topic Taking Foreign Tax Credit on Income exceeding Foreign Earned Income Exclusion threshold in Deductions & credits

Taking Foreign Tax Credit on Income exceeding Foreign Earned Income Exclusion threshold

ravee_h — Sun, 29 Mar 2020 17:47:26 GMT

Hello,

I am a foreign resident and have been claiming Foreign Earned income exclusion for past several years for the income I earn in the foreign country. I have also been claiming Foreign Tax credit (FTC) on passive income (bank interest) earned from foreign bank.

This year my income is more than the exclusion threshold of $105,900 (single filing). I read through the forum and I understand that I can claim FTC on income that exceeds this threshold. However I am not clear how this can be done in Turbo Tax.

Do I need to call out this income exceeding the threshold somewhere under wages and then go fill the Foreign Tax Credit section (form 1116) OR should I just go to Foreign Tax Credit and just fill in this excess amount along with the taxes? I would really appreciate your response.

PS: apologies for the long winded question but I wanted to give enough context.

Re: Taking Foreign Tax Credit on Income exceeding Foreign Earned Income Exclusion threshold

KarenJ2 — Sun, 29 Mar 2020 18:39:12 GMT

When you complete all of the foreign earned income exclusion screens, the software will keep track of the amount of foreign wages that were not excluded by the foreign earned income exclusion.

To input your foreign taxes, see the following steps:

Proceed to the foreign tax credit section of the return

First screen say yes you paid foreign taxes
Go through a couple of screens, Tell Us About Your Foreign Taxes say None of these apply - if they do not apply
Click you want the credit
Click through a couple screens and click the income category as General Category income
Add your countryXXXX
When you come to the screen Foreign Taxes Paid XXX. enter your taxes in the box for Other Income
When you get to the screen, Reduction in Foreign Taxes, you must enter your foreign earned income exclusion in the first box and your total foreign earned income in the second box. You must reduce your foreign taxes as you cannot take a credit for the income that you have excluded. Explanation can be $50,000 * 90,302/ 287,499 = $15,705
Country Summary - click Done
Click through the screens to the end of the foreign tax credit section.

If you have passive FTC, you should enter your FTC for your wages first and then the passive income foreign tax.

Please let me know if you have questions.

Re: Taking Foreign Tax Credit on Income exceeding Foreign Earned Income Exclusion threshold

65S — Fri, 03 Apr 2020 21:21:52 GMT

I am following your steps as I've earned over the FEIE in salary while working and living abroad.

I get to Step 7 and I followed your example calculation; however, the category states "Foreign Tax Paid in 2019 For This Category Related to the Prior Year." I was thinking this must be the tax I paid on the salary over the FEIE and did the calculation, but on the next page Turbo Tax is asking for the income basis for this prior year. Can you please clarify this?

Thanks

Re: Taking Foreign Tax Credit on Income exceeding Foreign Earned Income Exclusion threshold

KarenJ2 — Sun, 05 Apr 2020 17:47:32 GMT

After adding your country, did you get the screen, General Category Income - XX (Your Country) and did you say yes, that your exclusion amount was earned in XX (Your country)?

If you are claiming the foreign earned income exclusion and the foreign tax credit, you only need to fill out the first 2 boxes on the screen Reduction in Foreign Taxes.

2019 Foreign Earned Income Excluded Less Related Deductions 90,302 (as an example only)

Total Foreign Earned Income Less Related Deductions 287, 499 (example only)

That is all you need to enter on that screen.

Re: Taking Foreign Tax Credit on Income exceeding Foreign Earned Income Exclusion threshold

Wndwo — Wed, 20 Oct 2021 08:26:05 GMT

Hello,

Just a quick question about this example.....

2019 Foreign Earned Income Excluded Less Related Deductions 90,302 (as an example only)

Total Foreign Earned Income Less Related Deductions 287, 499 (example only)

1. How do I get 90,302??

2. Is 287,499 total wage?

Thanks!