What is the taxation of foreign income?

In Indiana, foreign income is subject to taxation just like income from sources within the state. This means that any income earned by a resident of Indiana from a non-U.S. source such as foreign investments, royalties, or salaries must be reported and taxed according to the state law. The taxation of foreign income starts with Foreign Earned Income Exclusion (FEIE). This exclusion allows Indiana residents to exclude up to $107,600 USD from foreign income in 2019 when filing taxes. This means any income earned under that threshold is not subject to taxation. Any income earned over the limit is taxed at Indiana’s income tax rate, which range from 3.23-3.75%. When filing your taxes, you must report any foreign income on Form 2555 or Form 2555-EZ. This form provides details on income earned and the taxes paid to the foreign country. Indiana residents are also eligible for a foreign tax credit, which allows them to deduct any taxes paid to a foreign country from their Indiana state taxes. This credit is available on Form 1116. In summary, foreign income is subject to taxation in Indiana and any income earned by a resident of Indiana must be reported and taxed according to the state law. This includes the use of Foreign Earned Income Exclusion as well as the Foreign Tax Credit.

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