11 Withholding on Home-Country Income and Money You Send or Receive
Question for this chapter. If tax was taken out of income I earned in my home country, and if I send or receive money from family abroad, what happens to that tax and who has to report the transfers?
Answer. Tax withheld abroad is tax already paid to that country, and it is not necessarily the final amount. A treaty may limit what the home country can take, and the U.S. return may allow a credit for income tax paid abroad, within U.S. limits. How much that credit helps depends on the whole return, so it can only be worked out when the return is prepared. Moving money is a separate matter from taxing income, and most transfer reports are made by banks and other financial businesses rather than by you.
What to check
- Find the gross amount and the tax withheld as separate lines on your bank or payer statement.
- Work out whether you count as a tax resident of your home country, the U.S., or both, since residence decides what each country taxes.
- See whether a tax treaty applies to your home country and what it says about your type of income, such as interest, dividends or a pension.
- Check whether your home country expects or allows a return from you, and whether anything must be settled there.
- List any personal reporting forms that may apply to accounts or transfers, as opposed to reports your bank makes.
What to confirm. Confirm your tax residence in each country, whether a treaty covers your country and income type, and which return will carry the foreign tax credit.
One-line summary. Tax withheld abroad is a starting point rather than a final result, and it may be credited on your U.S. return, while sending or receiving money is a separate reporting question.
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