How do US citizens get credit for PIT paid in Thailand

[JohnnyBD]

How would a US citizen who paid income taxes in the US, get a tax credit from the IRS if they had to pay taxes in Thailand on the same income? For example, a US citizen (Thai tax resident) remits 2MM THB to Thailand (all assessable monies), and pays income taxes in Thailand on that 2MM THB. I can't see the IRS just giving a dollar-for-dollar tax credit for taxes paid in Thailand without knowing the make-up of those monies, whether they were previously taxed in the US, or not taxed in the US, and from what tax year those remitted monies were derived. For example, if they were non-taxed monies from a Roth IRA, why would the IRS give a tax credit if those monies were not taxed in the US. I would think the IRS would want to know the make-up of the remitted monies and in what year they were derived. Sounds pretty complicated to me.

[KhunLA]

To choose the foreign tax credit, you generally must complete Form 1116 and attach it to your Form 1040, Form 1040-SR or Form 1040-NR. You must choose either the foreign tax credit or itemized deduction for all foreign taxes paid or accrued during the year. This is an annual choice.

 

https://www.irs.gov/individuals/international-taxpayers/foreign-taxes-that-qualify-for-the-foreign-tax-credit

[JimGant]

On 1/20/2025 at 1:28 AM, JohnnyBD said:

For example, a US citizen (Thai tax resident) remits 2MM THB to Thailand (all assessable monies), and pays income taxes in Thailand on that 2MM THB. I can't see the IRS just giving a dollar-for-dollar tax credit for taxes paid in Thailand without knowing the make-up of those monies,

If the DTA gives Thailand exclusive, or primary, taxation rights on certain income -- like a private pension -- then to avoid double taxation, the US must absorb a tax credit. And, it could be a one for one credit -- if the US tax on the identical income is at least as much as the Thai tax on same income. If not, the credit could only be up to what the US tax was on that income.

 

There are some other qualifiers in taking this tax credit, which the instructions to Form 1116 explain (and better explained in Schedule 514). One of these is ratio of Thai taxable income to US taxable income:

Quote

Your foreign tax credit cannot be more than your total U.S. tax liability multiplied by a fraction. The numerator of the fraction is your taxable income from sources outside the United States. The denominator is your total taxable income from U.S. and foreign sources

 

But, should you be unable to claim the total tax credit due, because of this ratio, then you can carry back one year the credit (filing an amended US tax return), or carry forward for ten years.

 

Another quirk is that the US Tax Code only allows foreign tax credits on foreign income also taxed by the US. But, of course, a US private pension is not foreign income. Hmmm. To get around that, you have to trump the Tax Code with Tax Treaty language -- and this you do with Form 8833, allowing US source income to be treated as foreign income, for tax credit purposes.

On 1/20/2025 at 1:28 AM, JohnnyBD said:

if they were non-taxed monies from a Roth IRA, why would the IRS give a tax credit if those monies were not taxed in the US.

It wouldn't. A tax credit can only be granted against US tax paid on the same income taxed by the foreign country. A Roth, of course, has no equivalent US tax to bounce a credit off of.

 

[Roth is a whole new problem, not addressed in the US-Thai DTA. The US got around this with the UK by a protocol to the DTA dictating that US tax exempt monies, like a Roth, have to be treated the same by the UK, i.e., tax exempt. Would we see such a protocol with US-Thai DTA? Probably not in my lifetime. In the meantime, memorize Por 162, that says pre 2024 income -- which a Roth consists of -- is not taxable when brought into Thailand. Jury still out on this, as one tax firm -- Expatthai tax -- insists pre 2024 income can only be from a bank account. Baloney, I say. Just wonder what the official TRD position is.........]

[gamb00ler]

On 1/20/2025 at 1:28 AM, JohnnyBD said:

For example, if they were non-taxed monies from a Roth IRA, why would the IRS give a tax credit if those monies were not taxed in the US. I would think the IRS would want to know the make-up of the remitted monies and in what year they were derived. Sounds pretty complicated to me.

 

1 hour ago, JimGant said:

It wouldn't. A tax credit can only be granted against US tax paid on the same income taxed by the foreign country. A Roth, of course, has no equivalent US tax to bounce a credit off of.

 

[Roth is a whole new problem, not addressed in the US-Thai DTA. The US got around this with the UK by a protocol to the DTA dictating that US tax exempt monies, like a Roth, have to be treated the same by the UK, i.e., tax exempt. Would we see such a protocol with US-Thai DTA? Probably not in my lifetime. In the meantime, memorize Por 162, that says pre 2024 income -- which a Roth consists of -- is not taxable when brought into Thailand. Jury still out on this, as one tax firm -- Expatthai tax -- insists pre 2024 income can only be from a bank account. Baloney, I say. Just wonder what the official TRD position is.........]

It looks to me like the Thai taxation of US Roth account distributions bears a strong resemblance to a viper pit.  One could easily sustain several bites if not careful.

 

My Roth accounts have been created from IRA conversions and as such have already been taxed.  I assume since US has only secondary taxation rights (but at 0% rate) I should be able to claim a credit against future taxation by Thailand.  On the surface that seems bass ackwards.

 

I like @JimGant's approach that despite temporarily residing in IRA and then Roth accounts, the funds are (in my case, at least) comprised solely of pre 2024 income.