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Old 01-06-2013, 10:46 AM
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Foreign Tax Exclusion

I meet the physical presence test for the foreign tax exclusion. Part of the year I was payed a fellowship by a German institute. The second part I was paid by a US fellowship to conduct research in Germany. How do I report income from these two different fellowships using the Form 2555? I noticed there is only one line for a foreign employer.



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Old 01-06-2013, 08:59 PM
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“ Part of the year I was payed a fellowship by a German institute. The second part I was paid by a US fellowship to conduct research in Germany. How do I report income from these two different fellowships using the Form 2555?”-----------> If the scholarship is compensation for teaching/lecturing, it's considered earned income for the exclusion. If not, you cannot use the exclusion, but you can use the foreign paid tax credit(form 1116) if you paid taxes in Germany. Fellowship stipends may be subject to income taxes. The IRS specifies that graduate fellowships are taxable if the student is not a degree candidate. If he is a degree candidate, then he may exclude portions of the fellowship that were used for tuition, fees, books, supplies and equipment. According to the IRS, universities are not responsible for withholding or reporting income taxes on fellowship payments for you for tax purposes. Fellows do not receive a Form W-2 on their fellowship income nor does the school report the fellowship payment as taxable income to either the state or federal government. However, the school is required to report fellowships to the IRS for informational purposes only on Form 1098-T. Taxability of the fellowship payment is a matter between the Fellow and the IRS. Therefore, no income taxes are withheld from fellowship payments.Nevertheless, it is important to remember that the fellowship may be subject to income tax. The IRS requires a taxpayer owing at least $1,000 in taxes in a given calendar year after subtracting withholdings and credits to file estimated quarterly tax returns. Additional information about estimated tax payments can be found in Form 1040-ES. Penalties may be assessed for incorrect filing and underpayment of taxes. When students file their income tax returns, they should remember that a portion of the fellowship may be exempt from tax. You need to keep receipts in case you are audited at some point in the future. The tuition waiver that comes with the fellowship may be exempt from tax.To claim the foreign earned income exclusion on 2555, the foreign housing exclusion, or the foreign housing deduction(if available), you must have foreign earned income, your tax home(Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. Your tax home is the place where you are permanently or indefinitely engaged to work as an employee or self-employed individual. Having a "tax home" in a given location does not necessarily mean that the given location is your residence or domicile for tax purposes.)must be in a foreign country, and you must be one of the following ;1) A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year;2.A U.S. resident alien who is a citizen or national of a country with which the US has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or3. A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.
Please visit the IRS Website here; Foreign Earned Income Exclusion - Can I Claim the Exclusion or Deduction?

“ I noticed there is only one line for a foreign employer.”-------->Yes on the form there is just one. If you had multiple employers, I guess you need to attach an explanatory letter and earned income amount.



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