Taxes on a Foreign Wire Transfer

Wire transfers aren't necessarily taxable events. You'll have to pay any bank fees related to the wire transfer, but the money may or may not create a tax liability. If you are receiving money as a gift, you won't have to pay any taxes, but you may have to report the gift to the IRS. When sending a gift, you may have to file a gift return and pay gift taxes on the money. You will also have to pay tax on money you receive as income or capital gains.

You don't pay tax on gifts you receive, even if the money came from overseas via a wire transfer. If, however, the gift is from a person and exceeds $100,000, you will have to fill out and file IRS Form 3520. If the gift is from a business or partnership, you must file Form 3520 if the gift exceeds $15,797. You won't have to pay tax on the money, but you will have to pay hefty fees and fines if you fail to file this information. Be aware that for foreign tax reporting purposes, money you receive from a nonresident alien in the U.S. gets treated as income from a foreign source.

Under the IRS rules, the gift giver is always responsible for paying any gift tax. The same applies for gifts given through a foreign wire transfer. If you send a gift that exceeds $15,000, you must file a gift tax return with the IRS and pay any related gift taxes. This is where gift tax law gets tricky, however. Every person may, over the course of his lifetime, gift up to $11.18 million free of gift tax. This figure includes any inheritances you plan to leave in the future. When filing your gift return, you may opt to pay the gift tax or skip the payment and apply the gift to your lifetime exemption limit.

Gift law also adds another twist. In most cases, you can gift unlimited amounts of money to your spouse without ever paying gift tax on the money. The rules change, however, if your spouse is not a U.S. citizen. In this case, you may only gift your spouse $148,000 in a year without paying tax. Further, gifts of tuition and medical payments are not taxed, no matter who receives them.

Although money you receive as a gift isn't taxed, earned and investment incomes are. If you receive a wire transfer as payment for work you performed for a foreign entity, the money counts as earned income, and you must pay tax on it. You must also pay tax on money you receive as interest payments from foreign bank accounts and any capital gains. These gains include the sale of property and investment proceeds. Taxable income is always taxable income, no matter what country it comes from or how you are paid.