How to properly enter Foreign Earned Income and Foreign Salary Taxes Paid?

If you meet the requirements, you can exclude up to $100,800 in foreign earnings from your taxable income. You can also take a credit (or deduction) for foreign taxes paid.  However, you won't be able to take a credit or deduction for taxes paid (or accrued) on foreign earned income/housing that you excluded (because excluded income/housing isn't being taxed.

To enter foreign earned income in TurboTax, please follow these steps:

1. Click on Federal Taxes > Wages & Income  [If you're in TT Home & Biz:  Personal > Personal Income > I'll choose what I work on]
2. In the Less Common Income section, click on the Start/Update box next to Foreign Earned Income and Exclusion.  (See Screenshot #1, below.)
3. On the screen Did You Make Any Money Outside the United States? mark Yes and click Continue.  (Screenshot #2)
4. On the screen What Form(s) Was Foreign Income Reported On? mark the selection that applies and click Continue. (Screenshot #3)
5. Continue through the screens, entering the requested information.

For more information on the Foreign Earned Income Exclusion, see Foreign Earned Exclusion on the IRS website.

1. Click on Federal Taxes > Deductions & Credits [In TT Home & Biz:  Personal > Deductions & Credits > I'll choose what I work on].
2. Scroll down to the Estimates and Other Taxes Paid section.
3. Click on the box next to Foreign Taxes.  (Screenshot #4)
4. On the Foreign Tax Credit screen, click on the Yes box.
5. Enter the information requested on the screens. 

Just wondering, I live in the UK and am self employed.  I have entered my foreign earned income and it tells me all of the income is eligible for exclusion. Then on another screen, it says I still have to enter the income information on the business section of TurboTax and/or K1? I am very confused by this, because when I enter it there it tells me I then have to pay tax on my foreign earned income. How do I go about filing for self employed foreign earned income? thanks

First of all, the foreign earned income exclusion applies to your self-employment income and reduces the income tax.  However, it does not exclude the self-employment SE taxes.  Please continue to read:

In order to include your self-employment income and SE taxes in your foreign income exclusion calculations, you would first have to enter your self-employment income under Schedule C.   

• After sign into your account, select Take me to my account
• To your right upper corner, in the search box, type in schedule c
• Follow prompts

To allow the program to exclude the foreign self-employed income, you would then enter the foreign income amount under Foreign Income by following these steps:

• At the right upper corner, in the search box, type in foreign income and Enter 
• Select Jump to foreign income 
• Next screen, Did You Make Any Money Outside the United States? answer Yes 
• On the screen, What Form(s) Was Foreign Income Reported On ? select A Form 1099-MISC or other self-employment income
• Follow prompts 

The program will then exclude your self-employment income but will calculate the SE tax. 

@janareye

Hi, thanks for the information you've already provided. I'm wondering if you can answer a question building on this? I do not owe SE tax to the US, because I already have to pay it in Germany, where I pass the bona fide presence test. There is a totalization agreement between the US and Germany regarding SE taxes. Where do I enter this information on Turbotax? Thanks!

Hello @LinaJ2020, 

I'm filing as a self-employed living abroad (fulfilling the Physical Presence test). All my income from performing is foreign. My question is about online sales such as CDs (digital downloads, streaming, etc...) and royalties. Can I also exclude these as they don't necessarily relate to any specific location?
Also, I left the US in April 2019, am I supposed to file for state as well (New York specifically)?

Thank you!

Can I use TT Deluxe edition to enter foreign income and foreign salary taxes, or do i need a different TT version?

@jwbakken You can use TurboTax Deluxe to report your foreign income and foreign tax paid.    For information about the foreign tax credit as well as links to other useful information related to foreign income go to:  Claim the Foreign Tax Credit 

Hi, I work in Vietnam and my company pays my taxes on my behalf- I just receive net income. Do I need to enter them as if I 'paid' them, or not?

Thanks,

D

Hi, I work in Vietnam and my company pays my taxes on my behalf- I just receive net income. Do I need to enter them as if I 'paid' them, or not?

No, if the income reported does not include the taxes paid for you (gross income), you cannot take the take the foreign tax credit.

@MrLargent

Where are the screenshots?

Hi ! I work in UK . ALl my salary is from UK and tax is deducted automatically before pay. How do I file my tax please

US citizens pay tax on worldwide income. If you meet the requirements, you can exclude up to $108,700 (2021 amount) in foreign earnings from your taxable income. You can also take a credit (or deduction) for foreign taxes paid on U.S. taxed income.

To enter foreign earned income in TurboTax, please follow these steps:

1. Click on Federal Taxes >  Income & Expenses
2. In the Less Common Income section, click START on  Foreign Earned Income and Exclusion.  
3. On the screen Did You Make Any Money Outside the United States? Select Yes and click Continue.  
4. On the screen What Form(s) Was Foreign Income Reported On?  Select Statement from my employer and click Continue
5. Continue through the screens, entering the requested information in U.S. dollars.

For more information on the Foreign Earned Income Exclusion, see Foreign Earned Exclusion on the IRS website.

