I am abroad and my US income is less than std deduction, and I have enough tax credit for my foreign income. Why does turbox show I still have to pay US tax?

[xiaoxinwu]

I had foreign income and pay tax with a much higher tax rate than US. I had a little US income, definitely less than std deduction. However the turbox tool shows I still have to pay some tax to US, looks to me like a double tax.
EXAMPLE US income: 20k

[DaveF1006]

It depends. Are you taking the foreign income exclusion or the foreign tax credit? If you are claiming the credit, you may end up paying tax to the US, when the incomes are combined because some of your foreign tax paid may have been limited and not fully utilized. This can occur because The IRS limits the foreign tax credit you can claim to the lesser of the amount of foreign taxes paid or the U.S. tax liability on the foreign income.  

[pk]

@xiaoxinwu , I am not fully sure that I am understanding the situation  that you are alluding to .   So I will first  mention my understanding and then go from there

(a)  YOU and US citizen/Resident ( Green Card)  are  living and working/earning abroad

(b) You have  some  US income

(c) You have foreign tax credit from prior years that may be available  for 2020

Let us  use a fictional  figure for your foreign earnings --- US$ 150,000.  You also have  US sourced income of $20,000.  Your total world income is  thus US$170,000.  Your host country taxes you on  US$150,000, while US taxes you on your world income of US$170,000.  You also have foreign  tax credit available  of US$10,000

(1) Because you have been abroad long enough to satisfy physical presence test, you choose  to exclude  2020 max limit of  US$107,600, thus reducing your  US tax base to  US$ 62,400.  Note that this means  you still have  foreign earnings of  US$42,400 and foreign tax  thereon ( allocated).    Assuming further that the foreign country  taxed you  US$45,000.  Thus your total  foreign tax credit available for the  use is $10,000 + $18720  (  the allocated  foreign tax on  un-excluded foreign  income).  So your form 1116 will  use the  ratio of  foreign income   ( tax thereon ) to world income ( tax thereon ) i.e. ratio of the two tax categories   to  compute the  allowable foreign tax credit for the year.

2. You could  also choose  tax deduction  ( although these  days it is often not a good deal  because of SALT limitations ).

3. You could also choose not to use foreign  earnings exclusion and claim the  whole foreign income for purposes of  getting foreign tax credit ---- although  this choice  once made  kinds of sticks with you.

Does this make sense  or did I mis-understand your situation ?

[xiaoxinwu]

Thanks for the reply. Yes that is the information I need. Can you kindly complete your example by giving how much is the tax needed to pay to IRS?  Would standard deduction apply? I guess so, then is it the the product of（world income minus standard deduction) and US tax ratio? Assuming US tax ratio is 20% then the tax needed to pay to IRS is $8280, less that $28720. In that case no tax is owed. 

Do I understand correctly?

Thanks.

[pk]

@xiaoxinwu , very generally your understanding correct  in that  standard deduction applies, and  foreign tax credit is subtracted from the  US tax liability  and may be  zero .  However there  are nuances  to the computation of the  US taxes when foreign earned income exclusion applies --- the actual tax  actually is computed based on the total  world income ( including excluded income ) and then  that portion of the  tax that was due to  excluded income is now subtracted out to get the  final US tax liability.  The foreign  tax credit allowed  and any other credits  are then subtracted  for the final tax position.

However , you do not have to  worry over all these complications -- TurboTax  generally does a very good job of  doing this for you. 

Is there more I can do for you ?