Foreign tax relief
Taxpayers (generally US persons and foreign persons with effectively connected US trade or business income) may claim a credit against US federal income tax liability for certain taxes paid to foreign countries and US possessions. Foreign income, war profits, and excess profits taxes are the only taxes that are eligible for the credit. Taxpayers may choose to deduct these taxes with no limitation or, alternatively, claim a credit subject to limitations.
The United States has tax treaties with a number of foreign countries. Under these treaties, residents (not necessarily citizens) of foreign countries are taxed at a reduced rate, or are exempt from US taxes, on certain items of income they receive from sources within the United States. These reduced rates and exemptions vary among countries and specific items of income. Under these same treaties, residents or citizens of the United States are taxed at a reduced rate, or are exempt from foreign taxes, on certain items of income they receive from sources within foreign countries. Most income tax treaties contain what is known as a 'saving clause', which prevents a citizen or resident of the United States from using the provisions of a tax treaty in order to avoid taxation of US-source income.
Note that application of the COVID-19 Medical Exemption may impact the ability of individuals to utilise certain treaty provisions.
The US has tax treaties with the following countries:
|Germany||New Zealand||United Kingdom|
The United States has entered into Totalisation Agreements (see Social security contributions in the Other taxes section) with the following nations: