You are currently viewing T15: DOUBLE TAXATION CREDITS IN USA


Many OCI (Overseas Citizens of India) who are citizens of USA, or Green card holders who are required to file USA tax returns while living outside USA, say in India, would need to show global income in the USA tax returns. Thus the income would be taxed both in India (as tax status resident of India) as well as foreign earned income in USA tax return (as US citizen or green card). However for the double taxation, there is relief in the USA tax returns in two ways : a) Foreign Earned Income Exclusion and b) Foreign Tax Credit 

Foreign Earned Income Exclusion: The foreign Earned Income Exclusion is an amount allowed as exemption if the U.S. citizen of US resident alien (Green Card holder) meets the physical presence test or the bona fide residency test in for the foreign country. The exclusion is $107,600 for 2020. There are definitions of what is foreign earned income. Foreign-earned income means wages, salaries, professional fees, or other amounts paid to you for personal services rendered. For further details on this exclusion refer IRS site

Foreign Tax Credit : The Foreign Tax Credit is available to those who paid or accrued foreign taxes to a foreign country or U.S. possession and are subject to U.S. tax on the same income. The amount of credit is based on calculation of your income subject to US taxes, the tax payable and amount of tax paid or payable on same income in foreign country. Details are to be supplied in Form 1116. Refer for more details on Foreign Tax credit.

The Foreign Earned Income Exclusion and the Foreign Tax Credit are mutually exclusion so the same income cannot be taken for credit using both forms. Also care should be taken to calculate the tax credit as prescribed by the IRS.   

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