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I noticed that the online program is not giving me the Foreign Earned Income Exclusion even though it says that both my wife and I have qualified.

I have received this exclusion for the past ten years using the CD version on my computer. The online version fails to adjust the foreign income.
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5 Replies
LinaJ2020
Expert Alumni

I noticed that the online program is not giving me the Foreign Earned Income Exclusion even though it says that both my wife and I have qualified.

Let's double-check the entries below.  The amount should show on line 8 of Schedule 1 and Form 1040.

 

Without a tax document like a Form W-2, you would enter your foreign income as follows:

 

In TurboTax online,

  • After sign into your account, select Pick up where you left off
  • At the right upper corner, in the search box, type in foreign income and Enter 
  • Select Jump to foreign income 
  • Follow prompts

After you enter the information, if you qualify for a foreign earned income exclusion, the program will prompt you to fill out a Form 2555 Foreign Earned Income Exclusion.  To qualify, you have to live outside the United States for at least 330 days during 12 consecutive months.  For more information, please see Foreign income and exclusion and Extension

 

 

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I noticed that the online program is not giving me the Foreign Earned Income Exclusion even though it says that both my wife and I have qualified.

Thank you for your reply. This is my first time to use the online version. I have been doing the Foreign Earned Income Exclusion using the CD version of TurboTax Premier on my computer. I have done all you have said in the past and it worked every time for the past decade. Now using the online version it won't let me check my work by seeing the actual forms. It asks the questions needed to fill out the form 2555, and then tells us that we qualify for the tax exclusion, but never gives it to us. I am frustrated with the online version. I think there is a bug in the program. Don't know how to go to forms. I just answer questions.

DaveF1006
Expert Alumni

I noticed that the online program is not giving me the Foreign Earned Income Exclusion even though it says that both my wife and I have qualified.

It depends. If you pay for the online version, you will have the ability to download/print your forms before submitting to the IRS. Then you can view your forms and make any adjustments in the program that are necessary to ensure an accurate return. 

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I noticed that the online program is not giving me the Foreign Earned Income Exclusion even though it says that both my wife and I have qualified.

I am facing the same problem. I have a foreign earned income of $30000 from salary in Foreign country. I meet the Physical presence test and Turbo tax says I qualify for the Foreign Income earned exclusion. However after putting the amount my tax liability has increased by $3000.. I do not know the reason as ideally the entire amount should have been excluded?

RalphH1
Expert Alumni

I noticed that the online program is not giving me the Foreign Earned Income Exclusion even though it says that both my wife and I have qualified.

Assuming you didn’t double-enter the foreign income (in which case you’d see the $30k on some other line of the 1040 besides just 1h and 1z, or you’d see it twice on Schedule 1), I’m concerned this may be an example of the annoying “stacking rules” part of the foreign exclusion (discussed here), costing you some money.

 

Although the foreign income itself is indeed excluded from taxation, the rest of your income is taxed as if it were included, so you end up with the same amount of taxable income, but possibly with some or much of it in a higher bracket.

 

This could be the case with a lower total income amount (where the standard or itemized deduction would normally render much of it non-taxable, but the excluded foreign income pushes it up into the 10% bracket), or a higher income amount (where some 12% income ends up being taxed at 22%, 24% income at 32%, etc.). And the amount of the (unexpected and frustrating) tax increase depends on exactly how much income is pushed into higher brackets, and the difference between the brackets.

 

When you’re able to print out your whole tax return, you should see a “Foreign Earned Income Tax Worksheet,” where you can see this playing out (if you want to do the math). But you can also just locate your 1040 line 15 income amount in the IRS Tax Tables, and if you’re mysteriously paying significantly more than the result, then we have our answer (which can’t be fixed, unfortunately, as it’s just the Internal Revenue Code in action…). 

 

@Pooja Singhi, hopefully you found a double-entry of the $30k (see my second paragraph) that can be fixed, but if you didn’t and it’s the stacking thing, I hope I at least helped with some clarity!

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