How do governments assess and collect taxes on foreign income?
In Nevada, foreign income is taxed by the Internal Revenue Service (IRS), the same entity that collects taxes for domestic income. Foreign income is typically taxed differently than domestic income. Governments assess and collect taxes on foreign income through two methods: withholding taxes and reporting taxes. Withholding taxes are taxes that are taken directly from a foreign source, such as taxes withheld from an employee’s salary. Employers are responsible for collecting and remitting these taxes to the government. Withholding taxes are usually a set percentage that varies based on the type of income. Reporting taxes are taxes that are paid when a person or company reports their income to the government. For example, a corporation may have income from customers in other countries. They would be required to file a special tax form showing all their foreign income. The form is then used to calculate the amount of taxes they owe to the government. In both cases, taxes on foreign income are determined based on the relevant tax laws in Nevada. Foreign income that is subject to different tax rates than those in Nevada may also be subject to double taxation. Double taxation is when an individual or company pays taxes to two different entities on the same income. In these cases, the person or company can often file for a tax credit, which allows them to be refunded the amount they paid in double taxes.
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