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ron613
New Member

Can one exclude just a portion of foreign earned income?

I am living outside of the US.  My salary consists of foreign earned income as well as an employer contribution to a retirement plan.  I am paying foreign taxes on the earned income and I am not paying foreign taxes on the employer contribution to the retirement fund.   Am I able to declare both sources of income, use a form 1116 to take my foreign tax credit and use a form 2555 to exclude only the employer pension contribution?

5 Replies
KarenJ
Intuit Alumni

Can one exclude just a portion of foreign earned income?

Why wouldn't you just include all of your foreign income for the Form 1116 and claim the foreign tax credit on all of the income?

You can take both the foreign earned income exclusion and the foreign tax credit however I have only see the foreign tax credit taken when not all the income has been excluded because wages were higher than the exclusion. But I don't see why you cannot do want you stated.

Please note too that if you have been taking the exclusion in prior years and you do not take the exclusion this year, that in effect, you have revoked the exclusion and cannot use it again for 5 more years.

If you participate in a foreign retirement plan, you may have a Form 8938 filing requirement.

https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements


ron613
New Member

Can one exclude just a portion of foreign earned income?

Thank you for your answer.  It was my impression that I was only able to claim the foreign tax credit that was paid on earned income if that foreign income was not excluded.  Am I mistaken in that assumption?
KarenJ
Intuit Alumni

Can one exclude just a portion of foreign earned income?

No you are correct.  I just didn't know why you don't include all your foreign wages as wages eligible for foreign tax and not use the foreign earned income exclusion.
ron613
New Member

Can one exclude just a portion of foreign earned income?

If I use just the foreign taxable portion (taxed at a high rate), I would get a tax credit.  If I also include the other income that is not subject to foreign taxes, I would end up owing US taxes.   I therefore was hoping to exclude only the part of the income that was not subject to foreign taxes
KarenJ
Intuit Alumni

Can one exclude just a portion of foreign earned income?

Well that makes sense.  Thanks for the explanation.  Yes, you can exclude just part of your foreign income.

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