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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?
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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?
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.
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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?
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.
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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 , 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
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