@curious4913 , assuming that this senior is a citizen of USA or a Green Card holder, US taxes her on her world income ( i.e. irrespective of source country). Because she has income from her country of residence ( India in this case ), she will have to meet the tax laws/regulation of that country.
US-India Tax treaty will apply in this case
1. For the US return ( note that because of the tax year differences, she will have to prorate both the income and foreign taxes for US purposes ) she will file a form 1040.
2. to ameliorate double taxation, she has three options:
(a) she can use foreign earned income exclusion , if she meets the Physical Presence Test ( at least 330 days abroad in any 12 month period ) -- this is generally the least complicated and most tax benign option; however this applies ONLY to active earnings ( employment or self-employment.
(b) she can use itemized deduction for the foreign taxes paid -- if it is beneficial for her to use itemized deduction but SALT limitation currently applies;
(c) she can use foreign tax credit -- this is complicated because you would need to use one for passive category and another for active employment earnings. Also if the earnings are all passive then there is a safe harbor ( direct/full amount) amount of $300 per filer -- do not need to use form 1116 and allowable limitations ( allowable amount is based on a ratio of foreign income to world income )
3. My personal favorite for such returns is TurboTax Home & Business and using the downloaded/CD version.
4. The Economic stimulus payments are not taxable income , Social Security may be and foreign passive also may be . Suggest you run her incomes through TurboTax and see where she comes out -- she may be below the threshold for "required to file" and the taxes on her income in India may be just a lost cause -- note foreign tax credit just reduces your US tax liability ( Non-Refundable Credit )
Is there more I can do for you ?
pk
