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I'm a citizen of Norway as well as of the US by birth. I've never before 2014 resided in the US. I'm a PhD student in my native Norway, but we are here considered employees and paid a wage. I've understood that I need to file with the IRS every year and declare this income, and that I can use the foreign earned income exclusion so that I don't have to pay any US tax.

Now, as part of my PhD work I in 2014 visited a US university, and resided in the country for about half the year. During this period, I was paid as normal by my employer (my home university), and my home country deducted ordinary income tax from this pay. The money was paid into my Norwegian bank account as it always has - I have no accounts in the US.

When filing my 2014 IRS return, I'm confused. Maybe someone can enlighten me with regards to the following:

  • Can I use the foreign earned income exclusion in my situation?

  • If not, how should I go about this to avoid being doubly taxed for 2014?

  • It seems that Norway has a bilateral tax treaty with the US, that, if I'm reading it correctly, seems to indicate that "visiting researchers to universities" (which really seems like I would qualify as) should not be taxed by either country for the duration of their stay. This seems too good to be true, and not really something I'm aiming for (I'll happily pay my taxes at home - I just want to make sure I don't pay twice), but if it were true, how does one go about filing IRS returns based on such treaties? Is it even something one can do on one's own?

  • I didn't even give a thought to state taxes; those should only apply to income sourced from the state I lived in, right (AKA $0)?

  • whew tough one! I'm going to say that on it's face it seems like foreign earned income exclusion is not applicable. Tax treaties actually can have outcomes that are very favorable, so don't dismiss it just because it sounds too good, rich people lobbied for these exact treaties! Also, even without a tax treaty, one country's taxes may be able to be a credit to the higher tax country. And finally, multinational corporations often have a counterintuitive tax system available for their employees, something you wouldn't glean from just reading the law. Hope that makes it apparent you need a lawyer – CQM Apr 30 '15 at 2:34
  • What on Earth does he need a lawyer for??? – littleadv Apr 30 '15 at 3:36
  • @CQM: How do I even go about that? I have no idea where I'd even begin. – a5f2ef5d Apr 30 '15 at 21:14
  • @littleadv: This is my reaction as well. Where I'm from lawyers are for when you've done something wrong… – a5f2ef5d Apr 30 '15 at 21:15
  • @littleadv tax attorney versed in international taxation, this is going to go over the head of people at tax preparation services. Or this person can just stick insight gained from our respective responses – CQM Apr 30 '15 at 21:30
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Can I use the foreign earned income exclusion in my situation?

Only partially, since the days you spent in the US should be excluded. You'll have to prorate your exclusion limit, and only apply it to the income earned while not in the US.

If not, how should I go about this to avoid being doubly taxed for 2014?

The amounts you cannot exclude are taxable in the US, and you can use a portion of your Norwegian tax to offset the US tax liability. Use form 1116 for that. Form 1116 with form 2555 on the same return will require some arithmetic exercises, but there are worksheets for that in the instructions.

In addition, US-Norwegian treaty may come into play, so check that out. It may help you reduce the tax liability in the US or claim credit on the US taxes in Norway.

It seems that Norway has a bilateral tax treaty with the US, that, if I'm reading it correctly, seems to indicate that "visiting researchers to universities" (which really seems like I would qualify as) should not be taxed by either country for the duration of their stay.

The relevant portion of the treaty is Article 16.

Article 16(2)(b) allows you $5000 exemption for up to a year stay in the US for your salary from the Norwegian school. You will still be taxed in Norway. To claim the treaty benefit you need to attach form 8833 to your tax return, and deduct the appropriate amount on line 21 of your form 1040.

However, since you're a US citizen, that article doesn't apply to you (See the "savings clause" in the Article 22).

I didn't even give a thought to state taxes; those should only apply to income sourced from the state I lived in, right (AKA $0)?

I don't know what State you were in, so hard to say, but yes - the State you were in is the one to tax you. Note that the tax treaty between Norway and the US is between Norway and the Federal government, and doesn't apply to States. So the income you earned while in the US will be taxable by the State you were at, and you'll need to file a "non-resident" return there (if that State has income taxes - not all do).

  • Why should days in the US be excluded? The OP was still employed by the Norwegian employer, no? Wouldn't it be the same (but the other way around) as if you were employed by a US employer, but did some work for them in a different country? – jamesqf Apr 30 '15 at 5:58
  • @jamesqf it doesn't matter, a US tax resident cannot claim foreign income exclusion for wages earned while in the US. The fact that the employer is foreign is irrelevant, it's where the work was done. – littleadv Apr 30 '15 at 6:37
  • @littleadv: Thanks, this has been most helpful. An addon question at the very end, if you don't mind: I applied for and obtained state ID where I was - should I have notified the state about me leaving again after the 6 months was up, for tax purposes? – a5f2ef5d Apr 30 '15 at 21:27
  • @littleadv: You've already helped me a bunch, and I have no expectation that you or anybody else will help me read treaties, but if you're interested: What do you make of Article 15 in the treaty you linked to? I have friends (100% Norwegian ones) that have successfully used that to heavily reduce their Norwegian taxes while visiting US universities. Is the article not as symmetric as it seems, i.e. would it not also help me with US taxation, or am I just failing at reading? – a5f2ef5d Apr 30 '15 at 21:52
  • @a5f2ef5d Article 15 talks about visiting professors, you're not. But in any case - it doesn't talk about any discounts back home, only in the US. I don't see how they could have claimed relief from their taxes back home in Norway based on this article. – littleadv Apr 30 '15 at 23:54

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