Are US Expats in Thailand Taxed Twice?
posted a year ago
You can legally owe tax returns to Thailand and the US if you’re a US expat. However, for this, you have to qualify as a resident of Thailand or generate income here. You might be concerned about paying taxes twice on the same income in this situation. Fortunately, the 1996 US-Thailand tax treaty shields US citizens living abroad from double taxation. The IRS also provides a few more initiatives that can lower your US tax obligation.
The Foreign Tax Credit and the Foreign Earned Income Exclusion are two double-taxation schemes. These are frequently used by Americans living abroad.
𝐅𝐨𝐫𝐞𝐢𝐠𝐧 𝐓𝐚𝐱 𝐂𝐫𝐞𝐝𝐢𝐭 (𝐅𝐓𝐂) 𝐟𝐨𝐫 𝐔𝐒 𝐄𝐱𝐩𝐚𝐭𝐬 𝐢𝐧 𝐓𝐡𝐚𝐢𝐥𝐚𝐧𝐝
US residents with unpaid taxes on income obtained in Thailand are eligible for the Foreign Tax Credit (FTC). US citizens living and paying taxes abroad on their foreign income are eligible for a dollar-for-dollar credit under this program. Lowering the amount of income you must pay taxes on, can help you pay less in US taxes.
To be eligible to use this tax credit, you must fulfill certain requirements. You must first pay or owe foreign taxes. Additionally, you have to satisfy the three requirements listed below in order to be eligible for the FTC. Additionally, other requirements are:
You must pay income taxes in your present country of residence. These income taxes must be levied against you by the nation in which you now reside, either through withholding from your pay or mandating payment from independent contractors prior to the filing date.
Taxes must be legitimate.
There can be no additional taxes; only income taxes are allowed.
You might be eligible for the FTC if you satisfy all three of the aforementioned conditions. Therefore, you can make a claim for this credit. However, this is up to the amount of foreign taxes you have paid or owe.
Therefore, if you satisfy these criteria for the FTC in 2022 and made $65,000 in Thailand income, you could claim a tax credit of up to $9,750 utilizing the foreign tax credit.
𝐅𝐨𝐫𝐞𝐢𝐠𝐧 𝐄𝐚𝐫𝐧𝐞𝐝 𝐈𝐧𝐜𝐨𝐦𝐞 𝐄𝐱𝐜𝐥𝐮𝐬𝐢𝐨𝐧 (𝐅𝐄𝐈𝐄) 𝐟𝐨𝐫 𝐔𝐒 𝐄𝐱𝐩𝐚𝐭𝐬 𝐢𝐧 𝐓𝐡𝐚𝐢𝐥𝐚𝐧𝐝
The Foreign Earned Income Exclusion is a different foreign tax deduction. This tax benefit is for US expats residing in Thailand might take into account. With the FEIE, you can effectively pay less US tax by excluding overseas income from your US tax return. The FEIE enables you to exclude up to $112,000 of foreign-earned income for the 2022 tax year.
There are prerequisites for this tax credit. If you are a US citizen residing in Thailand, you must satisfy one of the following two requirements:
𝗣𝗵𝘆𝘀𝗶𝗰𝗮𝗹 𝗣𝗿𝗲𝘀𝗲𝗻𝗰𝗲 𝗧𝗲𝘀𝘁
How long you’ve been outside the US is determined by this exam. If you spent 330 days or more outside the US in any 365-day period, you’ll pass this exam. For instance, you might not pass the Physical Presence Test for the 2022 tax year if you lived in Thailand in 2022 but returned to the US for a total of 40 days during that year.
𝗕𝗼𝗻𝗮 𝗙𝗶𝗱𝗲 𝗥𝗲𝘀𝗶𝗱𝗲𝗻𝗰𝗲 𝗧𝗲𝘀𝘁
This exam evaluates your foreign resident status. For this, you have to be a foreign resident of Thailand for more than one calendar year. Additionally, you must be able to present proof of your residency. It can be by presenting a residency card or visa, paying income taxes to the nation, or having family members who are also foreign residents live with you. This will make you pass this test.
If you pass either exam, you can use the FEIE to have the first $112,000 of your income for the 2022 tax year excluded from your US tax return. In other words, if you made $99,000 in income in 2022 and passed one of the FEIE tests, you would actually be able to reduce your US taxable income to $0, which would effectively result in a tax refund.
Additionally, you can apply the FTC and FEIE to other forms of income. For instance, you may use the FEIE to reduce your US tax burden if you earned $85,000 in foreign income. When it comes to passive income (like investment or rental income), you could then use the FTC. However, you cannot utilize both tax-saving strategies on the same income.
posted a year ago