hi all,
My wife was out of the US, had foreign income, and qualified to use form 2555 exclusion.
I am w2 full-year US resident. Preparing joint return.
But I see in TurboTax/efile calculator that this “excluded” income still taxed.
Per my understanding it’s due to me, having a US w2 income. So it turned from 2555 exclusion to work in a different way.
Instead of taxing on the higher tax bracket (22%) it taxed on the 10% and 12%.
I clearly see in the IRS form 2555 instruction:
Foreign tax credit or deduction.
You can't take a credit or deduction for foreign income taxes paid or accrued on income that is excluded under either of the exclusions. If all of your foreign earned income is excluded, you can't claim a credit or deduction for the foreign taxes paid or accrued on that income.
But if under current conditions my wife’s income taxed even after using form 2555, maybe I can do the credit of foreign taxes using form 1116?
I looked in instruction and publication 54 and don’t see anything about this scenario.
I even don’t see a sample similar to mine when form 2555 working differently, as I see in my case.
Would be great if someone can suggest it. also would be great if someone can explain and point to any official source why it's happened like that.
Also seems like the same case affecting people who are moving from/to the US in the middle of the year, ie they have foreign and US income in the same year.
