Turbotax is not taking the foreign earned income exemption. Why not?

[recce36f4]

We live in Autralia. My wife had her own business. Her foreign income was @$32000 USD. Why has Turbotax not excluded this foreign income?

[rjs]

Did you go through the interview for foreign earned income? In the Search box type "foreign earned income" (without the quotes), then click the link that says "Jump to foreign earned income."

[SusanY1]

As stated above, you do want to be sure that you go through the foreign earned income interview.  Here, you will have to repeat the amount of income that you wish to exclude to identify it. 

You also mentioned that your wife has her own business.  That will subject her to self-employment taxes which are not covered by the foreign earned income exclusion. However, there is a separate Totalization Agreement between the US and Australia that can exempt your wife from that tax provided she has a certificate of exemption obtained from the social security administration.  If you do not have this certificate HERE is information on how you can request it. 
 

TurboTax doesn't have direct input for the totalization agreements in the interview or step-by-step mode but you can make adjustments to the self-employment tax by following the directions found HERE. 

Returns claiming that exemption must be mailed in order to include the required copy of the exemption certificate.  


 

[pk]

@recce36f4 , while generally  agree with  the comments / questions  from my colleagues @rjs  and @SusanY1 , I think we need more info from you for a  definitive answer:

(a) need to know whether one or both of you are US person ( Citizen / Green Card ) and are you planning to file together  ( Married Filing Joint);

(b) wife has a business -- does this mean that  that is her total world income  or does she also have  some US active  and/or passive income;   How about your  US  and/or foreign income;

(c) is this your first filing with foreign income;  when did you establish your foreign tax home;

(d) if you are also employed in Australia  ( or foreign wages ) are you employed by a local entity or a branch or US govt.

Please note that  while W-2 ( if  any ) info  is entered under  wages  in TurboTax personal income  tab, foreign earnings i.e. Foreign Earned Income eligible for  exclusion must be entered  under the  proper heading  --- personal income -->  next select  " I will choose what I work on ";  from the resulting drop down list , near the bottom  under  " uncommon incomes"  select " Foreign Earned Income and Exclusion"  and go through the interview process.   You will fill out the form 2555 which checks  whether you qualify  for exclusion  ( must meet physical presence test ).

Please answer the questions I posed and I will circle back and help.

pk

[riadassi]

BUG in the software - 2024 version

I have income from a US company, but I live in the middle east - I should qualify for the Foreign Income exemption up to about $120k or so per year. 

THe problem is that I have a 1099-NEC that I get as a US citizen from my consulting work ONLINE, and it keeps on adding automatically a Schedule C that adds the income back in, and prevents the exemption.

It's a serious BUG in the software that did NOT exist in prior years.  

Can someone at Intuit PLEASE PAY ATTENTION... 

[rjs]

@riadassi 

Having a Schedule C does not prevent you from claiming the Foreign Earned Income Exclusion. The net self-employment income on Schedule C can be foreign earned income that is eligible for the exclusion. Did you go through the "Foreign Earned Income and Exclusion" topic in TurboTax after you completed the Schedule C? You have to go through that topic in order to exclude the foreign earned income. The exclusion will appear on Schedule 1 line 8d. Did you look at Schedule 1 to see if the exclusion is there?

Are you using TurboTax Online or the desktop TurboTax software? Which edition are you using (Basic, Deluxe, etc.)?

[riadassi]

Answers to your questions  below:

-  Did you go through the "Foreign Earned Income and Exclusion" topic in TurboTax after you completed the Schedule C?  <Answer>  Yes, I did

You have to go through that topic in order to exclude the foreign earned income. The exclusion will appear on Schedule 1 line 8d. Did you look at Schedule 1 to see if the exclusion is there?

<Answer> I did not.  I will look at it again.  What was clear is that the exclusion did NOT bring down the taxes after I entered it.

Are you using TurboTax Online or the desktop TurboTax software? Which edition are you using (Basic, Deluxe, etc.)?  <Answer>  TurboTax Basic Desktop - Mac version

Note: I have been using TurboTax for 20+ years.  The past few, as I moved out of the US, I've been filing exactly the same way.  This year, the software is NOT reducing the tax I owe.  For some reason, it is forcing me to pay taxes as if I was living in the US.

Thank you

[riadassi]

Sorry - correction - Turbo Tax Premier - Desktop

[rjs]

@riadassi 

A lot of things affect the amount of tax that you owe. You can't rely on that to indicate whether you are getting the foreign earned income exclusion. You have to see if Form 2555 is included in your tax return, and whether the exclusion appears on Schedule 1 line 8d.

Note that the foreign earned income exclusion excludes the income only from income tax. Since you are self-employed, you still have to pay self-employment tax. Depending on other things in your tax return, it's possible that the amount you owe is just self-employment tax. That could be why the exclusion does not change the amount that you owe. Your income tax is on Form 1040 line 16. Self-employment tax is on Schedule 2 line 4, and is included in the amount on Form 1040 line 23.

[riadassi]

@rjs 

Thanks for the details, but you keep missing the point...

I have been using the "Easy Step" part of TurboTax for years.  I don't go into the details of the forms, as that's the whole point of using the software... To make it easy...

Now, I've been filing the same way for years.  This year PARTICULARLY, the software is NOT working the same way and it's NOT providing the excemption for Foreign income.  This is clearly a newly introduced BUG in the design of the software.

The bottom line is that as long as I'm under the max limit of foreign earned income, it should be exempted, and the TurboTax Premier software is NOT doing it right THIS YEAR... and only this year.

I'm not sure if there's a way for the actual developers/designers at Intuit to pay attention here, but they sure make it close to impossible to log an issue/bug in the software...