I found it is very stupid for delux, or it does this way on purpose.
Say, your family has 210k total income, and 100k of which is from one family members in foreign country. The exclusion amount is 107k, so 100k can be excluded as long as the physical presence requirement is met, and 2555 is filed.
The taxable income will be (210k-100k-standard deduction). And you can calculate how much tax according to this number.
Here is what I found by filling Delux. The taxable income is as said above, (210k-100k-standard deductions). But the tax to be paid is a lot higher if you use this number to calculate according to tax table.
Here is what turbotax did. It calculated the tax according to (210k-standard deduction) income. The final tax is this number minus the tax that 100k income should pay as credit. As you know, the tax rate of (210k-standard deduction) is very different from that of 100k only, so, the result is you pay 100k income tax in a (210k-standard deduction) income tax rate, then get some tax money back of 100k income tax rate. You have paid a lot of extra tax money.
I don't think that is right. The right way will calculate tax according to taxable income. But I don't know how to do it. What's confusing is that Turbotax did show taxable income is (210k-100k-standard deduction).
And it is also wrong to use 100k tax credit. The tax credit is the tax you paid in the foreign country, not the tax should be paid in US.
It looks like, although you feel you have exclusion filed, there is no exclusion indeed. It simply tax your total income, and deduct foreign tax credit. It probably a real credit if you add it, or turbotax will make one for you (100k income tax in US).
Very disappointed.
