I’d like to understand through the below example how FEIE and FTC exactly gets calculated.
Assume both my wife and I live abroad. I earn 200K, my wife is a homemaker without income.
In that foreign country I pay 15% income tax, --> 30K a year. (I also pay social security taxes, but those I believe cannot be claimed under FTC.)
Let’s say the FEIE limit is 108K currently.
First question: does the FEIE limit combine for married filed jointly cases? I.e.
- Would I be exempt of taxes up to 2*108=216K, in other words can I use my wife’s FEIE limit to offset my own income, too, since I file jointly?
- Or FEIE is applied separately, so I could use only 108K for the income I earn, and the FEIE benefit on my wife’s part would be zero, since she didn’t have any income?
If the latter is the case (or I earn more than the combined FEIE limit anyways), and I have 92K excess income above the FEIE limit (as per the above example) how are US taxes calculated exactly?
- Will my US taxes get calculated based on the 92K income, so since I’m filing jointly, I would be mostly in the 10/12% bracket up to 19.99K/81K, and a little bit of 22% bracket from 81K to 92K? (using the married filing jointly brackets here)
- Do my foreign taxes fully qualify for the FTC, i.e. the entire 30K taxes I paid on the full 200K income could be used as a tax credit? Or would the FTC get prorated somehow, since I used FEIE for the first 108K?