If any of the income is taxable then you will want to enter foreign taxes paid, please follow these steps:

1. Click on Federal Taxes > Deductions & Credits [
2. Scroll down to the Estimates and Other Taxes Paid section.
3. Click START on the box next to Foreign Taxes.  
4. Continue 
5. Did you pay taxes on income outside the U.S.? Click Yes, I did..
6. Continue
7. Continue
8. Foreign Taxes, click Continue
9. Deduction or Credit? Most people choose the credit since so few itemize deductions. You can try it both ways and determine what is best for you. Select an option.
10. Continue to enter the information requested on the screens. 

Hi, I have trouble of Foreign Earned Income on 2021 Turbo Tax.  I finished all tax entries first except "Foreign Earned Income" and I have some refund from Federal as indicated by TurboTax, however, when I entered the amount of earned income the "Federal Refund" dropped $2500.  Although the Foreign Earned Income Exclusion says I'm qualified for the exclusion but the refund amount never goes back to amount before.  I tried many times using different options but it always reduces the refund as soon as I entered the Foreign Earned Income.  Is this a bug in TT or something I did wrong?   Thanks in advance for any help!

You can review your tax return 1040 and schedule 1.

The foreign income exclusion will appear in line 8 d in Schedule !

If you qualify for and claim the foreign earned income exclusion, the foreign housing exclusion, or both,

the tax on your remaining non-excluded income will be calculated using the tax rates that would have applied had you not claimed the exclusion.

The reason for refund going down could be, you had more foreign income than that could be excluded and you will paying higher taxes for the income over the exclusion.

For tax year 2021, the maximum foreign earned income exclusion is the lesser of the foreign income earned or $108,700 per qualifying person.

Here is how to preview your tax return
1.   Open or continue your return.
2.   Select Tax Tools in the left menu
3.   Select Tools. Next, select View Tax Summary in the pop-up, then Preview my 1040 in the left menu.

If you are using Desktop version

You can switch to forms mode and view your tax return.

Thanks for your fast response.  I followed your advice and did a little digging and discovered after I entered the "Foreign Earned Income", the amount of "Premium Tax Credit" (Form 8962) got reduced because the "Annual Contribution Amt" got increased from 0 to almost $5000.  Be honestly I have not clue what these tax codes are for and not sure if I should just use TT's calculations as is.  Any advice is greatly appreciated.  Thanks.

This is because you underestimated your income in the beginning of the year. Your subsidies and premium amounts were based off of the income estimations you projected. If you underestimated your income, you need to pay back those subsidies that were granted based on your projections.

 You probably did not factor the foreign income in when you made your income estimation.  

I am in this area of needing help as well. I lived here while doing Self-Employed work for and paid by a foreign company. I made under the $108,xxx. I was not sent any type of 1099 form. Where should I enter in this income? Thanks!

Enter your income as self-employment income, the same as US self-employment income.

Here's how to do it:

1. Type self-employment income in Search in the top right
2. Select Jump to self-employment income

The foreign earned income exclusion is only available to US citizens or resident aliens who work overseas for 330 days within a 12 month period or are residents of another country.

You will also pay US self-employment tax unless you are not a US citizen or resident alien. Any alien who wishes to claim an exemption from U.S. Social Security taxes and Medicare taxes because of a Totalization Agreement must secure a Certificate of Coverage from the social security agency of his home country and present such Certificate of Coverage to his employer in the United States.

Thanks Ernie. So I do have to pay taxes on the money. It seems weird since the money was paid by a foreign country. It looks like I can only use the "General Income" area because when I look at the "Foreign Income" area, it talks about work done while living in another country. 

So this income is treated 100% exactly like income that was paid to me by U.S. Companies?

Yes, the IRS taxes you on all your income; whether earned in the US or a foreign country, if you live in the US. 

The only difference is that you can get a Foreign Tax Credit for tax paid to a foreign country on your income, so that you are not taxed twice on the same income (by the IRS and the foreign country).

Now those who live in a foreign country and earn foreign income (but are US citizens required to report their income to the IRS) may qualify for a Foreign Earned Income Exclusion (as they have to also maintain a home in the foreign country), that excludes part of their income from US taxes.

Click this link for more info on Foreign Earned Income.

Thanks This helps. So trying to understand my situation. If  i have US income of $40K and i have $5k foreign income. I do pass the physical presence test as i came to US in May 2021 after more than 10 years outside and is  a US citizen. So how much should be the taxable amount (Before standard deduction ) for me ? I was thinking on the page for -xxxx Here is a picture of your 2021 Income should show 2 line items 1. With the $40K and 2. with negative minus 5K. And the total should add to $35K. Instead  the screen shows xxx, here is a picture of your 2021  shows 2 line items as 1. of  $45K and 2 minus $5 k. The total here is $40K . Is this correct ? (please note i am using desktop version ) 

@rajyel  Yes.  The full $40K US earned is taxable and the $5K foreign earned income is not.  So your bottom line is correct.

Hello, I don't qualify for form 2555 Foreign Income Exclusion since I wasn't out of the US long enough so I need to go with the Foreign Tax Credit. What form and where in Turbotax Desktop do I enter my wages earned and bank interest? Thanks for help with this!