reimbursed foreign tax paid

[schirallicpa]

I have a guy that worked in Vietnam and had $28K of tax paid to Vietnam. On his W-2 they have included this figure as reimbursed to him, and have it included in his box 1 wages. So he is getting taxed on this on the 1040. Can he claim the $28K on Form 1116?

(Obviously it doesn't sound quite right to take the credit for reimbursed tax. I'm just stuck on the fact that he also gets taxed on it in the US.)

Hmmm......too many late night softball games with the girls and I can't think straight any more. Anyone else awake out there this afternoon?

Thanks for the input!!

[TAXBILLY]

Can't be a credit because he did not pay the Vietnam tax ... the company did.

The $28000 included in his W-2 was not taxed by Vietnam and therefore not being taxed twice.

taxbilly

[Maribeth]

Can't be a credit because he did not pay the Vietnam tax ... the company did.

The $28000 included in his W-2 was not taxed by Vietnam and therefore not being taxed twice.

taxbilly

I read the question that the client had income taxed by Vietnam and then his employer reimbursed the client for the taxes paid to Vietnam and that amount is included in Box 1 of his W-2.

So if the client is taxed on it, then he should get the tax credit.

For instance, client makes $100,000. All of this is taxed by Vietnam and the Vietnam tax is $28,000.

On the client's W-2, Box 1 shows $128,000: the salary of $100,000 and the reimbursed tax of $28,000.

Client is taxed on $128,000 for US purposes; client has $28,000 of foreign taxes paid eligible for the credit.

Maribeth

[schirallicpa]

yes, Maribeth. The employer bumped up his W-2 for the reimbursed tax.

But I'm still on the fence here.

Anyone else want to add their 2 cents today?

Thanks!!

[joelgilb]

yes, Maribeth. The employer bumped up his W-2 for the reimbursed tax.

But I'm still on the fence here.

Anyone else want to add their 2 cents today?

Thanks!!

My 2 cents.

Maribeth is correct follow her advice.

[joelgilb]

Just thinking that maybe this will help.

Your client is taxed in Vietnam because he worked there and had a tax nexus to that country and their tax laws.

Your client is taxed in the USA because he is a citizen here and USA (in general) taxes the worldwide income of its residents/citizens.

To avoid double taxation between countries, our the countries enter into Tax Treaties to indicate where the taxpayer should be taxed and how. If you really wanted to see how the USA dealt with Vietnam you should read the treaty we have with them.

But, essentially the USA will give a tax credit for taxes paid out to the other country. This will cause your client to be taxed at the higher of the countries rates. Should Vietnam be higher he will not get a credit for the full 28000, if USA is higher he will get a 28000 credit.

The best analogy to this would be the State tax credits for taxes paid in another State