Does Turbotax have a bug in foreign income calc? I qualified for an exclusion, in printed 1040 it is with '-' on line 21, but tax was calculated as for regular income.

[alex24]

More details from printed 1040:
- line 7 includes all income + foreign
- line 21 specified all foreign income with '-'  (entire income qualified)
- line 37(and 38) calculated properly  (foreign income substracted)
- on line 47 I see taxes as they were calculated  *with* the foreign income

P.S. on a second attempt I modified my foreign income to a nice number to easily calculate tax and to prove the previous statement - line 47 indeed includes the foregin income taxes.

[KarenJ · Accepted solution]

You are quite right.  A few years ago the IRS /Congress decided to change the method of calculating the 1040 tax when there is a return with foreign earned income exclusion.   And the method is not favorable to the taxpayer. 

Taxpayers claiming the foreign earned income exclusion will pay tax at the rate that would have applied had they not claimed the exclusion.

In other words, the federal income tax is calculated by first figuring the amount of income tax on your total income before taking the foreign earned income exclusion. Then you can subtract the tax as calculated on the amount of foreign earned income that is excluded. The result is the amount of your federal income tax liability. You can use the Foreign Earned Income Tax Worksheet found in the Instructions for Form 1040 if you need help. 

See 2019 1040 Instructions

[Edited 03.18.20 | 11:31 am] 

[alex24]

Thanks a lot for that detailed explanation. Became clear after I read the referred instructions. Indeed, not favorable :(