Unemployment benefit from abroad

[tdo061803]

I lived in Germany and received unemployment benefits in Germany in 2019.

1. Is unemployment benefit passive or active income?

2. I entered my unemployment benefits in "miscellaneous income" under Less Common Income. Is that correct?

3. Shall I also enter unemployment benefits in Foreign Tax Credit?

[SusanY1 · Accepted solution]

Unemployment income is considered general income for the foreign tax credit.  Entering it as miscellaneous income since it's from a foreign source is perfect.

When you enter it in the foreign tax credit section, you will need to re-enter the income to pair it with the credit (but it will not be reported as income again from this section) and labeling it as foreign unemployment would be perfect. 

For the foreign tax credit, this income will be "General category income." 

[tdo061803]

@SusanY1 

Thank you for your reply. 

The German unemployment benefit I received is not taxable in Germany.

Do I understand it correctly, if I take FTC it will result in some tax in the US and FEIE I won't? It's about 24k.

I am better off taking FEIE. correct?

technical question:

If above is affirmative, should I move the income amount from

Less Common Income -> Other income in Turbotax 

to

Less Common Income -> Foreign Earned Income and Exclusion 

[Tlein123]

Hey there, 

I am curious about how you ended up solving this?

[DaveF1006]

Foreign Unemployment Benefits are unearned income thus are passive income. These are not eligible to be excluded under the FEIE guidelines because Unemployment Benefits are unearned income. You will keep this entry under less common income>Miscellaneous Income>other reportable income.

Since you paid no foreign tax in Germany, there is no Foreign Tax Credit to claim.

@Tlein123 

[Tlein123]

@DaveF1006 @Thank you for your response!

What confuses me is that it might get taxed. 
The unemployment payment we receive in Germany is from a fund we have paid into (so taxes that were deducted from our income) and in Germany it is no taxable benefit. 
how can it be that I have to pay taxes on it now when it already was taxed indirectly by being taken out of my regular income? 

I only moved to the states at the end of the year, so I still had a home in Germany until December . I did however spend enough time in the us over the last 3 years to be considered a resident alien. 

thanks so much again 

[DaveF1006]

I was looking at a similar Turbo Tax post and this is taxable income. Also unemployment benefits are not specifically excluded in the German/US tax treaty.