# AUS/US tax question relating to Foreign Tax Credit



## lcarpettron (Mar 6, 2016)

Hi,

I'm quite confused by how I should account for Foreign Tax Credits on US/AUS returns. Don't want to double count credits for tax paid but obviously don't want to not get credit for the full amount.

On Aus wage income that had money withheld by employer/gov do I claim (on Aus taxes) the full amount I paid the US IRS or the difference between aus withholding and us taxes?

Eg. (Assuming the money was already converted into the relevant currency) I earned 10000 IN AUSTRALIA in October 2014, withholding was 2000 in Australia. I claimed the 2000 as FTC on US 2014 return. My effective tax rate on US return was 30% so I paid an addtl $1000 in taxes. Later when I do my 2014-2015 Aus return do I claim the 3000 in us taxes paid or just the $1000 difference ? And then if I end up paying 35% tax in Australia, do I claim the extra 5% on top of that on next years US tax return. :noidea:

Another reason I ask is because if my US effective rate was 10% and I received 1000 as part of my refund would I need to claim that on my FTC (on Aus return) ....effectively reducing my FTC from other sources and even leaving me with a negative FTC ??!?

Thanks so much for any help !


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## Bevdeforges (Nov 16, 2007)

OK, the first thing to determine is where you actually owe the taxes. Where are you resident? (Or rather, where were you living when you were earning that salary?)

That's going to be the country that has "first dibs" on your taxes. Very roughly put, if you were resident in the US when you were working for a US salary, then you pay the taxes there - and take whatever credit is available on your Australian taxes. (Sorry, but I don't know anything about Australian taxes.)

If you were resident in Australia while working for a US company (say, remotely) and having US taxes withheld, then things get a bit more complicated. Technically, you should be paying tax to Australia and using that as a tax credit to claim back anything that may have been withheld from your US paycheck (for income taxes - the other stuff may or may not be reclaimable).
Cheers,
Bev


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## lcarpettron (Mar 6, 2016)

Hi Bev,

Thanks for your reply. 

For 2014-2015 I am a resident of Australia. I feel I have a pretty good understanding of what I'm supposed to claim for FTC but am confused by how the tax forms calculate things so want to make sure I'm not missing foreign tax paid (or overstating it)

I'm filing US tax return because the US requires me to due to citizenship. I earned the money in my example for work in Australia. Money was withheld by Australia (so I claim it as foreign tax paid for my US tax return). My confusion lies in what happens when I'm taxed further in Australia (when I file my taxes later in the year due to tax year running July to June). I want to claim that money on the next US tax return (because it was paid in the next tax year). But I'm confused whether I claim the additional tax ($1000 in my example) or the full amount (and the forms take into account the amount I already claimed as a foreign tax credit). 

And, if the former is the case, what do i do if I received a refund of some of that amount on my Australian taxes ? Do I need to reduce next years tax credit on US return to take that into account. 

Thanks again for the reply. I understand if you don't know. Jeez this is complicated.


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## Bevdeforges (Nov 16, 2007)

If you're resident in Australia, why wouldn't you just take the FEIE (Foreign Earned Income Exclusion) and be done with it? 

But if you really want to go the FTC route, just remember that the two sets of tax returns have nothing whatsoever to do with each other, practically speaking. For your US tax returns, you take your credits for Australian taxes paid during the calendar year you are declaring (i.e. taxes paid from January to December of 2014 on the 2014 US returns). Now, if you get Australian tax refunds during calendar 2015, you're supposed to report those refunds as income in the calendar year received no matter what tax year they relate to.

Sometimes keeping things as separate as possible is actually the easiest way to go.
Cheers,
Bev


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## lcarpettron (Mar 6, 2016)

In previous years, my accountant went the FTC route and I was under the impression you can't change to the exclusion willy nilly. Also, I've read that the FTC more likely saves money while the exclusion saves hassle. Until I know what the actual $ difference is, I'd rather not pay more.

The point you made about the two sets of returns being separate and when the tax was paid, was helpful. 

Thanks again for your advice.


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## BBCWatcher (Dec 28, 2012)

Yes, that's correct. The IRS has some rules that limit flipping back and forth between taking and not taking the FEIE when eligible. If the FTC-only path works better for you, great, no problem.


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## jbr439 (Nov 17, 2013)

Obligatory recent Phil Hodgen article on FEIE flip-fliopping: Flip-Flopping the Foreign Earned Income Exclusion


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