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Hello and thanks for trusting me to help you today. I am a tax adviser with over 15 years of experience.Do I need to tell the IRS that I received income (Euros) and paid German taxes as a German resident in 2012?Yes, if you are a US citizen then you are taxed on your worldwide income. You of course are allowed credits against that same income that is taxed by another country. That is done by using Form 1116 when you file your US tax return.Most other countries restrict taxation to income derived only from within its territorial borders. Not so in the United States; if you are a U.S. taxpayer, no matter where you are located in the world.
Foreign-source income is considered gross income under § 61 of the Internal Revenue Code of 1986, as amended (I.R.C.). Foreign-source income is simply added to, and taxed at the same rate as, income derived in the United States.
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If you wish you could even use Form 2555 to exclude the income from US taxation but you are required to report the income and then exclude it on the tax return to receive that relief.
But how would the IRS ever know? How is it reported?
If you were audited they could request bank records. And the US and Germany are friendly when it comes to sharing information
You simply report is as wages on Line 7 of your return.
Ok. do I need to do form 1116 and form 2555
No just one. As you paid the tax in Germany then use the 1116 to report that and receive the credit
ok thank you. Do I need any forms from the German Company to complete form 1116
No you would just enter the amounts for 2012 that you were paid and the tax that was paid to Germany.
As you were there in 2013 too you will do the same for 2013
So, how does the IRS check my numbers to verify?
This procedure is covered by our tax treaty with Germany under Double Taxation. If the IRS questions you then you would simply send them copies of your employment documents and German tax
OK. Thank you very much. Very helpful
You are most welcome. Your positive rating is always thanks enough.
will do. Have a nice day!
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OK . Bye