Unemployment compensation from a foreign government?

[beechmi64]

Where do I report unemployment compensation a self-employed individual received from the French government? The individual is self-employed, and did part-time work for a French media company for many years and had paid unemployment tax to the French government. So when he was let go, he received a large lump sum severance payment from the French government, and also was paid unemployment compensation also by the French government.

No taxes were paid on either payments, and a large part of the severance payment was considered 'non-taxable' by the French government too. So where would he report that payment, and would he just report the taxable portion?

Thanks in advance for any help!

[tagteam]

Please check back here later. I will page Champ @pk.

[pk]

@beechmi64   Could you provide more data please  ( while I refresh my memory on the US-France Tax Treaty :(

(a) Are you filing jointly with "him" or  is he single ?

(b)  Are you  and/or "He" US persons ( Citizen /  GreenCard /  Resident for Tax purposes ) ? 

(c) Where is his Tax home ?   Is he still in France ( for 2023 ? )  or back in the USA ?

(d) If he is still in France  did he use FEIE  ( Foreign Earned Income Exclusion ) for the past years and/or this year ?

(e)  Why did get a lump sum ( rather than monthly amounts ) ?  Is this pension or what ?   Was it taxed ?

(f)  French Unemployment  was taxed or not by the French Tax authorities ?

(g) Are we talking about 2023 tax or 2024 tax  year ?

I will circle back once I hear from you .

[beechmi64]

Thank you so much for your detailed response. 

The individual is single, and all work was performed in the USA. He’s an American citizen (although he was born in France to a French mother and American father). He files a US tax return, and no taxes have been withheld from any of the payments he received. He received u employment but did not pay any taxes on it in France but will include it on his 1040. I think it’s important to note he’s received no tax forms from either the French government or the company that laid him off, just letters. 

This is what was communicated to me….

“Following the purchase of the media group by an outside entity that could not guarantee amount of work I would be granted, I was given the option to be laid off and my last day as an independent freelance journalist by XYZ Company was Feb 28th 2023.

Because I had been working regularly for the past 21 year and opted to be paid in salary with contributions to unemployment benefits etc. I was entitled to severance benefits.

I separated this big chunk of money received as severance in the xl spreadsheet. As noted, a big part of this severance package is considered NOT taxable by the French authorities. Whether The IRS allows me to deduct that portion is another story...”

Thanks again!

[pk · Accepted solution]

@beechmi64   than k you for all the answers.  From this what I get :

1. The taxpayer is a US person

2. Taxpayer, being a  dual citizen ( US would recognize only US citizenship for tax purposes ), lived in the USDA.  The work for the French Entity was performed  in the US.  

3. For US tax purposes  this is self-employment  ( Schedule-C reporting and subject  US SECA rules , absent a certificate of compliance shown to SSA so he pays  SECA/FICA to only one jurisdiction ).

4. Assuming that  because  the same income was also taxed by the French authorities,  he had been claiming  foreign tax credit  using form 1116  under "re-sourced b y treaty ".

5.  I see from the  Tax Treaty,  that if the lump-sum distribution is considered "pension" then  ONLY US can Tax since the  taxpayer is national and resident of US.  US will  then tax it like a total distribution  from a pension scheme  ( from a no-qualified / tax advantaged   retirement plan ) with 100% taxability  ( I am assuming that  the taxpayer did not  make any contribution into  this )

Does this make sense ?

pk

[beechmi64]

Thanks PK! I appreciate your detailed response, and your assumptions are all correct. Except the individual did pay into the French unemployment scheme themselves (employee contributions) for 21 years. So it seems that difference between the taxable portion and the nontaxable portion appears to be a return of those contributions.

He insists this payment is not related to a pension and is strictly related to his severance. In France his severance is called a 'Individual mutual termination of contract'. And it's very common (once again, in France) for individuals who are eligible and have contributed to the French program for part of their lump sum distribution to not be taxable under French law. I've looked at the US/French treaty and do not see anything that relates specifically to severance payments. I think that since he contributed into this program with compensation that he already paid tax on he should only claim the portion of it that the French government considers taxable.

He's going to check to see if there are any special tax circumstances that he was not notified about.

Do you agree with my conclusion? Thanks again for your help!