Why do I have to pay tax in two countries?

Why am I being taxed twice?

The US tax code requires residents to pay tax on their worldwide income. This is the case even when another country taxes that income. In many cases the US code does allow for a credit or deduction for those taxes paid.

But I'm not a resident...

While legally you may not be a resident, tax residency is not determined by legal status. It's determined by presence in the US. If you are here too frequently, you are considered a resident for tax purposes.

Is all of my income taxed twice?

Not necessarily. Although the US taxes worldwide income, other countries may only tax income sourced to that country. You may also be eligible for the Foreign Tax Credit. Finally, some countries have tax treaties with the US.

How is income sourced?

In tax, a country has a claim to tax your income when it has 'nexus' to it. Very few countries claim nexus on their citizens (the US is one of the few). Most claim nexus based on physical presence. Therefore if the income was only earned in the US, it may escape foreign taxation.

What is the foreign tax credit?

The foreign tax credit is a credit which helps US taxpayers avoid double taxation. It does so by crediting them for the taxes paid to a foreign country. However this credit has limits. If your US tax on the income is less than your foreign tax, you'll only get credit up to the US tax.

How can I claim my credits?

The foreign tax credits and any tax treaty benefits must be claimed. If you need help, book a Zoom with us and we'll review your situation.

This article is general information, not advice for your situation.