Unfortunately a number of years ago, the IRS changed the tax rules, and the foreign earned income is added back to all income before the US tax is calculated. Then the tax is calculated on the excluded income. The difference in tax is your US tax. This is called the stacking rule.
You are married filing jointly, have two children and you take the standard deduction ($24,400) and child tax credit ($4,000 for two children). Total wages $112,000
The US tax on this income is calculated as follows:
US tax on $112,000 is $6,989
US tax on $105,900 (amount excluded) would be $5,647
Net US tax payable
($6,989 - $5,647) = $1,342
Before this change, the tax would have been calculated only on the tax rate that applies to $6,100.
If you have been claiming the FEIE in previous years using Form 2555 and you decide this year to use only the foreign tax credit you cannot go back to the FEIE for the next six years unless you receive permission from the IRS.
4 sec ago
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