topic If I qualify for the foreign earned income and exclusion exemption (100% of my income is covered under it) then why does my tax due increase after claiming it? in Deductions & credits

If I qualify for the foreign earned income and exclusion exemption (100% of my income is covered under it) then why does my tax due increase after claiming it?

mattison-hinelin — Wed, 22 Jan 2020 19:41:07 GMT

I made under $15000 and all of it was earned abroad. I qualify for the foreign exemption (all my income). When putting in the 1099-MISC under self-employment income section the tax due is normal. Then when I claim/apply the foreign exemption, the tax due increases a few hundred dollars. Why?

Re: If I qualify for the foreign earned income and exclusion exemption (100% of my income is cove...

KurtL1 — Wed, 22 Jan 2020 20:21:58 GMT

The foreign income exclusion reduces the taxable income on your return. Because the income you earned was self-employment you will owe self-employment tax on that income.

The foreign income exclusion does not reduce the self-employment tax. See IRS.gov Foreign Earned Income Exclusion.

Re: If I qualify for the foreign earned income and exclusion exemption (100% of my income is covered under it) then why does my tax due increase after claiming it?

pk — Sat, 04 Apr 2020 18:53:04 GMT

@mattison-hinelin , the answer from @KurtL1 , while correct to the extent covered misses one critical factor -- the tax computation itself to explain the discrepancy seen by you .

The purpose of US taxation ( and not looking into Self-Employment Tax -- this is flat tax based on the net income from self-employment irrespective of the source of income i.e. whether US or non-US sourced ), the tax computation actually uses your world income ( US PLUS all other sources of income ) -- thus putting in a higher bracket. Then it subtracts that portion of the tax that can be allocated to the foreign excluded income. Therefore you will see a difference in the tax computation when you add your foreign income. This is despite your AGI being computed as a difference between world income and foreign excluded income.

Hope this clarifies the issue