Foreign Income Exclusion - New Immigrant

[wanderlust88 17]

Just now, payxibka said:

Exactly,  you are making the election to be treated as a US taxpayer for the entire year 

I don't think you can file jointly without making that election. the other option for new immigrants is to file under dual status but then it would not be joint filing.

[geowrian 22,337]

To file MFJ, you must be considered a resident alien (RA) for the entire year.

As a dual status alien married to a USC or LPR, you can elect to be treated as an RA for the entire year via the letter.

An RA must report their entire worldwide income.

 

https://www.irs.gov/pub/irs-pdf/i1040gi.pdf

"Nonresident aliens and dual-status aliens. Generally, a married couple can't file a joint return if either spouse is a nonresident alien at any time during the year. However, if you were a nonresident alien or a dual-status alien and were married to a U.S. citizen or resident alien at the end of 2018, you can elect to be treated as a resident alien and file a joint return. See Pub. 519 for details"

 

https://www.irs.gov/individuals/international-taxpayers/aliens-which-income-to-report

"Resident Aliens report their entire worldwide income on Form 1040, 1040A, or 1040EZ like U.S. Citizens."

(Ignore the dual status section as with the election statement you are choosing not to be considered a dual status alien)

 

FEIE (Form 2555/2555EZ) information :

https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion-can-i-claim-the-exclusion-or-deduction

Note #4 states "uninterrupted period that includes an entire tax year", NOT "the entire 2018 tax year". There is a difference...one can be a bona fide resident of country X from 1/1/2017 through 2/1/2018, which would meet this requirement as it covers the entire 2017 tax year. The amount of income that could be excluded for the 2018 tax year would be proportional to your time outside the US....which you will calculate on the 2555.

Edited January 24, 2019 by geowrian

[D.Ba 85]

In my case we filed jointly, I reported ALL my German income for the year (I didn't even have US income in that year) on which I had already paid hefty taxes, and THEN we could subtract all those hefty taxes in a line called something like "foreign tax paid".

 

But I believe it also depends whether your country has a bilateral tax agreement with the US.

[Michael2017 368]

Very good information here! VJ Members keep the good work up!

[wanderlust88 17]

On 1/23/2019 at 7:04 PM, geowrian said:

To file MFJ, you must be considered a resident alien (RA) for the entire year.

As a dual status alien married to a USC or LPR, you can elect to be treated as an RA for the entire year via the letter.

An RA must report their entire worldwide income.

 

https://www.irs.gov/pub/irs-pdf/i1040gi.pdf

"Nonresident aliens and dual-status aliens. Generally, a married couple can't file a joint return if either spouse is a nonresident alien at any time during the year. However, if you were a nonresident alien or a dual-status alien and were married to a U.S. citizen or resident alien at the end of 2018, you can elect to be treated as a resident alien and file a joint return. See Pub. 519 for details"

 

https://www.irs.gov/individuals/international-taxpayers/aliens-which-income-to-report

"Resident Aliens report their entire worldwide income on Form 1040, 1040A, or 1040EZ like U.S. Citizens."

(Ignore the dual status section as with the election statement you are choosing not to be considered a dual status alien)

 

FEIE (Form 2555/2555EZ) information :

https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion-can-i-claim-the-exclusion-or-deduction

Note #4 states "uninterrupted period that includes an entire tax year", NOT "the entire 2018 tax year". There is a difference...one can be a bona fide resident of country X from 1/1/2017 through 2/1/2018, which would meet this requirement as it covers the entire 2017 tax year. The amount of income that could be excluded for the 2018 tax year would be proportional to your time outside the US....which you will calculate on the 2555.

this is very helpful!

now i have to do the math and see if i save more if we file separately and i submit dual status with no declaration of the amount earned outside US. this is because i exceed the 104,100 per year cap for tax exclusion on income earned abroad. 

[junkmart 320]

On 1/23/2019 at 12:13 PM, wanderlust88 said:

it is, but im wondering how to exclude my overseas income from being taxed, which was earned before i set foot in the US.

Rather than going the 2555 Foreign Earned Income route, have you thought about filing 1116 Foreign Tax Credit instead? Going the 1116 route, you would include your world wide income on your 1040, and take a nonrefundable credit for some or all of the foreign taxes you already paid. Form 1116 figures the amount of credit you can take.

