Does TurboTax correctly calculate tax using Qualified Dividends & Capital Gains Tax Worksheet together with Foreign Earned Income Tax Worksheet?

[cfaprst]

I am a US citizen living and working abroad, my salary is excluded (Form 2555-EZ), so my taxable income consists only of my investment income, most of which is qualified dividends and capital gains.  In have always done my returns by hand, but I am trying TT this year.  Except for one year, when I sold a lot of investments to make a down payment on a house, I have not had to pay any US tax. 

This year my taxable income, after deductions and exemptions, is $924.  When I do the calculations on the worksheets by hand, the resulting tax is 0, but TT is calculating $137.

Has anyone else had a problem with these calculations?

[cfaprst · Accepted solution]

I think I have figured it out.  On the QDCG worksheet, TT is taking the LARGER of lines 25 and 26, rather than the SMALLER, and transferring it to line 4 of the Foreign Earned Income Tax Worksheet. There IS a problem with TT's computations.

[Anonymous]

Also, I think there may be a problem with just the Foreign Earned Income Tax Worksheet - see my question here - <a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/3880118">https://ttlc.intuit.com/questions/3880118</a>

[jerry2000]

First, Turbotax calculates your tax absolutely correctly. The tax calculations have been approved by the IRS and they are absolutely correct.
When you have foreign excluded income, there is both good news and bad news. The good news is that the foreign income does not get taxed. The bad news is that if you have other taxable income, the amount of your foreign excluded income is added to the other taxable income to determine the tax rate that you pay on the other income. So, you will pay a higher rate on the other income than you would if you did not have the foreign exclusion. That is just the way that it is.

[cfaprst]

From the IRS website: "the IRS doesn't endorse or approve any particular software for IRS e-file."  I have had calculations by tax software corrected by the IRS and Revenue Canada in the past.  The IRS does not have the resources to test software with all possible scenarios.
Your explanation of the tax calculation is incorrect.  A taxpayer with excluded income only pays a higher tax rate if the tax calculated on all income, using the preferential capital gains rate, exceeds the tax payable on the excluded income alone calculated at ordinary rates.