Double Taxation (Us And Thailand)

[Darvil]

I'm in a complicated situation. I also have an appointment with a CPA to talk about this but I thought I'd throw it on here to see if someone's been through something similar.

I am working for a US company but I am working from Thailand. I also will have to claim some Thai income (specifically 80K baht) for PR requirements. I don't think I will be able to exploit the foreign earned income exclusion (as I can only stay 9 months in Thailand) so that is out of the equation.

Here is the problem. I know the US and Thailand has a treaty where I can get tax credit back but how is this Thai income claimed in the US?

By that I mean, is the Thai income taxed as separate income which would be in the 15 percent bracket? (which should even out with the tax credit) Or does it get tacked onto my US income which would put it on a higher tax bracket (will be very painful if it does).

I can't find any clarification on this. My hunch is that it would be a separate income (or I'm just hoping it is).

Higher bracket would just mean I will be effectively taxed 3 times instead of twice (from the claimed Thailand income which I can tolerate).

Thanks for reading.

[Soutpeel]

Which entity are you being paid out of ?....the Thai entity or the US entity.

The purpose of reciprocal tax agreements is that you dont get double or triple taxed on the same income for Thai income you would be provided with a letter/confirmation of tax paid in Thailand for your US tax submission.

IMHO....it wouldnt be considered separate income, but would be lumped together, but you would be excluded from paying tax in the US on the Thai portion of the salary as its already been paid as PAYE in Thailand.

[Darvil]

Thanks for the reply. Technically I will have two jobs, my real one in the US, and a semi-real/fake job in Thailand. So I will be paying tax on both ends.

I asked about the lumping together because if its lump together the income would go in the higher tax bracket. But I think I'm getting what you're saying here. Even though technically my tax will be on the combined income I will be paying on the lower bracket portion as the other will already paid in Thailand.

Am I correct on this?

[tonititan]

IMHO....it wouldnt be considered separate income, but would be lumped together, but you would be excluded from paying tax in the US on the Thai portion of the salary as its already been paid as PAYE in Thailand.

That would make the most sense, wouldn't it?

I'm no expert on this, which is why I have my accountant deal with all this stuff. But it has been my understanding that US citizens DO pay taxes on the Thai income. I believe that my first year here, when I had US income for part of the year and Thai income for the other part of the year, it was all lumped together as one income on my US tax return, and I was taxed on all of it. So, in effect, I did pay double taxes. I think that the treaty comes into play AFTER the taxes are paid. That is, I'm pretty sure you can apply to have your Thai income taxes refunded if you show that you are a US citizen and already paid taxes there. But of course, the process is complicated and slow. Like I said, I don't know this for sure, so hopefully someone else can give you a definitive answer.

[Darvil]

IMHO....it wouldnt be considered separate income, but would be lumped together, but you would be excluded from paying tax in the US on the Thai portion of the salary as its already been paid as PAYE in Thailand.

That would make the most sense, wouldn't it?

I'm no expert on this, which is why I have my accountant deal with all this stuff. But it has been my understanding that US citizens DO pay taxes on the Thai income. I believe that my first year here, when I had US income for part of the year and Thai income for the other part of the year, it was all lumped together as one income on my US tax return, and I was taxed on all of it. So, in effect, I did pay double taxes. I think that the treaty comes into play AFTER the taxes are paid. That is, I'm pretty sure you can apply to have your Thai income taxes refunded if you show that you are a US citizen and already paid taxes there. But of course, the process is complicated and slow. Like I said, I don't know this for sure, so hopefully someone else can give you a definitive answer.

Hi tonititan,

I do have an appointment with a CPA to ask about this. He'll probably end up doing my taxes.

Do you remember how much tax you paid and does the refund work out for you?

Let me throw up a quick and dirty example.

Lets say in the US I earn 34k (15 percent so 5K tax)

Lets say in Thailand I earn 34k (close to the same amount after calculating as US)

If the total is lumped together and you get taxed on 68K the upper portion (34k-64k) is being taxed at 25 percent (8.5K). In that case the tax credit you're going to get back from Thailand will only be around half of what you paid in Thailand as you paid around 5K in Thai tax.

So does that mean you actually ended up paying a total of 8.5k + 5K = 13.5k in taxes in the US?

Or do they totally wipe away the 8.5k in tax as that amount was your Thai income?

This is where I'm not totally clear on.

[tonititan]

I'm not really sure about those details, sorry. And I realized that I misspoke a little. It is my understanding that we have to claim Thai income on US income taxes, not necessarily pay taxes on it. Whether you actually pay taxes on the Thai income will depend on your salary. There is a foreign income exemption, I think it's somewhere around $90,000/year. If you are under that in Thai income and can meet certain criteria (which sometimes requires requesting extensions....that's where the accountant comes in), you shouldn't be taxed on the Thai portion, but only on the US income. (And in that case, if you can manage to get the double tax refund, then in effect, you're getting the Thai income tax free!). However, I have no idea how it works for placing you in a tax bracket in the US. I don't know if your Thai income is included when placing you. But unless you're making more than 90k in Thailand, I doubt that you are actually double/triple taxed. This is all from my understanding after meeting with my accountant and researching the issue, though, and I could be completely wrong.

Personally, I have not gotten the double tax refund yet, as I am still working on my application. It's complicated, and I know you have to meet very specific criteria. I do know of at least 10-15 colleagues or friends who have previously gotten the tax refund in Thailand. Many of those did not actually pay taxes on their Thai income in the US (because of the foreign exemption), so in the end, they didn't pay any tax at all on their Thai income.

