Transcranial electrical stimulation (tES) is a promising therapeutic tool for a range of neurological diseases. Understanding how the small currents used in tES spread across the scalp and penetrate the brain will be important for the rational design of tES therapies. Alternating currents applied transcranially above visual cortex induce the perception of flashes of light (phosphenes). This makes the visual system a useful model to study tES. One hypothesis is that tES generates phosphenes by direct stimulation of the cortex underneath the transcranial electrode. Here, we provide evidence for the alternative hypothesis that phosphenes are generated in the retina by current spread from the occipital electrode. Building on the existing literature, we first confirm that phosphenes are induced at lower currents when electrodes are placed farther away from visual cortex and closer to the eye. Second, we explain the temporal frequency tuning of phosphenes based on the well-known response properties of primate retinal ganglion cells. Third, we show that there is no difference in the time it takes to evoke phosphenes in the retina or by stimulation above visual cortex. Together, these findings suggest that phosphenes induced by tES over visual cortex originate in the retina. From this, we infer that tES currents spread well beyond the area of stimulation and are unlikely to lead to focal neural activation. Novel stimulation protocols that optimize current distributions are needed to overcome these limitations of tES.