What Is US Double Taxation and How Expats Can Avoid It?

Do you know anything about double taxation in the US? Do you know expats can avoid it? Yes, to get details on every minute related to Double taxation, you have come to the right place at USTAXFiling. You must only pay once on the same income. So, stay tuned and continue to read this blog at USTAXFiling.in.

As an American individual, you have to file a US income tax return even if you are staying overseas. And if you are one who owes income tax to a foreign government, you may have to pay twice on the same income. Here is something you should know about US double taxation- and how you should avoid it.

What Is Double Taxation?

Double taxation means being taxed twice on a similar income. Many corporate shareholders regularly face double taxation. Americans staying abroad may also be subject to double taxation if they owe income taxes to the country of residence and the United States.

Is Double Taxation Legal?

You may think about whether double taxation is legal. After all, how is it fair to pay income taxes twice for the same income? Whether or not double taxation is permitted under United States law. It is true for American expats, corporate shareholders, and many more.

A few activist groups, like Americans Against Double Taxation, oppose this and eliminate double taxation from US tax regulations. For now, double taxation remains a reality for several Americans. Also, in the case of expats, regular tax credits, treaties, or exclusions are in place to assist the US working or living overseas to eliminate double taxation.Who Is Subject to Double Taxation?

Corporate shareholders are the common targets of double taxation. Also, it means that shareholders are in a C-corporation. As a C-corporation gives profits, it should pay income taxes at the corporate stage. Once the profits are distributed to a particular shareholder in the form of dividends, these shareholders should report and pay income taxes at the personal level for their piece of the pie.

It means that the people only get to keep what is left after the income is already twice taxed, once at the personal level and corporate level. Due to this, few C-corporations shift to a partnership or S-corporation to eliminate double taxation.

But for expats, double taxation means having their income taxed by the United States and the country in which they reside. The United States is one of only two nations across the globe with citizenship-based taxation. The other one is Eritrea. Taxation based on citizenship means that all citizens must report their income worldwide regardless of where they work or stay. And if a citizen of the United States stays in a country that needs them to report their income too, they might end up facing double taxation.

It implies to Accidental Americans too. For instance, if you are born to one citizen of the United States parent staying overseas, thus becoming an automatic

citizen of the US yourself- you might have to file a Federal income tax return with the Internal Revenue Service if you have never once set foot in the United States.

And also, it might lead you to be subject to double taxation. Double taxation is no doubt a confusing thing so we will discuss it here with a few examples.

Double Taxation Examples

Following are the examples of double taxation that are:

Example 1 Double taxation

A citizen of the United States named John shifts to the Netherlands to serve as an accountant for the International Corporation Dutch branch. His salary is $70000, and he reports his salary to the Dutch government. As the US imposes citizenship-based taxation, he has to report the same salary to the Internal Revenue Service. It means that he has to report two tax payments for a single year’s salary, including decreasing his take-home income.

Example 2: Double taxation

Suzan shifts to Thailand, where she establishes a shop as a freelance web developer. She makes $85000 every year that she reports to the Thailand government. But again, being a citizen of the United States, she has to report the same amount on a Federal Income Tax Return in the United States. As Suzan may find herself losing an additional cut of her profits through double taxation in the United States.

Example 3: Double Taxation

Reno leaves his home in Kansas and shifts to Beijing in China, to become an English teacher. He earns $30,000 every year from teaching. He is a citizen of the United States; he should report that amount of $30,000 to both Uncle Sam and the Chinese government. Double taxation in the United States strikes again. Also, in all three examples, the individuals may not be needed to pay taxes twice. It is due to the tax regulations in the United States that offer plenty of opportunities for Americans staying overseas to eliminate double taxation.

Here is how you may eliminate double taxation in the United States:

How to eliminate double taxation in the United States as an expat

Tax Treaties

The United States has many tax treaties in place with foreign nations to prevent double taxation in the United States. The two primary kinds of treaties are:

Totalization agreements

Income tax treaties

Both of them serve to eliminate the added burden of double taxation for Americans staying overseas. These treaties consider which country may tax which income sources for citizens abroad in the United States. By searching into the minute information of any tax treaties your country of residence has entered into the United States, you will see which income types you must report to the Internal Revenue Service or your host. For instance, you have to report dividends to the host nation but the social security benefits of pension payments to the United States.

To claim a tax treaty benefit, you have to fill out form 8833:

Treaty-based return position disclosure and link it to your standard income tax return. It might allow you to inform the Internal Revenue Service what treaty article you are using to change your tax obligations and eliminate double taxation in the United States.

Foreign Earned Income Exclusion

For a few income types, you don’t have to think about scanning complex tax treaties to prevent double taxation in the United States. Expats who pass the PPT (Physical presence test) or BRPT (Bona Fide Residence Test) may be used for the FEIE to exclude $100,000 of foreign earned income from the obligations of United States tax regardless of what country they reside in.

Foreign income means income that comes from earned income, and any non-US source refers to income as compensation for a service like:






Self-employment income

The Foreign earned income exclusion, or FEIE, cannot be used to exclude unearned like:

Pension payments


Rental income


Capital gains

Distributions from retirement accounts or trusts Unemployment benefits

Foreign Tax Credit or FTC

Of all the possible ways to eliminate double taxation in the United States, the most trustworthy is the FTC or Foreign Tax Credit. Also, the foreign tax credit was instituted for the main purpose of warding off double taxation for Americans staying overseas.

So, how it operates? Well, if you become eligible for the FTC or Foreign tax credit, the Internal Revenue Service may provide you with a tax credit equal to a minimum of the income taxes you paid to a foreign government. In several scenarios, they may credit you the complete amount you paid in foreign income taxes, eliminating any probability of double taxation in the United States.

And if in case that your credit exceeds the amount that you paid in foreign income taxes, you may carry the excess over to decrease your liability of taxes for coming years.

Regardless, between the Foreign earned income exclusion, tax treaties, and foreign tax credit, it is seen as rare that an American citizen staying overseas is subject to double taxation in the United States.

Get the Assistance You Require to Optimize Your Expat Tax Strategy

In this blog, you must have got a clear understanding of what double taxation in the United States is and how you will eliminate it as an expat. Still, tax regulation in the United States is nothing if not complicated-especially for citizens staying overseas. It is simple to make a mistake and fail to meet obligations or pay more than you have to.

If you have any doubts, USTAXFiling is here to help you. At USTAXFiling.in expat tax services, we have spent years assisting expats in filing their income taxes on time and appropriately. You may connect with us anytime, and we will be happy to help you with your expat income taxes, making sure that you save every penny that you are entitled to. Our experts at USTAXFiling are highly educated and skilled. They make sure to resolve all your queries related to expat tax filing. So, your wait is over. Schedule your call with USTAXFiling your income tax filing partner right away!

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