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