Tax return went from 1500 to less than 1000 after i enter my foreign income

[markandoliv 3]

Hello, my wifes tax refund before i entered my foreign income was just over 1500 dollars. 

After adding my foreign income info, the tax refund went down to less than 1000.  Even though turbotax said all of my income qualified for the foreign exclusion.  Turbo tax even says "you will not pay tax on this amount".  If thats the case why has the tax refund gone down, after only entering my foreign income which it wont be taxing at all?

 

It seems as though it woul be better to file as married filing separately if it means her getting an extra 500 dollars, or am i missing something?

 

[kris&me 572]

did you file form 2555 to have the income excluded?  if you didn',t it is not done

and the refund should have gone up  (one person automatic deduction is 12000 and 24000 for 2 married) making the taxable income a lot lower

 

[markandoliv 3]

1 minute ago, kris&me said:

did you file form 2555 to have the income excluded?  if you didn',t it is not done

and the refund should have gone up  (one person automatic deduction is 12000 and 24000 for 2 married) making the taxable income a lot lower

 

No, we are using turbotax deluxe, entered the foreign income on there, and i believe it fills out the form 2555 in the background whilst inputting the foreign income - or am i mistaken?

 

My wifes income for 2019 is around 12000 if that matters

[DELETEME1234 208]

13 minutes ago, markandoliv said:

No, we are using turbotax deluxe, entered the foreign income on there, and i believe it fills out the form 2555 in the background whilst inputting the foreign income - or am i mistaken?

 

My wifes income for 2019 is around 12000 if that matters

Can you follow this link: https://freefile.intuit.com/ and go through it again? This should give you a complete TurboTax version for free (including state) and you should qualify based on what you indicated to be the income. 

 

If you don't qualify for that then the IRS has deals for people making up to $69k with other providers to do your taxes free over here. 

 

See if that makes a difference for starters. But, assuming no weird circumstances, you guys should receive all paid federal taxes back. State taxes differs from state to state but I wouldn't be surprised if a good chunk of that comes back as well. 

Edited February 10, 2020 by Poseidon1212

[Cyberfx1024 7,980]

31 minutes ago, Poseidon1212 said:

Can you follow this link: https://freefile.intuit.com/ and go through it again? This should give you a complete TurboTax version for free (including state) and you should qualify based on what you indicated to be the income. 

 

If you don't qualify for that then the IRS has deals for people making up to $69k with other providers to do your taxes free over here. 

 

See if that makes a difference for starters. But, assuming no weird circumstances, you guys should receive all paid federal taxes back. State taxes differs from state to state but I wouldn't be surprised if a good chunk of that comes back as well. 

If you have foreign income then it automatically goes to Deluxe

[kris&me 572]

30 minutes ago, markandoliv said:

No, we are using turbotax deluxe, entered the foreign income on there, and i believe it fills out the form 2555 in the background whilst inputting the foreign income - or am i mistaken?

 

My wifes income for 2019 is around 12000 if that matters

If you did not see a form 2555, it was not done

all this should have come up on the screen to fill out and printed out for your records

this income is not added in the normal spot of tax returns / it is all on form 2555

[kris&me 572]

3 minutes ago, Cyberfx1024 said:

If you have foreign income then it automatically goes to Deluxe

not if they included it with normal earned income instead of doing it on form 2555

 

https://www.irs.gov/individuals/international-taxpayers/choosing-the-foreign-earned-income-exclusion

[markandoliv 3]

3 minutes ago, kris&me said:

not if they included it with normal earned income instead of doing it on form 2555

 

https://www.irs.gov/individuals/international-taxpayers/choosing-the-foreign-earned-income-exclusion

We went through and added my foreign income in the "less common income" section.  

[Tesco 70]

I would look through the worksheets that accompany your 1040. You'll then see where things went wrong. Foreign earned income will add to Stateside W-2 earnings on line 1. Other Income - Supporting Details for Schedule 1 (Form 1040), Line 8 will show FEIE and will note as (XXXX) a minus figure and simply cancel out that income on the 1040 that was in addition to line 1, (assuming it's under about the $106k limit). Your refund should be as if the foreign income never existed.

[Wuozopo 4,293]

11 hours ago, Tesco said:

Your refund should be as if the foreign income never existed.

This is not correct.  The foreign income is not erased which is what everybody is thinking that has posted thus far. 

Edited February 11, 2020 by Wuozopo

[Tesco 70]

1 minute ago, Wuozopo said:

This is not correct.  The foreign income is not erased which is what everybody is thinking that has posted thus far. 

Mine does... A negative number (in parenthesis) that neutralizes the foreign earned income. This is for a FEIE form 2555. Perhaps you're thinking of a 1116 which is the tax credit. In this case you'd take the allowable credit based on the carry forward and back allocations for credits of previous years and the current. 

[Wuozopo 4,293]

46 minutes ago, Tesco said:

Mine does... A negative number (in parenthesis) that neutralizes the foreign earned income. This is for a FEIE form 2555. Perhaps you're thinking of a 1116 which is the tax credit. In this case you'd take the allowable credit based on the carry forward and back allocations for credits of previous years and the current. 

 NO not the credit and form 1116.

Form 2555 does not erase the foreign income as if it was never entered.  Yes there is a negative number, but that is not the whole story. You need to read the Form 1040 instructions about how tax Is not calculated by using the tax tables for Line 11b (Taxable Income) when you have a Form 2555.  
 

 

[Tesco 70]

7 minutes ago, Wuozopo said:

 NO not the credit and form 1116.

Form 2555 does not erase the foreign income as if it was never entered.  Yes there is a negative number, but that is not the whole story. You need to read the Form 1040 instructions about how tax Is not calculated by using the tax tables for Line 11b (Taxable Income) when you have a Form 2555.  
 

 

Not sure what you mean by 'whole story' Being a USC and working in the UK for many years I have a good understanding of the 2555. This form simply neutralizes the foreign income. So if you earned $50,000 in the UK, you would see a ($50,000) as a negative, they cancel each other out. Your income, (assuming this was you only income), would be $0.

 

The IRS has accepted and approved this for years, never had any questions, neither had my CPA. Nothing more to add, although the OP will need to take due diligence with their own circumstances and seek professional help if they believe it a prudent measure. 

[Wuozopo 4,293]

16 minutes ago, Tesco said:

Not sure what you mean by 'whole story' Being a USC and working in the UK for many years I have a good understanding of the 2555. This form simply neutralizes the foreign income. So if you earned $50,000 in the UK, you would see a ($50,000) as a negative, they cancel each other out. Your income, (assuming this was you only income), would be $0.

 

The IRS has accepted and approved this for years, never had any questions, neither had my CPA. Nothing more to add, although the OP will need to take due diligence with their own circumstances and seek professional help if they believe it a prudent measure. 

I agree when you live abroad and there is not a US spouse reporting US income as well which is the case of the OP.  When there is US income plus foreign income and a form 2555,  the tax actually owed Is not the same as if you completely erased the foreign income. 

[straddler 12]

3 hours ago, Wuozopo said:

I agree when you live abroad and there is not a US spouse reporting US income as well which is the case of the OP.  When there is US income plus foreign income and a form 2555,  the tax actually owed Is not the same as if you completely erased the foreign income. 

I've look at this recently. You're right, the Foreign earned income is added to your total earnings, your total earnings are 'stacked' from the various sources with FEI being placed at the bottom. So your FEI is taking up some/all of Standard Deduction and potentially pushing other earned income into other tax brackets. The FEI Deduction is then cancels that amount out from earned income.