# Earning in the US during n-COVID19



## travelingteacher (Feb 23, 2020)

Greetings,

I work at an international school in China, so my family is temporarily displaced to the US while I conduct online learning for my students. I will return to finish out my contract when the school deems it's safe enough for students and teachers to return. My school year finishes on June 9th, and my contract finishes on June 30th.

While at home in the US, my wife (who will be a newly licensed teacher) has been offered a long-term sub spot at a local private school. Our two eldest children would potentially attend the school with her for the remainder of the school year instead of returning to China.

Prior to all of this, we'd signed contracts to begin working, as a teaching pair, at an international school in Portugal from August 1st.

*My question is whether or not my wife working here in the US would have a negative impact on our tax situation for 2020 (i.e. dramatically increase our taxable income)?*

For example, if we aren't able to apply for FEIE in 2020 (by any of IRS's exemptions to physical presence given the novel coronavirus/n-COVID19 outbreak), would we still be covered by tax treaties? Seeing as we are/will already be paying about 30% in taxes on our income in China and Portugal, how would my wife earning income in the US from March-June impact our taxes in 2020?

Thank you for any information you all may have!


----------



## Bevdeforges (Nov 16, 2007)

I'm assuming that both you and your wife are US citizens and thus US taxable no matter where you are.



> My question is whether or not my wife working here in the US would have a negative impact on our tax situation for 2020 (i.e. dramatically increase our taxable income)?
> 
> For example, if we aren't able to apply for FEIE in 2020 (by any of IRS's exemptions to physical presence given the novel coronavirus/n-COVID19 outbreak), would we still be covered by tax treaties? Seeing as we are/will already be paying about 30% in taxes on our income in China and Portugal, how would my wife earning income in the US from March-June impact our taxes in 2020?


Actually, your wife working in the US really doesn't have any impact one way or another. If you wind up remaining in the US for more than 35 days, you break the physical presence test whether or not you do any work while you're in the US.

But, there are a couple ways to handle this.

If you want to continue to apply the FEIE, you may have to apply it in two parts - pre US stay and post US stay. Let's assume you remain in the US until June 30th, at which point you depart for Portugal and that other job. You don't say how long you have been teaching in China, but let's assume you had been there for a year (twelve consecutive months) by the time you left to return home to the US.

In that case, you would treat Jan 1 2020 to the date you left China using the FEIE to cover your salary to the date of your departure (for argument's sake, let's say January 31st). As long as you were working in China since at least February 1, 2019, you can exclude the one month of salary using the FEIE.

Your wife's US salary would then be taxed normally as US income.

Now, starting your job in Portugal, you re-start your physical presence period on the date you move to Portugal to take up that job (July 1st in our example). When you file your 2020 returns for the US, you'll have to ask for an extension until the end of July 2021 so that you won't file until after you have completed your physical presence test (again) and thus can exclude your Portuguese salaries using the FEIE.

The other alternative is to opt for taking the Foreign Tax Credit (form 1116) rather than the FEIE for either the Chinese income or the Portuguese income or both. And if you do that, there is no Physical Presence test to meet. That way, you get a credit against US income taxes for income taxes paid to China and Portugal on your salaries there.

Net net you wind up paying only the normal US income tax on your wife's US source salary while in the US. (And depending on the tax rates in China and Portugal, you might even have some "leftover" FTC to offset US tax on part of your wife's salary.)


----------



## Moulard (Feb 3, 2017)

> If you wind up remaining in the US for more than 35 days,


The 35 days has no relevance if you are a bona fide tax resident of another country (and it sounds like you could very well be a bonafide resident of China now, and of Portugal in future). If a bona fide resident you can be in the US as long as you like, although anything more than 183 days is likely to turn you into a tax resident of the US.

Bev is right when she says that US salary would be taxed as US income... income you earn in the US will be US sourced and the US will have the right to tax it unless the there is a tax treaty paragraph that re-sources it. 

It is worth looking at the treaty, and the technical memorandum that tries to explain it in simple words for the politicians that have to sign off on it..

Some treaties do have this clause that allows a foreign tax resident of the other treaty party to resource US income as foreign income. This is because in that situation both countries have a right to tax the income. US as its source, the other country on the basis of taxing its tax residents on their global income. 

It is also worth noting that it is quite possible that from a tax perspective your tax home moves from China to Portugal.


----------



## travelingteacher (Feb 23, 2020)

Thank you Bevdeforges and Moulard for your responses.

*Bevdeforges:*
Yes, we are both US citizens. We spent 4 years abroad in Qatar, and we've been in China since July 2018. We've qualified for FEIE every year since we went abroad. 

Thank you for your note on including January 2020's income under our 2019 FEIE. If I recall, our tax preparer must have done something similar when we first went abroad, including the last months of our 2014 income with our 2015 return.

Thank you, also, for the note on Foreign Tax Credit (form 1116). I'd not heard of that rout before. As it stands, we pay/will pay about 30% in taxes in both China and Portugal. Though, as a departing faculty member, I've actually been classified as a "non-tax resident" for the months of January-June in China, I will still pay a flat-rate tax on the salary made during those months.

*Moulard*
Thanks for your note on some of the details re: tax treaties. I don't think there will be a chance or cause for us to re-source my wife's US-sourced income. Still, the amount of income she'll make in the US in the months of March-June will be much less than what I will make abroad in China (January-June) combined with what we will make together in Portugal (August-December). I'm hoping the taxes we're already paying in those two countries will outweigh any tax liability we may incur from her work in the US.

All the same, I had never considered that another country might consider our US-sourced income as part of our global income with regard to their tax schemes. Thanks for that note. I think we're set with our Chinese taxes, but we'll check in on Portugal's regulations.

Thanks, again. Cheers!


----------



## Bevdeforges (Nov 16, 2007)

If you haven't already done so, you should take a look at IRS Publication 54 for Overseas Taxpayers. In it, they explain how both the physical presence and the bona fide resident tests work (though the bona fide resident test is considerably more vague and requires you to be resident outside the US for an entire calendar year). https://www.irs.gov/forms-pubs/about-publication-54

Most folks tend to use physical presence test for their first and last years (i.e. partial years that begin or end 12 consecutive months outside the US), with bona fide resident serving for the complete calendar years that you are living and working outside the US. 

We do have a Portuguese section here on the forum, where you can find out from other expats how the US-Portuguese tax treaty works.


----------



## travelingteacher (Feb 23, 2020)

Excellent - thank you!


----------



## Moulard (Feb 3, 2017)

You should also familiarise yourself with the US-China Tax Treaty

https://www.irs.gov/pub/irs-trty/china.pdf

and the technical memorandum which to some degree provides an explanation of very dense text (into something designed to be read by very dense politicians  )

https://www.irs.gov/pub/irs-trty/chintech.pdf

You are likely to be most interested in Article 14 (dependent professional services... aka normal employment) and article 22 (elimination of double taxation) aka.. who gives tax credits, who gets the spoils...

An extremely quick skim of the treaty suggests that resourcing is supported, 



> Article 22, Para 3
> 
> Income derived by a resident of a Contracting State which may be taxed in the other Contracting State in accordance with this Agreement shall be deemed to arise in that other Contracting State


To which I parse, if you are a resident of China and have income that may be taxed by the US (e.g. US sourced income) then it shall be deemed to be Chinese income ... which is, for all intents and purposes re-sourcing from a tax perspective.


Its worth noting that this article is not affected by the “saving clause” which allows the US to tax its citizens however it likes.

Now, this is based on a 5 minute skim, so your mileage may vary.. and I will admit to knowing absolutely nothing about Chinese taxes and the treatment under local law.


----------

