US citizen living in the UK (fifth year) and this is the first year that I'm told that I owe US taxes. Can someone please explain? Foreign Earned Income Exclusion?

[dillonrosdahl]

Filing jointly, met the physical presence test, and total earnings less than $224k. My understanding has been that UK tax rate is higher than the equivalent in the US and so wouldn't be "double-taxed". Thanks in advanced!  

[DanaB27]

Please be aware, if you choose to exclude foreign-earned income, you can’t take a foreign tax credit or deduction for taxes on the income you can exclude. 

"For the tax year 2022, the maximum foreign earned exclusion is $112,000 per person.  If two individuals are married, and both work abroad and meet either the bona fide residence test or the physical presence test, each one can choose the foreign earned income exclusion. Together, they can exclude as much as $224,000 for the 2022 tax year." (IRS)

We cannot see your return, did you get the full foreign earned income exclusion on Schedule 1 lin 8d? Did you have any other taxable income you did not have in the past?

If you need to verify your entries:

1. Login to your TurboTax Account 
2. Click on "Search" on the top right and type “foreign income”
3. Click on “Jump to foreign income”
4. Continue through the foreign income section

[dillonrosdahl]

Thanks, Dana. I'm not able to see Schedule 1 lin 8d in the form (probably because it's not submitted yet). However, the TurboTax walk-through says that I've qualified for the foreign earned exclusion. 

I think I see what's happening now. My wife doesn't have an income and the exclusion is just per person so I'm capped at $112k for my entire household even though we're filing jointly. Is that correct to your understanding? Meaning that I would have to pay the difference in taxes owed above $112k. 

That's confusing to me because that excess income will effectively be double-taxed (US and UK). 

[DanaB27]

Yes, that is correct, your Foreign Income Exclusion would be capped at $112k. 

The tax on your remaining non-excluded income is calculated using the tax rates that would have been applied had you not claimed the exclusion(s). 

For income above the $112k (that wasn't excluded) you might be able to get a foreign tax credit for UK taxes paid. Please see Where do I enter the foreign tax credit (Form 1116) or deduction? for details.

You preview Form 1040 and Schedule 1:

1. Click on "Tax Tools" in the left menu
2. Click "Tools"
3. Click "View Tax Summary" in the Tool Center window
4. Click on "Preview my 1040" on the left