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Qualifying for Foreign Tax Credit

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Level 1

Taxpayer has lived in Chile and received 1099-R and Social Security Income. he made 99200.00 in foreign income. He no longer has his Green Card. Does he still qualify for the foreign earned credit? and does he have to pay taxes on the non foreign income coming from the Social Security and the 1099-R's which are  unearned income

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Level 15

Your client is not eligible for foreign tax credit, neither is US social security benefits earned income for the purpose of foreign earned income exclusion.  US-Chile income tax treaty is also not a relevant consideration because it has yet to be ratified.

Since US social security benefits are US-source income, it is taxable to the US and does not create any limitation for foreign tax credit.  If the US social security benefits are also subject to tax in Chile, the question is how and the what extent US social security benefits are taxed in Chile.  Chile generally provides for a relief for foreign taxes paid on non-Chilean-source income so long as the requisite requirements are met; his/her tax accountant should be able to provide further guidance in that regard.

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Still an AllStar

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Moderator
Moderator

Per the 1116 Government Instructions https://www.irs.gov/pub/irs-pdf/i1116.pdf there are two requirements to use the 1116: 

Who should file. File Form 1116 to
claim the foreign tax credit if the
election, earlier, doesn't apply and:
• You are an individual, estate, or trust;
and
• You paid or accrued certain foreign
taxes to a foreign country or U.S.
possession.

If they meet both of those requirements the 1116 would apply. 

As for the 1099-R and the Social Security you would want to enter those into the tax return to determine if they would be taxable to your client. 

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Level 1

no taxes on the country earn income. we are exempting the income on fom 2555. 

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Level 15

If he is not a US citizen or Green Card holder and was not on the US during the year, his earned income is not taxable in the US. So no need for Form 2555 - Foreign Earned Income Exclusion.

There is nio such thing as Foreign Earned Credit.

The pension is taxable in the US if it is US source income. Probably the social security is, too. Last I knew we only have an unratified income tax treaty with Chile. You may want to read it and see if you want to rely upon it, with proper disclosure.


ex-AllStar
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Level 15

Your client is not eligible for foreign tax credit, neither is US social security benefits earned income for the purpose of foreign earned income exclusion.  US-Chile income tax treaty is also not a relevant consideration because it has yet to be ratified.

Since US social security benefits are US-source income, it is taxable to the US and does not create any limitation for foreign tax credit.  If the US social security benefits are also subject to tax in Chile, the question is how and the what extent US social security benefits are taxed in Chile.  Chile generally provides for a relief for foreign taxes paid on non-Chilean-source income so long as the requisite requirements are met; his/her tax accountant should be able to provide further guidance in that regard.

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Still an AllStar

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