 

My husband was a teacher in Mexico before coming to the US in August. We are filing MFJ, I am including his foreign income with my US income, converted into USD, and taking a credit for some of the taxes he paid in Mexico.

Edited January 29, 2019 by junkmart

[geowrian 22,337]

1 minute ago, junkmart said:

Rather than going the 2555 Foreign Earned Income route, have you thought filing 1116 Foreign Tax Credit. Going the 1116 route, you would include your world wide income on your 1040, and take a nonrefundable credit for some or all of the foreign taxes you already paid.

 

My husband was a teacher in Mexico before coming to the US in August. We are filing MFJ, I am including his foreign income, converted into USD, and taking a credit for some of the taxes he paid in Mexico

That's absolutely another option to use instead of the FEIE, if available and the taxes paid are greater than or equal to US taxes on the income.

If the foreign taxes are less than US taxes but the FEIE covers all of it, then just claiming the FEIE makes more sense.

[junkmart 320]

55 minutes ago, geowrian said:

That's absolutely another option to use instead of the FEIE, if available and the taxes paid are greater than or equal to US taxes on the income.

If the foreign taxes are less than US taxes but the FEIE covers all of it, then just claiming the FEIE makes more sense.

In our case, my husband passed the substantial presence test for 2018, so from my understanding he is a US RA who was not physically present in a foreign country for 330 days in 2018, so he couldn't claim the FEIE. In my case, was I wrong?

[geowrian 22,337]

3 minutes ago, junkmart said:

In our case, my husband passed the substantial presence test for 2018, so from my understanding he is a US RA who was not physically present in a foreign country for 330 days in 2018, so he couldn't claim the FEIE. In my case, was I wrong?

You would have to run though the workflow (https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion-can-i-claim-the-exclusion-or-deduction). One's tax home would be the first potential issue. But it is possible to meet the substantial presence test and qualify for the FEIE (1a -> 2a -> 3bi(1) -> 4a).

[wanderlust88 17]

2 hours ago, junkmart said:

Rather than going the 2555 Foreign Earned Income route, have you thought about filing 1116 Foreign Tax Credit instead? Going the 1116 route, you would include your world wide income on your 1040, and take a nonrefundable credit for some or all of the foreign taxes you already paid. Form 1116 figures the amount of credit you can take.

 

My husband was a teacher in Mexico before coming to the US in August. We are filing MFJ, I am including his foreign income with my US income, converted into USD, and taking a credit for some of the taxes he paid in Mexico.

there is no income tax in the UAE (or any kind of tax for that matter except VAT) so that wouldnt work for me 🙈

[Wuozopo 4,293]

On 1/23/2019 at 11:23 AM, wanderlust88 said:

Hello,

I have the following scenario and I can't find a tax form which fits my requirement!

Income before becoming US permanent resident in foreign country: Jan-April 2018

Became a US permanent resident: May 2018

Living in US: May 2018 to present

Income in US: September 2018 to present

 

I can't fill Form 2555 as I don't meet the bona fide residence or physical presence test requirement (I think). What form should I submit to exclude my foreign income (Jan -April 2018) from being taxed? I will be filing jointly with my US citizen husband.

 

 

The Form 2555 is written to focus on Americans who go work abroad so the wording sometimes confuses new immigrants. The IRS wants to make sure the American is not just on vacation abroad for a couple of months and trying to exclude some money from taxation. They have to be physically present abroad a long time or have legal residence or a work visa issued by that country allowing them to work. 

 

Wanderlust--

Were your born in UAE? 

That means you were a bonafide resident of UAE since the date of your birth. You pass the bonified resident test (of the foreign country UAE) for the part of 2018 that you wish to exclude foreign income. Of course you were a bonafide resident allowed by the government to live/work there, you were born there or hold a UAE passport. 

 

Have you lived in the UAE for your entire life or for many years?

That means you were physically present in the UAE since the date of your birth or for many years. You pass the physical presence test (of the foreign country UAE) for the part of 2018 that you wish to exclude foreign income.

 

You likely pass both tests for Form 2555.

