How to take Credit for Tax paid on Wages in Germany

[TomW2022]

We moved to Germany this year.

We do not qualify for the exclusion on foreign income and want to take the credit for Foreign Tax Paid on foreign wages.

Where i should be able to claim the foreign taxes is here: Deductions & Credits -> Estimates and Other Taxes Paid -> Foreign Taxes

However, going through the Foreign Tax interview there seems no option to enter my taxes. Only option available seems on foreign taxes paid on Form 1099DIV/INT.

Question:

Where exactly do I enter in the Foreign Tax interview my Foreign Tax Credit paid on Foreign wages?

See steps below offered in TurboTax below on Foreign Tax Credit.

[AbrahamT]

After you get to the screen where you last entered Germany, you will hit continue, continue, continue

until you get to the screen I just illustrated for you.

Thank you.

[pk]

@TomW2022 , reading through all the detailed process  by @AbrahamT , I am still left  with a few more questions --

(a) when did you come to US

(b) are you a US person ( citizen / GreenCard ) that is returning to USA or  foreign person  that is starting employment / living in the USA?

(c) If you are not US person , then are you a citizen of Germany  and were you working there for the US govt etc. or for a local entity?

I ask these questions  because  from what you posted I want to be sure that 1. you actually should report your German wages and 2. that you are or are not eligible for Foreign Earned Income Exclusion.

I will circle back once I hear from you --yes ?

[TomW2022]

Hi AbrahamT,

Thanks for your support! Here my answers:

a) 2000

(b) US Citizen who moved in 2022 to Germany 

(c) Working for German Company in Germany (not the US Government)

Best,

TomW2022

[pk · Accepted solution]

@TomW2022 , thank you for your answers to my questions.   This throws a complete  new light  on the issue at hand.

 Assuming that you  entered Germany  in 2022 ( let us assume July 1st of 2022), being a US person ( US citizen/ Green Card ), you are taxed on your world income and thus your German income comes under the purview of US tax laws.

To ameliorate the effects of double taxation of your German  income  in 2022 ( it is classed as Foreign Earned Income ), you have the following options --- (a) Foreign Earned Income Exclusion -- you have to meet  Physical Presence Test ( 330 days abroad with a test period  of continuous 12 months, have a foreign tax home etc. ) or Bonafide Resident ( requires IRS approval );  (b) Foreign Tax Credit  OR (c) Foreign Tax deduction if you itemize.

Generally most Expats, use the  Foreign Earned Income Exclusion --- but this means  you cannot file till you meet  the Physical Presence Test  ( in our example above , you wait till June 30th 2023, when you meet the first possible 12 month test period ).  This will ten allow you to exclude most of your foreign earned income from US taxes.

Does this make sense --- and is there more I can help you with ?

pk

[TomW2022]

It absolutely makes sense. Unfortunately, I will not pass the physical presence test (330 days) as I am regularly back visiting family in the USA. We will go for Bonafide Residence next year. 

Thanks for your help.

[TomW2022]

i entered foreign tax on wages as instructed below, however it has no impact (postive or negative) on my total tax to be paid. What do i do wrong?

[rogge1722 · Accepted solution]

You have 2 categories of income; passive category for the dividends and general category for wages. You went thru the interview doing the dividends first. This may be incorrect. We need to know which category of income paid more taxes. This is because this will most likely result in the greater tax credit and this must be on the first Copy. Which category is to be first?

[TomW2022]

You are correct on both accounts.

# 1 Turbotax guided me first through the passive category for the dividends. Only after I completed them I was guided to general category for wages.

#2  I paid more foreign tax on wages/ general category than on dividends/ passive category.

[pk]

@TomW2022 , can you give some details on the following :

(a) rough amount of US income -- wages

(b) rough amount of German income -- wages

(c) rough amount of dividends/ interest etc. -- German sourced and US sourced separately

(d) Are you paying social security equivalent to Germany or are you planning to pay to the USA ( i.e. you currently plan to get US social Security when the time comes )?

Because , on the face of it, no reduction in US tax liability does not compute -- there should be some reduction.  Please answer my Q's and I will circle back.   I am assuming here that you are usinmg a desktop version of TurboTax and not on-line ( I am not familiar with the latter).

Grusse

pk

[TomW2022]

pk,

here in short:

a) 630 

b) 70

c) GER.Sourced: 4  US. Sourced:30

(d)  US SS (him) GER SS equivalent (her)  & yes, US SS when time comes 

I have got a desktop version.