Sign Up

Why sign in to the Community?

  • Submit a question
  • Check your notifications
or and start working on your taxes
cancel
Showing results for 
Search instead for 
Did you mean: 
mattison-hinelin
New Member

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?

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?
1 Best answer

Accepted Solutions
KurtL1
Expert Alumni

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.

 

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

View solution in original post

2 Replies
KurtL1
Expert Alumni

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.

 

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
pk
Level 13
Level 13

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

Dynamic AdsDynamic Ads
Privacy Settings
v