Hopefully the CPA will be able to clear everything up. Good luck!

[Lefty]

Long story short-any Thai taxes you pay in Thailand on Thai income is a deduction from any tax owed in the US on both Thai and US SOURCED INCOME.

Lefty

[proximity]

Just because you can only stay in Thailand 9 months does not necessarily mean you cannot take the foreign income exclusion...do you stay in your own home in Thailand and what is your living arrangement in the USA? How long are you in the USA? At your income level the exclusion won't amount to much however.

[Darvil]

The problem is I can't claim foreign exclusion. Thats only if I am going to stay in Thailand 330 days out of the year. If I can do this then I will not have to worry about the details. The problem is that, I don't think I will be able to convince my work about 11 months so thats that. 9 months is only 270 days so I'm SOL on that front.

Lefty,

I understand what you mean by the tax credit. My question still remains the same. How much? Because as my example shows, there is a big difference if you're being taxed at a higher bracket.

Proximity,

I will be living with a friend in Thailand. In the US, I will be staying at a house which will become available for me 3 months out of the year. Also the example I put up was just a dirty example. I should be making more so this calculation will be more then just a 3K difference. The higher I earn at the bottom base, then the more thats going to be taken away.

Edited December 8, 2010 by Darvil

[tonititan]

The problem is I can't claim foreign exclusion. Thats only if I am going to stay in Thailand 330 days out of the year. If I can do this then I will not have to worry about the details. The problem is that, I don't think I will be able to convince my work about 11 months so thats that. 9 months is only 270 days so I'm SOL on that front.

I really don't think that's true. There is more than one way to apply for the exclusion. The 330 days rule (also called the "Physical Presence Test") is just one of those ways (the most common & easiest, probably). I didn't know about the other way until my accountant explained it - and used the other method for me! I believe the method he used for me was the "Bona Fide Residence Test." Here's a link: http://www.irs.gov/businesses/small/international/article/0%2C%2Cid=96960%2C00.html Like I mentioned in my first post, it involved filing for an extension so that I could meet the criteria for a bona fide resident. I see on that link that you have to have established a residence in the foreign country. I rent a condo, but I do not recall having to provide any proof of that other than an address....certainly not a rental contract. I don't know if the fact that you will be staying with a friend in Thailand will be an issue.

I think that the real bottom line is that it's quite complicated, and you need to make sure to find an accountant who is experienced dealing with US citizens who work overseas. Best of luck in this painful process!

[Darvil]

The problem is I can't claim foreign exclusion. Thats only if I am going to stay in Thailand 330 days out of the year. If I can do this then I will not have to worry about the details. The problem is that, I don't think I will be able to convince my work about 11 months so thats that. 9 months is only 270 days so I'm SOL on that front.

I really don't think that's true. There is more than one way to apply for the exclusion. The 330 days rule (also called the "Physical Presence Test") is just one of those ways (the most common & easiest, probably). I didn't know about the other way until my accountant explained it - and used the other method for me! I believe the method he used for me was the "Bona Fide Residence Test." Here's a link: http://www.irs.gov/businesses/small/international/article/0%2C%2Cid=96960%2C00.html Like I mentioned in my first post, it involved filing for an extension so that I could meet the criteria for a bona fide resident. I see on that link that you have to have established a residence in the foreign country. I rent a condo, but I do not recall having to provide any proof of that other than an address....certainly not a rental contract. I don't know if the fact that you will be staying with a friend in Thailand will be an issue.

I think that the real bottom line is that it's quite complicated, and you need to make sure to find an accountant who is experienced dealing with US citizens who work overseas. Best of luck in this painful process!

Thanks tonititan,

I did see that before and I read and I honestly didn't think I could qualify for it which is why I didn't even mention it.

It seems from reading that you would need two difference places and IRS will have to accept it. I guess this depend alot on an accountant who knows this sort of thing. I think I might be SOL on that as there isn't many around where I live (small town USA). I'll look into it a bit more though. Also I do have to pay rent to my friend and I will also have an office there to do my work. I don't know if that matters much though.

[CWMcMurray]

From my understanding, you need to claim the total earned income made in both USA and Thailand on your USA taxes and you will then be able to deduct the amount of tax paid in Thailand from what you owe in the USA.

For Example:

Lets say you make a total of 50,000 after combining both USA and Thai income and lets say that after your standard deductions would owe Uncle Sam 6,350 USD. Then lets say you have paid Thai Taxes in the amount of USD 2,500 and you have had taxes withheld from you us salary of 4,000 USD.... then you would need to pay uncle Sam 6,350 - 2,500 - 4,000 = tax refund of 150 USD

but I understand that you could not get a refund from USA if you paid more taxes in Thailand that you would have paid in the USA...

For example... if in the same situation, you made the majority of your money in Thailand... lets say 45,000 in Thailand and USD 5,000 in the USA

Then you may have been liable to pay Thai taxes in the amount of USD 8,450 but based upon total income of USD 50,000 you would only need to pay US taxes of 6,350.

Lets say you had USD 1,000 withheld from your USA salary...

This means that you have paid 9,450 USD in total taxes, which is an over payment of USD 3,100. But you can only get a refund of USD 1,000 because this is all that was paid to uncle Sam.

Edited December 8, 2010 by CWMcMurray