# Credit for tax paid in USA



## mailskobe (Jun 6, 2021)

Hello, I am an expat based in Czech Republic and it is my primary tax residence. I file taxes in CZ and also file returns in USA. As it turns out, due to my income, I end up paying taxes in USA even after accounting for foreign tax credits. This is on top of taxes i pay in Czech Republic for my full global income.

My question is: Can I claim some credit in my CZ tax return for the additional tax I am paying in USA?

Let's say, I earn $100 (CZ equivalent), and pay $22 tax in CZ. On top of this I pay, $12 tax in USA. Can I somehow claim some credit on my Czech tax return for the $12 tax I pay in USA?

Thanks in advance.


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## Bevdeforges (Nov 16, 2007)

It depends. There is a US-Czech tax treaty and in it should be how to deal with the double taxation issue.





Czech Republic - Tax Treaty Documents | Internal Revenue Service


Czech Republic - Tax Treaty Documents




www.irs.gov





Not all countries allow a direct tax credit based on taxes paid on the relevant income in the "other" country. It also depends on the type of income that is generating the tax. In some countries, you wind up paying in total the higher of the two taxes. In your example, if the $12 in tax you pay to the US is based on the tax being $34, reduced to $12 by the $22 credit for what you have already paid to the US, you may be stuck paying the difference to the US.


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## Moulard (Feb 3, 2017)

Bev has provided the link to the treaty. Article 24 is typically the bit that deals with relief from double taxation.

She hits the nail on the head, Article 24 typically limits that relief to the amount of tax paid in the other jurisdiction. The upshot of this is that you typically end up paying the higher of the two tax rates often split between the two treaty countries.

My glib refrain is that Article 24 is less about relief from double taxation than it is about dividing the spoils.

I am not familiar with the CZ treaty, but if it follows the US model, then whether you will be able to claim any relief from CZ taxes based on US taxes paid will depend on whether or not you have any US Sourced income.

If you do, the US would have the primary right to tax that income and you would be able to claim relief from CZ taxes according to domestic law, (typically either a tax credit, offset or deduction)

If I understand correct following a quick search, that the Czech personal income taxes are 15%, you may well find that the best way to lower you US tax liability is to use the Foreign Earned Income Exclusion for wages and FTCs on other types of income if your effective tax rate in the US is more than 15%. If you have previously filed a general category FTC on a US return you may not be able to do this, but if this is your first time filing from abroad it is definitely worth exploring.


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## mailskobe (Jun 6, 2021)

Thanks @Bevdeforges and @Moulard. I will read thoroughly through the links you sent me. My income is split (in a weird way). I get my salary in CZ through a CZ subsidiary of a US company. And i get stocks issued directly by the US company. They sit in Morgan Stanley. In addition, I have income from investments, dividends and stock sales in USA. My primary tax residence is CZ. I declare global income in CZ, file taxes in CZ first and then use the foreign tax credit to offset taxes in USA. Unfortunately, I still end up with significant tax bill in USA. 
If I somehow get credit for this additional taxes paid in USA on my CZ tax return, I feel that it would create a circular loop (given that my US taxes are based on CZ taxes, using US taxes to modify CZ taxes would change the base on which US taxes were calculated). I wish there was an easier way to do this. I will research more.


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## Moulard (Feb 3, 2017)

Which country has the primary right to tax income boils down to its source...

At its most fundamental, absent a treaty clause that changes the sourcing rules.. this is how a number of categories of income you mention are sourced...

Interest - residence of the payer
Dividends - payers country of incorporation
Wages and Persona Services - where the service is performed 
"Investments" - it depends on the type of investment 
So yes, if you have interest, dividends then the US would have the primary right to tax them.

Assuming you are a US Person, then the you would be able to claim a tax credit on your US return for CZ taxes paid on the wages component on your US return 
You would also be able to claim a tax credit on your CZ return for US taxes for the interest and dividends component of your CZ return.

So its not a circular loop, but rather an apportionment between the two.


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