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No US-Colombia Tax Treaty: How the Foreign Tax Credit Saves You

If you're a US citizen living in Medellín — whether you've settled into El Poblado, Laureles, Envigado, or up in Sabaneta — you've probably run into a version of the same nagging worry: does Colombia tax my income, does the IRS also want a piece of it, and am I about to get hit twice on the same dollar? Here's the direct answer: the United States and Colombia do not have a bilateral income tax treaty, so the specific protections built into US treaties with countries like Canada, the UK, or much of Europe simply don't exist here. That gap sounds worse than it is. There's a well-established, IRS-recognized mechanism built for exactly this situation, and once you understand how it actually works, the "double taxation" fear mostly resolves itself.

Yes, It's Confirmed: The US and Colombia Have No Tax Treaty

Let's name the fact plainly: no bilateral income tax treaty exists between the United States and Colombia. Tax treaties typically assign which country gets first claim on certain income, set tie-breaker rules for residency, and build in their own relief provisions so income isn't taxed twice. Countries with a US treaty relationship have that scaffolding. Colombia doesn't.

In practical terms, both the IRS and DIAN — Colombia's tax authority — can each assert a claim over the same income under their own domestic rules: the US taxing based on citizenship, Colombia taxing based on residency and Colombian-source income. Without a treaty to referee that overlap, relief has to come from elsewhere in the US tax code. It does — and that's the part most generic expat content skips.

The Foreign Tax Credit: The Primary Defense Against Double Taxation

How Form 1116 Actually Works

The main relief mechanism is the Foreign Tax Credit, claimed on Form 1116. If you paid income tax to Colombia on a dollar of income, the FTC lets you credit that Colombian tax against the US tax you'd otherwise owe on the same dollar — generally dollar-for-dollar, up to certain limitations. The logic: the same income shouldn't be fully taxed twice, so what you've already paid Colombia offsets what the US is asking for.

It's the workhorse credit for most Medellín-based Americans, especially anyone with mixed income types, because unlike the exclusion below, the FTC isn't limited to earned income — it can generally apply to investment income, rental income, and other unearned income too, as long as foreign tax was actually paid on it. How much you can use in a given year depends on the applicable limitations and your specific numbers, which is exactly why this isn't a fill-in-the-blank calculation.

The Foreign Earned Income Exclusion: A Different Tool for a Different Job

FEIE vs. FTC: What's the Real Difference

The other major tool is the Foreign Earned Income Exclusion, claimed on Form 2555. Instead of crediting foreign tax paid, the FEIE excludes a set amount of foreign earned income — wages or self-employment income for services performed abroad — from US taxation entirely. That amount is annually inflation-adjusted by the IRS, so it moves over time rather than sitting fixed.

The key word is "earned." The FEIE only reaches wages, salary, and self-employment income from active work performed abroad — it does not apply to unearned income like investment or rental income the way the FTC can. If your Medellín income is purely remote employment or a service-based business, the FEIE may be worth a close look. If you've also got rental property or investment income back home, the FEIE alone won't reach it.

The Rule Almost Nobody Explains: You Can't Double-Dip

This is where a lot of DIY filers trip up: you generally cannot use both tools on the same dollar of income. If you exclude a dollar under the FEIE, you cannot also claim a Foreign Tax Credit for the Colombian tax paid on that same dollar — the IRS doesn't allow stacking relief on income already removed from the US tax base.

There's a second wrinkle. Excluding income through the FEIE can reduce your earned income for purposes of certain refundable credits — the Additional Child Tax Credit, for example — that are calculated based on earned income. For households with kids, that trade-off can matter more than it first appears, which is a good example of why "just exclude everything" isn't automatically the smart move.

So Which One Should You Use? It Depends on Your Numbers

There's no universal answer to "FTC or FEIE" — be skeptical of any generic content that claims otherwise. Whether the credit, the exclusion, or a blend across different income types works out better depends on your specific mix of earned versus unearned income, and how the Colombian tax rate on that income compares to what the US would otherwise charge. Some taxpayers come out ahead relying mainly on the credit; others do better excluding earned income and crediting what's left; many blend both across different income streams on the same return. It genuinely requires running your actual numbers rather than guessing from a blog post — this one included.

Why Getting the Colombian Side Right Matters for Your US Return

Here's the part that trips up DIY filers, and even some US-based preparers who don't work internationally: the Foreign Tax Credit calculation depends entirely on knowing what you actually paid or owed to DIAN. The US and Colombian tax years, rules, and forms are separate systems that don't talk to each other automatically — if the Colombian-side numbers are wrong or estimated, the US-side credit calculation built on top of them will be off too.

That's exactly why All State Tax Resolution coordinates both sides instead of only looking at the US half of the picture. Colombian filings are prepared by our licensed Colombian accounting partner; we coordinate both sides so nothing is double-taxed. Sabih Shafi, EA, oversees that coordination so the Foreign Tax Credit and Foreign Earned Income Exclusion figures on your US return actually match what was filed in Colombia. Sabih is an Enrolled Agent — licensed by the U.S. Treasury — handling the US federal side directly: preparation, FBAR and FATCA reporting, streamlined catch-up filing if you're behind, and direct IRS representation under a Form 2848 power of attorney if a notice ever shows up. The Colombian accounting work itself is never something Sabih does personally — it's handled by the licensed partner he coordinates with, so nothing gets missed or double-counted on either side of the border.

If you want the US and Colombian deadlines laid out side by side, plus a quick red-flag check on state residency issues, grab our free Medellín Expat US Tax Checklist — the form for it is right on this page.

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Frequently Asked Questions

No. The United States and Colombia do not have a bilateral income tax treaty, unlike US treaties with countries such as Canada, the UK, or many European nations. Without a treaty, relief from double taxation comes primarily through the Foreign Tax Credit and, for earned income specifically, the Foreign Earned Income Exclusion.

Yes, but not on the same dollar of income. You may be able to use the FEIE on some earned income and the Foreign Tax Credit on other income, such as unearned income, in the same year, but you cannot claim a Foreign Tax Credit for foreign tax paid on income you've already excluded under the FEIE. Which combination makes sense depends on your specific mix of income and deserves an actual review.

Your Colombian filings are prepared by ASTR's licensed Colombian accounting partner, not by Sabih personally. Sabih, as an Enrolled Agent, coordinates both sides so the Foreign Tax Credit or Foreign Earned Income Exclusion numbers on your US return line up with what was actually filed with DIAN.

Book Your Free Review

Figuring out whether the Foreign Tax Credit, the Foreign Earned Income Exclusion, or a blend of both fits your specific situation isn't a guessing game — it's a numbers question, and it's worth an actual review rather than a generic answer.

Or call or text (323) 900-0305.

 
 
 

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