If I qualify for the foreign earned income and exclusion exemption (100% of my income is covered under it) then why does my tax due increase after claiming it?

[mattison-hinelin]

I made under $15000 and all of it was earned abroad. I qualify for the foreign exemption (all my income). When putting in the 1099-MISC under self-employment income section the tax due is normal. Then when I claim/apply the foreign exemption, the tax due increases a few hundred dollars. Why?

[KurtL1 · Accepted solution]

The foreign income exclusion reduces the taxable income on your return. Because the income you earned was self-employment you will owe self-employment tax on that income. 

The foreign income exclusion does not reduce the self-employment tax. See IRS.gov Foreign Earned Income Exclusion.

[pk]

@mattison-hinelin , the answer from @KurtL1 , while correct to the extent  covered misses one critical  factor  --  the tax computation  itself to explain the  discrepancy seen by you .

The purpose of US taxation ( and not looking into Self-Employment Tax -- this is flat tax based on the net income from self-employment irrespective of the source of income i.e. whether US or non-US sourced ), the tax computation  actually uses your world income  ( US PLUS all other sources of income ) -- thus putting in a higher bracket. Then it subtracts  that portion of the tax that can be allocated to the foreign excluded income.  Therefore  you will see a difference in the tax computation when you add your foreign income.  This is despite your AGI  being computed as a difference between world income  and foreign excluded income.

Hope this clarifies  the  issue