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I would back out the amount from your W-2 for the foreign source incentive. This would be done on line 21 of the 1040.
Once you calculate the correct foreign earned income (allocate by workdays over the period of time the incentive relates to), then subtract it from the W-2 box one. So line 7, page one of the 1040, would reflect only the US portion of your W-2. Line 21, Miscellaneous income would be a negative number (the foreign source amount subtracted from the W-2).
Then enter the amount of foreign source income as foreign source income subject to foreign tax credits.
To enter the foreign source income as miscellaneous income:
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