My husband and I may move to Denmark this fall for 10 months (Sept- July) where he will be employed by a Danish company. Will we have to report that income on our US tax returns for 2009? Will Denmark tax his income? Will we have to pay taxes to both countries? Would the money made abroad still count into my total income, deduction or not? Like my US tax returns would list the amount I made abroad plus what I made in the US as my gross income. I am mainly wondering because I will be going to school when we return and would rather not have the foreign income counted when I fill out FAFSA (Is this possible?).
United States - 3 Answers
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1 :
All U.S. citizens who work for money anywhere in the world must be must report their taxable income from work on their U.S. tax returns, with absolutely no exceptions. Unless it is specifically exempted by law or tax treaty, they must pay U.S. tax on it. However, if the citizen properly reports it, then the citizen may qualify for the foreign earned income credit, which could be as much as the tax. To ask about Denmark taxes, post your question in the category for Denmark taxes.
2 :
You will be taxed in the U.S. on your worldwide income exactly as if you had earned the income in the U.S. To the extent you are also taxed in Denmark, you would (very likely) be eligible for a foreign tax credit under section 901 of the Internal Revenue Code. To claim the credit, which would reduce your US taxes by the amount of foreign taxes paid, you would want to file Form 1116 with your US tax return. The foreign tax credit is not the earned income credit--they are two different things.
3 :
Is it 10 months or 11 months? If it's 10 months, you won't qualify for the foreign earned income credit as you need 330 days (as in midnight to midnight) outside of the US to qualify. You could take vacations in Europe to meet the 330 day test. However, even if you meet the test, that yould be in July 2010, long after you will plan to file your 2009 tax return. You can get an extension if you think you'll pass the 330 day test, but many people miss it, so pay your US taxes as if you won't qualify and then get a bigger refund. (Since the 330 days will be spread across two tax years, you won't get a huge tax break.)
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