Foreign income tax paid on US income: how to get credit

[gbriel]

Are you going to carefully review and respond?

[izzy5]

This is our first year of living in Italy (for 190 days) and having to file taxes in both countries.  We don’t know what the tax liability will be for Italy until we return and file the taxes there.  Would I be including the taxes that we will have to pay this year, for 2024, as a credit on my 2025 tax return? 
also, our tax liability in Italy will be less than it is in the US because we are going to be participating in the 7% flat tax scheme that Italy offers to residents moving from abroad to a small town there. By paying the required US taxes now and then filing and paying the taxes in Italy this year, it would burden us to pay both in 2025 for the 2024 tax year, like double taxation.  Would it be possible to estimate what the tax in Italy will be to deduct from the US tax and make corrections, if any, on the 2025 return?

[SusanY1]

It is best to file an extension, so that you have until October 15 to prepare your US return.  In this way, you won't have to estimate and then file an amendment later.  (Amendments are taking an extraordinarily long time to process right now.)

The IRS also doesn't prefer estimated numbers on filed returns. 

You can then include the taxes paid to Italy in 2025 for the 2024 tax year as "accrued" taxes in the Foreign Tax Credit section of TurboTax to be applied against your US tax obligations. 



@izzy5 

[izzy5]

Thank you for your reply. A couple issues we have are that we didn’t pay any estimated taxes for 2024 because we assumed all of our taxes for the year would be paid to Italy.  We have a penalty showing due on the return. Is there a way to get forgiveness for that?  When you file an extension, I believe you still have to pay the tax just not have to file the actual return until later. What would I pay, not knowing what tax I would owe? 
Another concern I have is whether I will be able to access TurboTax from Italy to file the return. Currently we are in Florida until April 16. While we are in Italy, there are many sites that we are blocked from because of our location. 

[DaveF1006]

It depends. First, I can't guarantee you will be able to access TurboTax in Italy because of your location. If you are in a remote location, access may be a challenge.

The instructions for Form 2210 ‌list some waiver provisions under the section Waiver of Penalty. The provisions include:

• In 2023 or 2024, you retired after reaching age 62 or became disabled, and your underpayment was due to reasonable cause (and not willful neglect); or  
• The underpayment was due to a casualty, disaster, or other unusual circumstance, and it would be inequitable to impose the penalty.  

To file the extension, you do need to pay the tax due on the return. This means that after preparing the return and you owe taxes, you need to pay the tax-due amount. This'll help ensure that penalties and interest won't be charged after the April 15 filing date.

To address your under-payment penalty and to request an exception waiver, go to:

• Other tax situations 
• Additional Tax Payments
• Under payment penalties

[izzy5]

I tried going through these steps, but when I type in the country, Italy, there is no edit box to choose.  Just continue, then asks about carryovers or carrybacks from 2025 or 2023.  I select “no” and it goes back to the Deductions & Credits page.  

[JamesMR]

Hi Dave, 

I'm in the same situation, US citizen living in Singapore on a visitors pass thru my Singaporean wife. I'm considering taking employment with a US-based company, but working remotely from Singapore. If I pay Singapore income tax on my US based salary, is it still possible to claim the foreign tax credit against my US sourced income? Any advice would be so greatly appreciated! 

[SusanY1]

Yes, if you are working remotely from Singapore, even for a US based company, your presence in Singapore makes these wages "foreign sourced" for purposes of the foreign tax credit and/or the Foreign Earned Income and Exclusion.  This is because you are physically working in Singapore, not in the US.

Your payroll department should know that you are working in a different country. This is especially important for state tax purposes if you used to live in a state with an income tax. 

@JamesMR