(US Citizen) Help filing Foreign Tax Credit in USA

[FormerTohoku]

I've been living in Japan for over five years and have always taken the Foreign Earned Income Exclusion because I only had income from my job. Started up an Interactive Brokers Japan account at the start of 2024 (and also have to start reporting foreign earned income, like US Bank interest, to Japan) so now it seems like a better idea to file for the FTC in America to reduce double taxation on non-employment income.

My question is in regards to filing the FTC for employment income. For the 源泉徴収票 it seems to take into account not just taxes paid but pension and health insurance. I'm assuming that those are separate to the tax that I record on the FTC. In short, how do I know the exact amount of taxes paid on my employment income?

[adamu]

For the 源泉徴収票 it seems to take into account not just taxes paid but pension and health insurance.

I don't know anything about the US tax system.

For the 源泉徴収票, the pension and health insurance are income deductions. They reduce your taxable income which in turn reduces how much Japanese tax you pay on that. So for reporting Japanese tax paid, I assume you would use the actual Japanese tax witheld, which is calculated from your taxable income after the income deductions have been applied (源泉徴収税額).

[captainspoke]

Just to confirm--is IB paying some kind of tax on your behalf to the US? I ask because with my US-based acct (different broker) there is no withholding for interest, dividends, or trades.

**

So you know, switching to the FTC method is generally a five year commitment, Once you start, you need to stick with it, and when/if you do want to switch back, it requires at least a letter (petition?) to the IRS to get approval to switch back to the FEIE. Also, the FTC part of tax software such as turbotax is, IMO, horribly implemented (I have little confidence that it's done properly even in past years). This year I gave up on it and paid a tax prep service.

Or this:

Not every year, but when I've paid the IRS something, I report that as foreign taxes paid on my japanese tax returns, and get that credited here. Have you considered this option? As evidence I screenshot and print the line in my account showing the deduction/payment to Dept of Treasury/IRS, convert the dollar amount to yen at the rate on the date of payment, and turn that in with my return. I'm sure you could do the same thing if IB is withholding something--declare it here instead of going the FTC route.

Another thing to explore is if IB can mark you as a US person, and the US may then stop asking/requiring them to withhold. This may be doable online, or a form to print and sign. If not, then consider declaring those 'foreign' taxes paid on your tax filing here.

[TokyoWart]

I've been living in Japan for over five years and have always taken the Foreign Earned Income Exclusion because I only had income from my job. Started up an Interactive Brokers Japan account at the start of 2024 (and also have to start reporting foreign earned income, like US Bank interest, to Japan) so now it seems like a better idea to file for the FTC in America to reduce double taxation on non-employment income.

My question is in regards to filing the FTC for employment income. For the 源泉徴収票 it seems to take into account not just taxes paid but pension and health insurance. I'm assuming that those are separate to the tax that I record on the FTC. In short, how do I know the exact amount of taxes paid on my employment income?

You may already know this but I wanted to make sure you don't miss anything:

1. You can still use FEIE for your earned foreign income while using FTC for taxes you pay on investment income (dividends, interest, capital gains). In fact, you can use FTC for the earned income above the FEIE limit. There are separate FTC (form 1116) for earned and unearned income on your US tax return and even an AMT version of both forms at higher income levels.

2. If you revoke FEIE for your earned income so that you can use FTC instead then you cannot go back to using FEIE for 5 years unless you get special permission from the IRS. You are not revoking FEIE if you don't use it because you don't have any foreign earned income, but if you do revoke, it is a formal process as described here:
https://www.irs.gov/individuals/interna ... ned-income

3. Remember that the taxes you pay on your earned income which are eligible for FTC are both the 所得税 on the 源泉徴収票 and the 住民税 you pay to your city or ku and the 住民税 does not appear on your 源泉徴収票.

4. My understanding is that the pension and health insurance deductions on your 源泉徴収票 are not eligible for FTC because they are not taxes.

[FormerTohoku]

Just to confirm--is IB paying some kind of tax on your behalf to the US? I ask because with my US-based acct (different broker) there is no withholding for interest, dividends, or trades.

This is something I'm not 100% sure about. They say they withhold 10% in the US and then withhold the 20.315% for Japan afterwards (for dividends and interest) but on the 1099 form that IB provided, it only lists the foreign taxes paid.

So you know, switching to the FTC method is generally a five year commitment, Once you start, you need to stick with it, and when/if you do want to switch back, it requires at least a letter (petition?) to the IRS to get approval to switch back to the FEIE. Also, the FTC part of tax software such as turbotax is, IMO, horribly implemented (I have little confidence that it's done properly even in past years). This year I gave up on it and paid a tax prep service.

I am aware of the five year commitment rule. I definitely agree about the FTC section of tax prep software (in my case Taxslayer) being awful. It's incredibly unintuitive and I feel that it would be easy to make a mistake. I was planning to switch to the FTC because most places online recommended that I swap to it if you have unearned income being taxed abroad. It does sound like it would be a lot easier to fil the FEIE for my employment income and file the FTC for investment and dividend income. That would be one less time to have to deal with the FTC.

I've been living in Japan for over five years and have always taken the Foreign Earned Income Exclusion because I only had income from my job. Started up an Interactive Brokers Japan account at the start of 2024 (and also have to start reporting foreign earned income, like US Bank interest, to Japan) so now it seems like a better idea to file for the FTC in America to reduce double taxation on non-employment income.

My question is in regards to filing the FTC for employment income. For the 源泉徴収票 it seems to take into account not just taxes paid but pension and health insurance. I'm assuming that those are separate to the tax that I record on the FTC. In short, how do I know the exact amount of taxes paid on my employment income?

You may already know this but I wanted to make sure you don't miss anything:

1. You can still use FEIE for your earned foreign income while using FTC for taxes you pay on investment income (dividends, interest, capital gains). In fact, you can use FTC for the earned income above the FEIE limit. There are separate FTC (form 1116) for earned and unearned income on your US tax return and even an AMT version of both forms at higher income levels.

2. If you revoke FEIE for your earned income so that you can use FTC instead then you cannot go back to using FEIE for 5 years unless you get special permission from the IRS. You are not revoking FEIE if you don't use it because you don't have any foreign earned income, but if you do revoke, it is a formal process as described here:
https://www.irs.gov/individuals/interna ... ned-income

3. Remember that the taxes you pay on your earned income which are eligible for FTC are both the 所得税 on the 源泉徴収票 and the 住民税 you pay to your city or ku and the 住民税 does not appear on your 源泉徴収票.

4. My understanding is that the pension and health insurance deductions on your 源泉徴収票 are not eligible for FTC because they are not taxes.

1. Seems like an easier process to do FEIE for my employment income and FTC for the unearned income. Since I've also got US bank dividend income that I included on my Japanese tax return since I've passed the five year mark, am I correct in thinking that I can file the FTC for that as well?

2. So if I don't use the FEIE but still have foreign earned income, I'm technically revoking it?

3. Is there a place where you can see all that information?

4. I assumed so as well.