Calculation of relief for double taxation


For U.S. purposes

Assuming that you do not wish to relinquish your U.S. status and that your income exceeds prescribed limits (for 2016 the limit is $10,350 if you are filing as a single or $20,700 if you are married and filing jointly), you need to file a U.S. federal tax return and report your worldwide income to the IRS. However, the Belastingdienst also requires you to report your worldwide income and will tax that as well.

Here is where the Treaty comes to the rescue by allowing certain credits and exclusions.

When filing your U.S. tax return you may qualify to exclude from your income up to the prescribed amount of your foreign earnings (for 2017 the amount is $102,100). In addition, you are allowed to claim a deduction for foreign taxes paid, i.e., Dutch tax, and can also exclude or deduct certain foreign housing amounts.

To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must meet all of the following requirements:

•Your tax home must be in a foreign country (i.e., the Netherlands).

•You must have foreign (i.e., Dutch) earned income.

•You must be either

a) a U.S. citizen who fulfils the bona fide residency test; or

b) a U.S. Greencard holder who is a citizen or national of a country with which the U.S. has an income tax treaty in effect (the Netherlands and the U.S. have concluded such a treaty) and who fulfils the bona fide residency test (you are a resident of a foreign country for an uninterrupted period of an entire tax year); or

c) a U.S. citizen or a U.S. Greencard holder who fulfills the physically presence test (physically present in a foreign country or countries 330 full days during a period of 12 consecutive months).

Moreover, U.S. citizens and Greencard holders are allowed to take a credit for Dutch taxes paid or accrued on their Dutch sourced income.