Paying taxes for interest earned on foreign bank

[Edddie&Beatrice 64]

My wife is here in USA, CR1 visa, back home, Africa   she has a bank account. The account pays a small interest and the bank deducts taxes on the interest.  will we pay taxes again here in USA?

[Mike E 11,741]

55 minutes ago, Edddie&Beatrice said:

My wife is here in USA, CR1 visa, back home, Africa   she has a bank account. The account pays a small interest and the bank deducts taxes on the interest.  will we pay taxes again here in USA?

As an LPR she pays taxes on her world wide income. Also the foreign taxes she pays are a tax credit against USA taxes owed. 
 

Example

 

* assume 10 percent tax in Africa 

 

* assume 22 percent tax in USA 

 

* assume $100 interest 

 

So USA tax is $22. This is offset by a $10 tax credit.  She pays $12 to IRS.  
 

The bigger issue is that is her foreign financial assets exceed $10,000 at any time inbthe tax year, she must file an FBAR.  If she doesn’t then the USA can penalize her and take significant chunk of her deposits. 

Edited February 3, 2022 by Mike E

[JeanneAdil 6,583]

A green card holder generally must report and pay tax in the same manner as a United States citizen, which means that they report and pay tax on their world-wide income and file a Form 1040.

 

Kenya does not have a tax treaty with the US and she has been here since July so,  yes, the interest income is added to tax returns

[Edddie&Beatrice 64]

2 hours ago, Mike E said:

As an LPR she pays taxes on her world wide income. Also the foreign taxes she pays are a tax credit against USA taxes owed. 
 

Example

 

* assume 10 percent tax in Africa 

 

* assume 22 percent tax in USA 

 

* assume $100 interest 

 

So USA tax is $22. This is offset by a $10 tax credit.  She pays $12 to IRS.  
 

The bigger issue is that is her foreign financial assets exceed $10,000 at any time inbthe tax year, she must file an FBAR.  If she doesn’t then the USA can penalize her and take significant chunk of her deposits. 

So well explained the example is great. thank you so much

[Edddie&Beatrice 64]

2 hours ago, JeanneAdil said:

A green card holder generally must report and pay tax in the same manner as a United States citizen, which means that they report and pay tax on their world-wide income and file a Form 1040.

 

Kenya does not have a tax treaty with the US and she has been here since July so,  yes, the interest income is added to tax returns

Thank you very much, didn't know about treaty... Thank you

[Wuozopo 4,293]

2 hours ago, Mike E said:

As an LPR she pays taxes on her world wide income.

An LPR reports their worldwide income. They do not necessarily pay taxes on all of it depending on different factors. 

I agree that foreign earned interest is reportable the same as interest earned in the US. 
 

3 hours ago, Edddie&Beatrice said:

The account pays a small interest and the bank deducts taxes on the interest.  will we pay taxes again here in USA?

You report the foreign interest just like interest from US bank accounts. Schedule B part 1. Also you indicate in Part 3 that you had a foreign account. 7a is Yes. The others may or may not be Yes depending on your situation.

 

How much is a small amount of interest?  In certain situations you can claim foreign tax credit on foreign tax paid using Form 1116. But if the small interest is $10-20, then it’s not worth diving into Form 1116 to avoid 25 cents in US tax.

Edited February 3, 2022 by Wuozopo

[Edddie&Beatrice 64]

4 hours ago, Wuozopo said:

An LPR reports their worldwide income. They do not necessarily pay taxes on all of it depending on different factors. 

I agree that foreign earned interest is reportable the same as interest earned in the US. 
 

You report the foreign interest just like interest from US bank accounts. Schedule B part 1. Also you indicate in Part 3 that you had a foreign account. 7a is Yes. The others may or may not be Yes depending on your situation.

 

How much is a small amount of interest?  In certain situations you can claim foreign tax credit on foreign tax paid using Form 1116. But if the small interest is $10-20, then it’s not worth diving into Form 1116 to avoid 25 cents in US tax.

The interest is $25 like you said it's not worth diving into form 1116