 

I have not looked at my new TurboTax yet to see how the tax forms have been revamped so can't speak to specific lines yet. But your UAE income will show up on the wages line that will include your spouses income and your US income, so three incomes added together. Spouse, you, foreign. 

 

I did look at the new 2555 to see where the exclusion will be subtracted out. It says--

43. Enter the result here and in parentheses on Schedule 1 (Form 1040), line 21. Next to the amount, enter “Form 2555.” On Schedule 1 (Form 1040), subtract this amount from your additional income to arrive at the amount reported on Schedule 1 (Form 1040), line 22 . 

So you will have your exclusion show up as a negative number on Schedule 1 like ($5432.00)

Many people forget to enter their foreign income on the wages line before taking it out on the exclusion line. Make sure you did enter it before excluding it. 

 

Sorry I can't be more specific until I get around to installing my 2018 TurboTax software. (We buy it every year rather than doing online. It is more flexible to use). 

 

 

Edited January 30, 2019 by Wuozopo

[wanderlust88 17]

24 minutes ago, Wuozopo said:

 

 

wow thanks for the very comprehensive answer!  this is helpful for me and others who are also viewing this thread. you are right, i meet the requirements for 2555 as i lived in UAE all my life before moving to the US mid year. we are also planning to do it through turbotax some time in february. i will write a review of my experience once we've completed the filing.

[Wuozopo 4,293]

1 minute ago, wanderlust88 said:

wow thanks for the very comprehensive answer!  this is helpful for me and others who are also viewing this thread. you are right, i meet the requirements for 2555 as i lived in UAE all my life before moving to the US mid year. we are also planning to do it through turbotax some time in february. i will write a review of my experience once we've completed the filing.

 

I can help you more with TurboTax after I have a look at the big changes for 2018. In the past on the "interview" about income, foreign income got reported way at the end in a section called Less Common Income.  There are several that you say No to until it asks if you had any foreign income. It could be similar this year. 

[ITMFA 241]

On 1/30/2019 at 10:01 AM, Wuozopo said:

 have not looked at my new TurboTax yet to see how the tax forms have been revamped so can't speak to specific lines yet. But your UAE income will show up on the wages line that will include your spouses income and your US income, so three incomes added together. Spouse, you, foreign. 

 

I did look at the new 2555 to see where the exclusion will be subtracted out. It says--

43. Enter the result here and in parentheses on Schedule 1 (Form 1040), line 21. Next to the amount, enter “Form 2555.” On Schedule 1 (Form 1040), subtract this amount from your additional income to arrive at the amount reported on Schedule 1 (Form 1040), line 22 . 

So you will have your exclusion show up as a negative number on Schedule 1 like ($5432.00)

Many people forget to enter their foreign income on the wages line before taking it out on the exclusion line. Make sure you did enter it before excluding it. 

Thanks so much for your helpful info on this thread! Just a quick question: When I subtract my foreign-earned income (line 21) from our other "additional income" in the same section, the result on line 22 is a negative number. Is that ok? We're trying to use free software to help us figure it out, but it's proving a bit of a headache! 

[Wuozopo 4,293]

2 hours ago, ITMFA said:

Thanks so much for your helpful info on this thread! Just a quick question: When I subtract my foreign-earned income (line 21) from our other "additional income" in the same section, the result on line 22 is a negative number. Is that ok? We're trying to use free software to help us figure it out, but it's proving a bit of a headache! 

Schedule 1--If your foreign income Line 21 (negative number) is more than the positive numbers for Lines 10-20, then yes Line 22 will be a negative number. Take that negative number on Line 22 and go to the Form 1040 and see Line 6

 

6.Total income. Add lines 1 through 5. Add any amount from Schedule 1, line 22 __________

See the part I put in bold? That's the spot to write in the negative number from Schedule 1

 

Now add up, for example

1 Wages..........30,000.00 (that's both spouses in US plus the foreign)

2b Interest..............45.00

3b Dividends........125.00

4b Pension...............0.00 (Those are if you collect a pension or Soc Security check)

5b Soc Security........0.00

from Line 22.......(12,000.00) a negative number shown by parentheses

Add those up for the total in Line 6

30,000+45+125-12,000= $18,170.00 <------- Line 6 entry in the far right column

 

 

 

Edited April 9, 2019 by Wuozopo