Foreign income tax credit - Wages Adjustment?

[TPMJB]

J

[pk]

@TPMJB , assuming that you are US citizen/Resident ( Green Card ), you are generally taxed  on your world income.  

(a) for the Physical Presence test you need  a test period of continuous 12 months in which you were away from the USA for 330  full days.  Thus if you arrived  at the foreign location on 6th of May 2019, you would be qualified  for physical  Presence Test  somewhere  around early May 2020.  Therefore you  should consider filing our federal return ( and the state where you worked / lived prior to moving abroad )  after  7th of May 2020.   Also because you are abroad, your  filing date is June 15th 2020  ( taxes due payment date is still April 15th. 2020 ).

(b)  The current foreign Earned Income exclusion being $109,800 ( if I remember right ),  amount available to you  for 2019 would be  for approx.  7/12 ths.   of that maximum -- it is prorated   by the ration of qualified foreign days   over total year days .  Any  foreign income taxes attributable to  non-excluded foreign earnings  would be eligible  for foreign tax credit.

(c) You US earned income would be taxable  by the USA

(d) Till you pass the  Physical Presence Test  TurboTax would  assume that you do not pass the test and therefore will not allow the exclusion.  To get the thing to work you would have to play with the dates  such that only 7/12 of the max amount is allowed -- can be done in forms mode  ( available   in the desktop version).   Thus trying this now may or may not give you a reasonable answer.

(e) also note that by  not reporting your foreign income ( i.e  not reporting it for tax purposes  ) will not give you a good answer either because  with foreign earned   income exclusion worksheet uses  the world income ( before exclusion ) to calculate  provisional US taxes and then deducts the  taxes  that would have been due to the excluded  amount to come up with the final taxes due .  It is messy and not in your favor , but thems the rules.

Suggest you just wait till after you qualify for the Physical Presence Test.

[TPMJB]

@pk  Ah, so I should file for an extension, then? I'm married and filing jointly. Should I just have my wife file separately before the 15th of April and I'll file for an extension and file later? I'm basically on a long term work assignment, of which I'll be done sometime next year.

Thanks so much!

[KarenJ2 · Accepted solution]

To be on the safe side I would file an extension in case you need to return to the US early.  You can file Form 4868 which will give you an extension until October 15, 2020.

As @pk explained, you have an automatic extension until June 15th if you are living overseas on April 15, 2020.   You will pay interest from April 15, but not any penalties.

You should file married filing jointly as it is a more favorable filing status.  Include your wife on the extension you file.

The wage adjustment screen in the foreign earned income exclusion section of TurboTax is a calculation that you need to do before you can enter a number.  If you had any US business days during your overseas assignment in 2019, you need to count the US business days you had after your assignment started.  Whether income is considered foreign or US income, depends on where you worked.  The IRS allows 240 as the number of workdays for your entire 2019 tax year ( or whatever reasonable number of days you work during the year).  So that is 20 workdays a month. You had about 160 workdays during your foreign assignment in 2019.  If you returned to the US after your assignment started and 10 of the days were US business days, you would multiply 10/160 * 70000 = $4,375 income related to US business days in 2019 during your assignment.  So you would put a negative (-4,325) in the wage adjustment box.  You cannot exclude US source income.

If you had no US business days, you do not need to enter anything.

Please see Publication 54, Tax Guide for US Citizens and Resident Aliens Abroad for more information

[TPMJB]

Hi @KarenJ2 

So I would pay interest on an amount if I owed anything, correct?

I worked in Iceland the entire time and not for a US company or what have you. I was paid in Icelandic Krona. I did not make any money in the US starting in May. But if I returned to the US for vacation/to see my family, that gets added in? I also paid about 14k in rent, and ~30% of my income was taxed.

I will read up on the link you've provided :).

I will file for an extension today, which it looks like I can do right through Turbotax.

[KarenJ2 · Accepted solution]

Yes you would need to pay interest on any tax not paid from April 15, 2020 to June 15, 2020.  There is a box on Form 4868 Extension to file indicating that you are out of the country and a US citizen.  You need to check the box.  There is a statement in TurboTax that will be attached to your return to get the automatic extension. In the search box enter extension, filing, additional and click the Jump to link.  Click yes you want an extension and then on the next screen click that you want to prepare and out of country extension. 

How To Get The Extension

To use this automatic 2-month extension, you must attach a statement to your return explaining which of the two situations listed earlier qualified you for the extension.

US Citizens and Resident Aliens Abroad - Automatic 2 Month Extension of Time to File

No, only US business days cause US source income, not vacation.  Did your employer pay your rent?   If so, that gets added to your income.