Implementation of foreign tax treaty in TurboTax

[cabcan2]

      There are provisions in the US-UK tax treaty (Article 17) which are not provided for in the standard TurboTax (deluxe edition) layout.  How should one proceed? One possible alternative is to perhaps add an additional item of income as a negative number - would that be OK?

       As an allied issue, there is no IRS form 8833 included in TurboTax. If needed, does this mean that one has to file a complete paper return by mail?

[DMarkM1]

Yes, using the "Other reportable income" topic under the "Less Common Income" section does allow the taxpayer to remove income items by entering a negative number.  Your form 8833 should support that treaty based adjustment; be sure to identify the adjustment reference. 

Further, you are correct you will need to download the form 8833 from IRS.Gov complete it and attach it to your printed/completed return to mail in to your IRS Service Center. 

[cabcan2]

 That's helpful. Thank you. As a quick follow up:

    Line 8z on Schedule 1 where the correction should be made includes a place to enter the type of "Other income". Can I reference the treaty provision here rather than having to do a paper return to include Form 8833? A comment such as "Tax exempt pensions under US-UK treaty, Article 17" would provide the same information as needed by Form 8833.

[JohnB5677]

Yes, you can enter both the amount and the treaty offset in this program.

Go to Federal

1. To Wages & Income 

2. Scroll to Less Common Income

3. elect Miscellaneous Income = Start / Revisit

4. Select Other Reportable Income = Start / Revisit

5. Any Other Taxable Income? = Yes

6. Enter 1042S in Description

7. Enter the amount in Amount = Continue

8. Any Other Taxable Income? = Yes

9. Enter  UK/US Treaty and the amount as a negative dollar = Continue

[mihelog]

Will this affect state taxation? If I understand right, California (and possibly other states) do not participate in treaties so the exempted income should be reported to them. But if we enter and adjustment into turbotax as explained, won't that affect the amount the state will tax?

[Mike9241]

taxation actually can vary from state to state. some states are a complete re-reporting of everything on the Federal 1040 + lines for items taxed by the state but not the IRS.

other states start with a specific line from the Federal 1040. Usually adjusted gross income to which certain adjustments may need to be made but not necessarily the foreign income excluded on the Federal 1040 under treaty. 

[spapad]

Hi,

I was wondering if you did file with turbo tax and did not file via mail including form 8833 ? Did that work out?

[SusanY1]

TurboTax does not support filing of Form 8833.  You can prepare the rest of your tax return with TurboTax, making manual adjustments and then print and file the return for mail, adding in the manually prepared Form 8833.   You cannot e-file in TurboTax when taking a treaty position on your Form 1040.  

@spapad 

[cabcan2]

This advice has not been my experience for the last two years. The IRS has accepted a negative number entered on Schedule 1, line 8 for other income to compensate for the difference  represented by the effects of a tax treaty in comparison with the standard IRS rules. However, I suspect it is important also to provide a detailed reasoning (including Treaty article number, etc.) for the negative income in the small space provided. In that way Form 8833 can be avoided and a normal e-file undertaken.

It would probably be a lot better if Intuit would support the Form 8833. It would prevent Turbotax from having to drop the term "deluxe"!

                         pp Christine Nelson

[DaveF1006]

Yes you can report the income and then back it out with a negative number.  Here is how to report.

1. Log into your account
2. Select Wages and income>other income
3. Miscellaneous Income, 1099-A, 1099>start
4. Scroll to the bottom of the page to Other Reportable Income
5. Other taxable income, answer yes
6. Then give a brief description of the income and the amount listed.
7. After this entered, then in the screen that follows, select the button Add Another Miscellaneous income Item
8. Repeat steps 1-7. Here you will provide the Treaty and Article number and then report the income with a minus sign in front of the amount.

Now regarding the 8833, this doesn't need to be filed if the following exceptions apply.

1. The payee can claim a reduced rate of withholding tax under a treaty on interest, dividends, rent, royalties, or other fixed or determinable annual or periodic income ordinarily subject to the 30% rate.
2. The payee can claim a treaty exemption that reduces or modifies the taxation of income from dependent personal services, pensions, annuities, social security and other public pensions, or income of artists, athletes, students, trainees, or teachers. This includes taxable scholarship and fellowship grants.
3. The payee can claim a reduction or modification of taxation of income under an International Social Security Agreement or a Diplomatic or Consular Agreement.
4. The payee is a partner in a partnership, or a beneficiary of an estate or trust and the partnership, estate, or trust reports the required information on its return.
5. The payments or items of income that are otherwise required to be disclosed total no more than $10,000. 
6. For recent changes to the requirements for filing Form 8833, refer to the instructions attached to the Form 8833.

If the exceptions do not apply, the 8833 must be filed with the return. This means printing the form and mailing it with the tax return.

Claiming Tax Treaty Benefits

Form 8833 Instructions and PDF

[pemoi1982]

hi @DaveF1006 

Is this still required if I add my foreign income within "Foreign Earned Income and Exclusion" and I apply for Foreign Tax Credit.

I can see how these 2 options overlap:

1. Foreign Earned Income &  Foreign Tax Credit (in my cases reduces but not eliminates all foreign income taxes from abroad)

2. Positive Miscellaneous Income & Negative Miscellaneous Income

Can you please clarify?

Thank you

[DaveF1006]

To clarify, can you give some details about your particular situation, such as:  

1.  Are you a US citizen living and working in a foreign country.
2. What country
3. Are you a foreign national reporting your foreign income as a US resident.

I just need these details so I may give you an accurate answer. Thanks!!

@pemoi1982 

[pemoi1982]

sorry, yes,

this refers to 2024, the year I am filing for:

1.  Are you a US citizen living and working in a foreign country.
   • I am a US resident alien working in Spain since 15 July 2024. I still hold the green card
2. What country
   • Spain
3. Are you a foreign national reporting your foreign income as a US resident.
   • Yes, I am Spanish and I am reporting the salary I got in California (Jan-Jul), which is clear to me,
   • and the salary I made in Spain (Jul-Dec) which is the confusing part.

Thanks for your help !

[DaveF1006]

Yes, you wouldn't pick option 2.  You would pick option 1 since you are working and living in a foreign country as a US resident. You would still report the income living in the foreign country and take a foreign tax credit.  It won't eliminate the foreign tax paid in the other country, but it'll reduce the foreign tax by the amount of US tax liability on the same income.

@pemoi1982 

[snowbabyjia]

I'm a foreign student studying in the US. Between my country and the US, there's a treaty allowing personal income tax exemption on scholarship income. The income is more than 10k. In this case, should I file a 8833, or can I just write a line in the "other reportable income" section and file electronically? Sorry I'm still confused after reading the list of exceptions here, but really appreciate your answers!