Hi, I work in Russia and I am a resident of the USA. I am in Russia about 7 months of the year. My US employer pays 13% tax for me in Russia and when I received my W-2 it was shown as income for me. Is this right? An why should I have to pay on income that I have already paid taxes on once. Any help?
United States - 2 Answers
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1 :
You are in a very complicated tax situation. You say you are a resident of the US so you would be taxed as any US citizen would be taxed, ie. on worldwide income from whatever source unless specifically exempted by the tax code. What that really means to you is this: yes, Russia will tax your income because you are providing services in Russia. To the degree your employer pays your taxes on your behalf, that is considered under the US tax code to be taxable compensation to you, and thus the amount of taxes paid would be added to your box 1 wages on your W2. Since you are a US resident, you will also be taxed on your income you earned in Russia even though you are also being taxed by Russia. To help mitigate the double taxation, you have 2 options: 1. File a Foreign Earned Income Exclusion election to exclude up to $87,600 (you won't get the whole exclusion because you were only in Russia for 7 months). The form is called a 2555. 2. Calculate a Foreign Tax Credit on form 1118 to take credit for the Russian taxes paid, which will decrease the amount of US tax you owe on this same income. Robyn M. Enrolled Agent Master Tax Advisor **This advice was prepared based on our understanding of the tax law in effect at the time it was written as it applies to the facts that you provided.
2 :
If you do not qualify for form 2555, the foreign taxes can be claimed on form 1116 (1118 is for corporations) or as a itemized deduction, but not both. You have to pay taxes to the US as well as Russia. Russia is taxing you because of where you were working. The USA is taxing you because they tax citizens and resident aliens on worldwide income. There are only a few countries that tax on worldwide income.
