Stuart O. Bronstein <
spamtrap@lexregia.com> wrote:
When someone has income that can be taxed by two countries, there are
tax treaties that essentially prevent the person from having to pay tax
on the same income twice.
You've got that handwaiving term "essentially" in there. The United
States government asserts jurisdiction over its citizens regardless of
where in the world they live and requires that tax returns be filed
annually. Generally, worldwide income is subject to tax.
Tax treaties generally handle the issue of dual taxation NOT by limiting reporting of foreign-sourced income but with tax credits.
But what about when income can be taxed by two states? Are there any
firm rules? Or is it up to the states to deal with in their own ways?
You have a variety of states applying their own revenue laws. My state
is like the federal government in that world-wide income is disclosed (calclations are based on federal AGI) and credits applied for foreign
taxes paid, "foreign" in this sense meaning to other states or foreign countries. We also have additions and subtractions to determine basic
income under state revenue law before the tax calculation is made.
There is the further complication of full-year versus part-year
residency. In some states, that's apportioned, and the method of
apportionment may be different on income versus exemptions and
deductions. In other states, there are various methods of pro-rating.
There is yet another complication in which neighboring states have
agreed NOT to tax income from a job if the worker isn't resident, but
it's still reportable.
This resulted in a bizarre complication I once ran into in which a
taxpayer was adversely affected by such an arrangement between two
neighoring states: His job was in State A. He was a part-year resident
of State B. That meant he had file an income tax return as a part-year
resident of State B. You guessed where I'm going with this: He moved,
and became a part-year resident of State A. Even though all his income
from work was from the one state, he had to report it to State A as a
part-year resident of State B, and then report it to State A as a
part-year resident of State A.
My state doesn't tax pensions, but other states assert nexus over
pensions as deferred income from the state in which it was earned.
You'd need there to be a model state revenue act that every state would
adopt to get common income definitions of what's subject to reporting
and what's subject to taxation.
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