My employer is sending me to the Netherlands through an intracompany transfer. Will I get a tax credit on Dutch taxes paid since I’d still be a U.S. employee?

by Dafna Meltzer, CPA | Jun 27, 2019

My employer will be sending me to the Netherlands on an intracompany transfer (ICT) from the United States. I will still be a U.S. employee, getting paid in a U.S. bank, etc., but I will be paying U.S. taxes and 18.5% to 26% Dutch taxes. Is there a tax credit or anything for this? I feel that paying almost 60% in taxes is a bit much.

You are being sent to the Netherlands by your U.S.-based employer, but you do not state if this is a short-term assignment or a long-term assignment. Below you’ll find the tax result for both situations.

Long-term assignment: If you live abroad 330 out of 365 days (not necessarily within the same calendar year) or if you actually move abroad and establish residence there ("Bona Fide Residence Test"), then you can exclude most or all of your foreign earned income from U.S. taxation. (In 2018, the limit was $103,900 of wages only; not from any investment income from within the United States, which is fully taxed.)

Short-term assignment: Any tax paid in the Netherlands can be applied as a foreign tax credit against U.S. tax, up to the corresponding U.S. tax.
You should make sure the accountant doing your 2019 tax returns is familiar with this issue. You should also note that if you maintain a Pennsylvania residency, you will be subject to Pennsylvania income tax.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Dafna Meltzer, CPA, is with Meltzer & Meltzer CPAs in Elkins Park, Pa.

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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