Got foreign income exemption-- refund still lower?

[Pennycat 880]

Hi there-- I was wondering if anyone could provide insight on what I may be doing wrong here.

Background: husband (married Dec 2015) came on K1 on 10/24/2015. Had $3200 in foreign income (Costa Rica-- only worked Feb-Aug of 2015. Bout of employment then quit in August to be able to do all the visa stuff after NOA). I earned substantially more than that through two jobs (my main job plus part time retail).

I'm using TurboTax and I went through the steps to file married filing jointly, treating him as a resident alien for tax purposes. Before I entered his foreign income, my refund was estimated to be $X. Once I added it, it was about $500 less. Then I went through the steps to get that income excluded, and it said that he qualified for the exclusion. The refund went back up... but still not back up to $X. It went up to $X - $150. Now, it feels a bit silly and greedy to be upset about $150 in light of how big $X is, but no one ever got rich by overpaying for things and I feel like I've given Uncle Sam quite enough of my money for one year. Any thoughts/insight?

[heo luoi 206]

Id see a tax professional.

[Pennycat 880]

Id see a tax professional.

I'd considered it but those cost far more than the $150 I'd hypothetically save. Plus this is a DIY site.

[Transborderwife 4,666]

I'd considered it but those cost far more than the $150 I'd hypothetically save. Plus this is a DIY site.

Be careful of that last statement. I've seen a few slap on the wrist posts stating that we aren't exclusively a diy anymore and simply an "immigration community"

[heo luoi 206]

My guys services cost a bit but for saved me far greater....

I dont think tax services are that crazy out of line. Certainly not the 'far more' you claim. This site may be DIY but its not necessarily tax oriented and not sure why every glimpse of seeking other services is so scorned here.

Edited March 23, 2016 by heo luoi

[Pennycat 880]

I get that-- (immigration community vs DIY) I mostly meant that this is the type of place where folks who have been through/are going through the same steps can help each other, to avoid hiring professionals. Most folks are aware that tax professionals exist, and I've already called some to get quotes. I'm now asking if anyone here has ideas from current or past experience that could shed light on why income that was exempted seems to still incur cost? Do they prorate it for the amount of time he was here? Is he liable for social security taxes regardless of federal exemption?

[Russ&Caro 1,549]

Try a different tax package for comparison purposes? Most, like H&R Block online, will allow you to go through the Fed questions and return a refund value before you actually have to plunk down the $30 or so to pay for a filed return.

[Nich-Nick 3,354]

Hi there-- I was wondering if anyone could provide insight on what I may be doing wrong here.

Background: husband (married Dec 2015) came on K1 on 10/24/2015. Had $3200 in foreign income (Costa Rica-- only worked Feb-Aug of 2015. Bout of employment then quit in August to be able to do all the visa stuff after NOA). I earned substantially more than that through two jobs (my main job plus part time retail).

I'm using TurboTax and I went through the steps to file married filing jointly, treating him as a resident alien for tax purposes. Before I entered his foreign income, my refund was estimated to be $X. Once I added it, it was about $500 less. Then I went through the steps to get that income excluded, and it said that he qualified for the exclusion. The refund went back up... but still not back up to $X. It went up to $X - $150. Now, it feels a bit silly and greedy to be upset about $150 in light of how big $X is, but no one ever got rich by overpaying for things and I feel like I've given Uncle Sam quite enough of my money for one year. Any thoughts/insight?

Going to give you the quickie answer. Your higher refund x was totally ignoring his income. That isn't the rules so it was never your refund except in your wishes. That running total on TurboTax is misleading. It ain't over 'til it's over. What you described is akin to saying my refund was higher until I put in my second job.

Foreign income exclusion doesn't erase the foreign entirely. The tax is calculated:

Tax on all of it $xxx

Tax on the foreign income alone $yyy

$xxx minus $yyy = your final tax (Line 44)

That is the rule if you have foreign income. They take off the tax it would generate. They don't completely ignore the income. Don't have time tonight to explain how that makes a difference but can be related to higher bracket for the $xxx and a lower tax bracket for the $yyy.

Your alternative choice is filing Married Filing Separately which won't be as good as Joint.

Edited March 24, 2016 by Nich-Nick

[Pennycat 880]

Going to give you the quickie answer. Your higher refund x was totally ignoring his income. That isn't the rules so it was never your refund except in your wishes. That running total on TurboTax is misleading. It ain't over 'til it's over. What you described is akin to saying my refund was higher until I put in my second job.

Foreign income exclusion doesn't erase the foreign entirely. The tax is calculated:

Tax on all of it $xxx

Tax on the foreign income alone $yyy

$xxx minus $yyy = your final tax (Line 44)

That is the rule if you have foreign income. They take off the tax it would generate. They don't completely ignore the income. Don't have time tonight to explain how that makes a difference but can be related to higher bracket for the $xxx and a lower tax bracket for the $yyy.

Your alternative choice is filing Married Filing Separately which won't be as good as Joint.

Got it-- thanks. I was guessing it had something to do like that although the idea of "exclusion" does sound like it would be "deduction" (which is what would erase it entirely, right)-- which is where I think the confusion with the "running" refund counter came into play.

Another question, if you don't mind. So, he IS a non-resident alien (AOS pending) who we're treating like a resident alien for tax purposes (which I'd read here and elsewhere is the better option). If we stick with non-resident alien, would we have to enter this at all? And if not, how then is it preferable to treat him like a resident alien? Does it make a difference if all of his foreign income was earned abroad, before he ever once set foot in this country and before we were married (ie, he doesn't have any investment or passive income that he earned while here)? Or does the benefit of having been married before Dec 31 and the choice to treat him as a resident alien override these facts?

Again, I'm not desperate for this $150. I just want it back if it's actually owed back. That's a playoff hockey ticket!

[Nich-Nick 3,354]

You can choose to not report anything for him by letting him remain a non-resident with no US income. No income equals nothing they can tax. But when you do that, he can't file a joint return with you. So you are left with filing a Married Filing Separate return.

To show you kinda how that affects your taxes look at this IRS tax table https://www.irs.gov/pub/irs-pdf/i1040tt.pdf

Scroll to $30,000 taxable income and look at the tax columns

A joint filer pays $3581

A Married Separate filer pays $4043 on the same taxable income. So you can see one difference there. The rates are higher for Separate returns.

There are also some deductions people can't use on a Separate return like the higher education credits. Each tax situation is so different it is difficult to say for sure if Joint is best for you. The higher combined income reported could exclude you from other benefits. It all depends on the individual situation.

You should create a new tax return for comparison and choose married filing separately and see how it comes out. Most of the time, joint works out better, but you never know until you try both ways.

[MariaR323 199]

Just to chime in on this... MFJ is *almost* always the best filing status because it is the most favorable to you in terms of (lower) tax liability. It's always recommended to run the calculation both ways if you are in doubt or simply want to see the difference.

The title being Foreign Earned Income Exclusion could be misinterpreted to think it's like a dollar-for-dollar deduction, but yes, it is not. The tax is computed on the total, then tax computed on the FEI and that amount is deducted. For some it could be a couple hundred dollars or not, it all depends on everyone's financial picture as a whole.

Side note: Don't forget to include that election statement. Here's a copy I worked up, feel free to use it.

IRC Section 6013g NRA Election for RA.pdf

Maria