# Question about US earned income while self-employed abroad.



## MaxMustermann (Jan 25, 2019)

Hi

I am a self-employed US/EU dual citizen living in the EU and I file tax returns in both countries, but have never had any US tax liabilities due to the foreign tax credit and totalization agreement.

It took some time to figure out how to prepare the IRS tax forms the first time around, but I eventually managed to do it and everything was clear to me until I started my 2018 taxes since 40% of my income was from work (services) performed in the US and paid for by US companies.

All of this income was taxed by the EU country where I am living, so what is the mechanism for not being taxed twice on the income earned in the US? Everything that I read considers the income that I earned in the US as "US earned income" and therefore cannot be excluded in form 2555. More importantly, form 1116 seems to be pretty specific to only provide credit for taxes paid on foreign earned income.

Thank you


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## MaxMustermann (Jan 25, 2019)

OK, I eventually found a reply in a different topic that provided the answer. Publication 901 states that self-employed income for services performed in the US are not subject to US taxes if time spent in US is less than 183 days).


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## Bevdeforges (Nov 16, 2007)

OK, I was about to say that if you are resident in the EU, then even self-employment services should be excludable under the 2555. Didn't realize the 183 day thing, but hey, if that's what it says in the IRS publication, sounds like you're good to go.


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## SoCal85 (Jan 14, 2019)

MaxMustermann said:


> OK, I eventually found a reply in a different topic that provided the answer. Publication 901 states that self-employed income for services performed in the US are not subject to US taxes if time spent in US is less than 183 days).


Pub 901 relates to income tax treaties and under a treaty it may provide an exclusion for personal services performed by non-US persons in the US. You mentioned though that you are also a US citizen? As a US citizen you are taxed on worldwide income so you won't be able to take a treaty position on your return. If you are looking at Pub 901, look a middle of pg. 2 - Application of Treaties. "Tax treaties reduce the U.S. taxes of residents of foreign countries. With certain exceptions, they do not reduce the U.S. taxes of U.S.citizens or residents. U.S. citizens and residents are subject to U.S. income tax on their worldwide income."

Since services are being performed in the US they are US sourced income since it's sourced to where they are performed. Foreign earned income exclusion only excludes foreign earned income. 
https://www.irs.gov/individuals/int...ncome-exclusion-what-is-foreign-earned-income

Unfortunately your US income is taxable in the US and there is no offset to it since the foreign tax credit can only be used against foreign sourced income. However, if the EU is also taxing that earned income, then you should be able to claim a credit there instead for taxes paid in the US.


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## Bevdeforges (Nov 16, 2007)

SoCal85 said:


> Unfortunately your US income is taxable in the US and there is no offset to it since the foreign tax credit can only be used against foreign sourced income. However, if the EU is also taxing that earned income, then you should be able to claim a credit there instead for taxes paid in the US.


And that is subject to how taxes work in various EU countries. For example, here in France you don't get a direct tax credit for income that isn't taxable in France. What you do get is a tax credit equal to the French taxes on the income that is not taxable. You still have to declare it, because the total worldwide income figure is used in the (somewhat elaborate) tax calculation. Tax credits (at French rates) are then taken from the total calculated tax figure. (Very rough summary description here - but in any event tax credits in other countries may not work the way the US Foreign Tax Credit does.)


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## SoCal85 (Jan 14, 2019)

:spy:


Bevdeforges said:


> And that is subject to how taxes work in various EU countries. For example, here in France you don't get a direct tax credit for income that isn't taxable in France. What you do get is a tax credit equal to the French taxes on the income that is not taxable. You still have to declare it, because the total worldwide income figure is used in the (somewhat elaborate) tax calculation. Tax credits (at French rates) are then taken from the total calculated tax figure. (Very rough summary description here - but in any event tax credits in other countries may not work the way the US Foreign Tax Credit does.)


Good point! I agree - it will vary from country to country on how or if you can claim taxes paid in the US.


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