.S. tax law would not apply to them.
  
  

Consideration

• Even though there is no tax assessed on the wired money if it is a gift, you may still be required to complete IRS Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts. IRS Form 3520 is an information return, not a tax return, since as stated earlier, foreign gifts are not subject to U.S. income tax.
  
  

Exclusion

• Only income that is specifically redlined as nontaxable by the IRS is excludable on your income tax return. Examples of such income include sickness and injury benefits such as workers' compensation, as well as some military pensions. Only foreign money sent as a gift meets the requirement for this exclusion.