# If I overpay my taxes this year, can I claw back the overpayment next year?



## jeckert55 (May 23, 2020)

This is two questions.

CONTEXT
I started teaching in China (starting last fall). I paid taxes to china to a non-US employer. I'm filling out my tax return now.

1)
I understand why I don't qualify for foreign tax exemption (I just got to China, and I need to stay a long time to become Bona Fide). However, I should qualify for Foreign Tax Credit. I correctly entered my foreign taxes paid, and nothing was deducted from what I owed, which means I'm being double-taxed by China and US.

2)
Is there a way to reclaim overpaid taxes next year? Like let's say I could have been exempt or could have gotten a credit but didn't. Then can I reclaim the overpayment in 2021?

Thanks


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## Bevdeforges (Nov 16, 2007)

> However, I should qualify for Foreign Tax Credit. I correctly entered my foreign taxes paid, and nothing was deducted from what I owed, which means I'm being double-taxed by China and US.


Filling out the Foreign Tax Credit forms (form 1116) can be very tricky. Your income has to be divided into type (usually passive vs. active - but there are multiple categories) and then the taxes paid have to be applied to the appropriate tax incurred. How did you prepare your tax forms? If you were using a tax preparation software or app, you may have filled things out wrong. But when doing US tax forms, no one does anything for you - you have to carry various amounts and credits over to the proper lines yourself. It's not a simple process.



> Is there a way to reclaim overpaid taxes next year? Like let's say I could have been exempt or could have gotten a credit but didn't. Then can I reclaim the overpayment in 2021?


If you think you made a mistake, you can file an amended return for 2020 (i.e. a form 1040X) - though it can be difficult to get back an overpayment.


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## jeckert55 (May 23, 2020)

Does a mid-year transplant usually try for Foreign tax credit, or does he usually try for Foreign exemption (bona fide)?


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## Bevdeforges (Nov 16, 2007)

jeckert55 said:


> Does a mid-year transplant usually try for Foreign tax credit, or does he usually try for Foreign exemption (bona fide)?


You can't file with an FEIE (Foreign Earned Income Exclusion) until you have spent 12 consecutive months outside the country. (Physical presence test). The bona fide resident test requires an entire calendar year outside the country, so generally in the "transition year" (i.e. arriving or departing) you use the physical presence test for the 12 months up to your date of arrival or starting with your date of departure.

If you were outside the US for less than a full 12 consecutive months, you only can use the Foreign Tax Credit for any income taxes paid while you were in China.


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## Moulard (Feb 3, 2017)

jeckert55 said:


> 1) I understand why I don't qualify for foreign tax exemption (I just got to China, and I need to stay a long time to become Bona Fide). However, I should qualify for Foreign Tax Credit. I correctly entered my foreign taxes paid, and nothing was deducted from what I owed, which means I'm being double-taxed by China and US.


On the US taxation side...

So long as your tax home is no longer the US, only one of the Physical Presence test OR the Bona Fide residence test must be met. Once you have been in China for a full calendar year you can swap to the Bona Fide Residence Test.

If you want to use the foreign earned income exclusion based on physical presence, you can apply for an extension to the filing deadline until you meet the physical presence requirements. Depending on the amount of time required, you may simply need to file Form 4868. That said you can file for a longer extension for return.. the max is until Dec. But I believe you need to write a letter to get an extension that long.

This exclusion is only earned income (wages, salary etc; excluding employer pension type schemes etc) 

If you have paid or accrued income tax to the STA on Chinese sourced income then you are eligible for a foreign tax credit on your US tax return. 

A very broad brush sweeping statement that I know Bev will jump on and say that there are caveats... but if the tax rate on wages in China is lower than the US rate, it may be more beneficial to use the FEIE. but more beneficial to use FTC if the tax rate on wages in higher in China.

Without looking at the US-China Tax treaty I assume that the STA will also give you a tax credit or recognition of US tax paid on US sourced income. 

How that is applied is always dependent on local tax law, and is never a complete panacea against double taxation, but it should provide at least some relief.




> 2) Is there a way to reclaim overpaid taxes next year? Like let's say I could have been exempt or could have gotten a credit but didn't. Then can I reclaim the overpayment in 2021? Thanks


Really the only way to reclaim overpaid US taxes is by filing an amended return for the tax year in question.


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