Foreign Tax Credit

[systemslibrarian]

My wife who has a green card is from Kenya and pays taxes to them yearly for the inome that she earns here in the US.  Does the amount that she pays to that Gov't qualify for a Foreign Tax Credit here?

[tagteam]

Probably another one for @pk.

[pk]

@systemslibrarian , please can you explain why she has to pay taxes  to Kenya  on income from USA --- because she visits Kenya  and owns property or stays there more than 183 days there or what?

Is she eligible for foreign tax credit ---Yes.  But would she get the benefit ?  Questionable  , absent any foreign income ?

Therefore please tell more about the situation, her sources of income , especially any foreign income?  Her US income to foreign income ratio ?

Do you file joint or separate ?

pk

[Mike9241]

A person is considered to be tax resident in Kenya if they:

have a permanent home in Kenya and were present in Kenya for any period in a particular year of income under consideration, or
do not have a permanent home in Kenya but were:
present in Kenya for 183 days or more in that year of income, or
present in Kenya in that year of income and in each of the two preceding years of income for periods averaging more than 122 days in each year of income.

so the first question is: is she a resident of Kenya?

Kenya operates a source based tax system, meaning that income is only subject to tax in Kenya if it accrued in or was derived from Kenya.

However, there are a few exceptions to this rule such that income earned outside Kenya is taxable in Kenya;

1) In the case of employment income earned outside Kenya by a Kenyan resident individual

so is she's paying taxes to Kenya because she meets their residency test and has US employment income?  if yes, there is no foreign tax credit for US purposes because the income was earned in the US.

2) In the case of business income where a Kenyan person carried on their business partly in Kenya and partly outside Kenya.

if this is her situation, it would seem residency does not matter.   A foreign tax credit based on the portion of taxes paid to Kenya on Kenya-based income but not US-based income

thus she should not be paying any income taxes to Kenya on employment income if she is not a resident and also should not be paying income taxes to Kenya on business income if none of it is earned in Kenya. 

[systemslibrarian]

My wife is a Kenyan citizen (here on a green card), who earns money only here in the USA, however because she is a Kenya citizen she has to pay 30% of her income that she earns here to Kenya as well.

[pk]

@systemslibrarian , I am even more confused now . Your answer does not tell us  as to the basis  of why your spouse is considered a resident of Kenya  ( is this an oversight left over from the past, she owns property in Kenya, She visits  and stays there long enough --183 days -- to be considered  as resident, owns a  business  there  or what , work for a Kenyan entity, Kenyan embassy  or what ? ) by the tax authorities.  What are we missing here ?   As I pointed earlier, absent "foreign  income " there is no way to take advantage of foreign tax credit.   We need a lot more info on the situation to be able to help you --yes?

Please tell us more  -- when did she  enter the US, under what visa, when did she become a Green Card holder,  who is she employed by -- Kenyan govt. , by Kenyan business in the USA  or US entity or is she self-employed , do you file joint, , does she own real-estate in Kenya, a business in Kenya etc. etc.

pk