Question

My wife and I worked overseas, now I am filling for foreign tax credit. Do I consolidate both myself and my wife into a single entry, or do I make two separate entries?

Forum|Forum|1 year ago
March 7, 2025
1 reply
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We both worked as ALT's abroad. We paid taxes while living abroad but we are unsure of how to continue with the income earned and the taxes paid. We do not have the tax documents from that country as we left 5 months after starting work there and did not finish the full year. In total, we earned approximately $6700 each and paid $330 in taxes each (so combined is around $13,400 and $660). I just want to make sure I report this correctly, do I input our incomes separately, or do I consolidate it to the same entry since they were from the same country?

P

pk12_2

@junior4l1 , does ALT mean language teacher ?

(a) you have to each report your own income

(b) since there were no taxes withheld , you probably have to report these incomes like self-employed ( Schedule-C ) recognizing your gross income and all the expenses associated with this stream.

(c) Not knowing the country in question ( to see if a totalization agreement is in effect ), and therefore assuming the worst case , you may have to pay Self-Employment Taxes -- SECA -- on net income at 15.3%.

(d) For taxes paid to a foreign govt. ( again assuming that there is a tax treaty in effect ), may be eligible for Foreign Tax Credit.

I cannot be more specific, till you make me aware of the country you were in and the type of contract that you had.

Will circle back once I hear from you

J

junior4l1Author

We paid taxes while there, we were living in Japan. ALT just means we were english teachers in Japan and that we were hired by a company called "Interac". We paid taxes because they were taken out of our checks every month (we get paid monthly there) and we reported the income separately already (through turbotax I made sure to specify hers and mine for income for it).

The issue that I am worried about is claiming the foreign tax credit, they have it divided per country, so should I submit it as both together, or make two entries for the same country to signify that each one represents one of us? Sorry, first time doing this and it is a bit confusing for me. Thank you for your help though!

P

pk12_2

@junior4l1 , thank you for your response to my questions. Yes , I did suspect that you two were alternate / Assistant teachers for language studies ( English ? ).

Yes there is a tax treaty in effect between US and Japan.

The fact that you were employed or contracted through Interac, and were taxed by Japan on your earnings, implies that you do not come under the treaty article covering "teachers, researchers etc. ). So my assumption is that you are an employee ( contract for a year ? ) of Interac and placed in Japanese schools

Assuming that you are filing MFJ, you have entered your wages as "self-employed " -- one Schedule -C for each one of you. And that would also mean that you each would have one Schedule-SE for the SECA ( FICA equivalent ). So if you did not participate in the Japan Social Security equivalent, then this is your only payment to the US SSA. On the other hand , if you did participate in the Japanese version , then you need a certificate of participation from Japan and you do not have to pay SECA taxes here . Let me know if you need help with this.

For Foreign Tax Credit, you need form 1116 for each of you --- under Deductions and Credits tab, select " I will choose what I work on " and from the drop down list select Foreign Tax credit. Follow through all the screens that follow and this will help fill out the form 1116 --- not this is general category income and there is one for each of you. It is the same country and one for each of you.

Also note that you can choose to use deduction of foreign tax ( under State & Local Tax heading and with its limitation ) if you are itemizing instead of using standard deduction. I suggest considering this because form 1116 limits the allowable ( for the current year ) credit to lesser of US tax ( allocated ) and actual paid to Japan on the same foreign source income. The rest of the Foreign Tax is banked but is useless unless you have foreign source income in another year ( within ten years ).

Is there more I can do for you ? You are welcome to add here your queries.

pk