How U.S. tax treaties help taxpayers
No one wants to be taxed twice on the same income, right? That’s where a tax treaty can make a big difference. What is a tax treaty? These are agreements that the U.S. has with several foreign countries to align tax laws and resolve issues of double taxation. U.S. tax treaties benefit two categories of people and businesses:
- Residents of foreign countries earning income or doing business in the United States
- U.S. taxpayers who are earning income or doing business in other countries.
We’ll focus on the second example as our tax advisors have helped thousands of U.S. expats take advantage of tax treaties when they file their taxes each year.
Tax treaty basics
Not all tax treaties are alike—some offer more benefits than others. Plus, not all countries have a tax treaty with the United States. Check out the list at the bottom of this page to see the applicable IRS treaty information.
Among other safeguards, treaties can define what income is taxable and determine if you can take a tax credit, tax exemption or a reduced rate of tax. Additionally, a tax treaty can provide tax advantages for your retirement savings. For example, U.S. expats working in England can exclude their contributions to a qualified U.K. pension scheme from taxable income on their U.S. tax return thanks to the U.S.-U.K. tax treaty.
What if there is no treaty? Or what if a certain type of income is not covered? In that case, you must pay taxes on that income in the same manner and at the same rate as one normally would per the instructions on their U.S. tax return.
Residency and tax treaties
What if you’re a resident of both the United States and another country under each country's tax laws? You can still claim the benefits under an income tax treaty. The treaties contain provisions that help settle claims of residence.
Claiming tax treaty benefits: How H&R Block can help
If a tax treaty allows you to modify, reduce, or eliminate your tax liability, you’ll need to complete Form 8833 to properly disclose such information on your U.S. tax return.
You can trust our tax advisors’ expertise to guide you through your expat return, so you don’t pay too much in taxes. Let H&R Block’s Expat Tax Services team help you today.