I took voluntary redundancy from my job in Australia. Part was taxed and part was exempt. How do I have to handle on my US return?

[shansmw]

Payout included unused leave as well as longevity pay.

[ThomasM125]

If you are a US resident, you have to pay tax on all income earned worldwide. However, you may be entitled to a foreign earned income credit if you were away for a year or more, or were a bona fide resident of a foreign country. You can visit the Foreign Earned Income and Exclusion section in TurboTax, under Less Common Income in the Income and Expenses section to see if you qualify. You will also see options on how to report your foreign income there.

I'm not sure what you mean when you say part of the income was exempt from tax, you would have to let us know more about why it was exempt for us to help you with it.

[shansmw]

A large portion of the payout was marked by my employer as non-taxable.

Then they show the tax paid on the rest of it.

I guess my question involves, since this is a voluntary redundancy, with payment for years in service, long-service leave, sick and vacation leave not taken (and also superannuation paid), it turns out to be more than my usual annual income.  I assume that even though Oz isn't taxing a portion, that the US will be taxing it all anyway.  The only credit I get is the tax paid to Oz, and the only income that is taxable in US now is the amount that exceeds the Oz/US treaty limit.

I have never taken a housing exemption before because my income was always within the the treaty limit so it wasn't necessary to add more info.  For 2021, though, would that be appropriate?  (I may be conflating that with homeowner expenses that should be listed in itemized deductions.)

Or, do I just use my Oz mortgage and normal housing expenses that are deductible in the US to lower my tax liability?  (something I never had to do before either because of my income level).

Thanks much for any insight.

[DaveF1006]

To clarify? Are you trying to claim the foreign income exclusion? If so, the following Turbo Tax link posted by Turbo Tax expert GiseleD lists these expenses that can reported as housing expenses.

 Housing expenses include:

•Rent,

•The fair rental value of housing provided in kind by the employer,

•Repairs,

•Utilities (other than telephone charges),

•Real and personal property insurance,

•Nondeductible occupancy taxes,

•Nonrefundable fees for securing a leasehold,

•Rental of furniture and accessories, and

•Residential parking.

Housing expenses do not include:

•Expenses that are lavish or extravagant under the circumstances,

•Deductible interest and taxes (including deductible interest and taxes of a tenant-stockholder in a cooperative housing corporation),

•The cost of buying property, including principal payments on a mortgage,

•The cost of domestic labor (maids, gardeners, etc.),

•Pay television subscriptions,

Improvements and other expenses that increase the value or appreciably prolong the life of property,

•Purchased furniture or accessories, or

•Depreciation or amortization of property or imp

As you mentioned, your mortgage interest and real estate tax are not allowable expenses but these can be reported as itemized deductions in your return.

[shansmw]

Yes, thank you.  I've taken the exclusion for years.  I've never exceeded the income allowed for exclusion until this year.  I've never deducted my Oz mortgage expense or other actual US deductible expenses because it was more work and didn't provide more savings.  This time, though, I think I'm going to have to utilize that.

My initial question, that I wanted to see if there was a non-obvious answer to, was whether ALL of the redundancy payout would be reportable on the US tax return or if the part that is not taxable by Oz might also be not reportable/taxable by US.  (Wishful thinking?)

[DaveF1006]

@shansmw To file as a US resident return, you must report all your world wide income according to this Turbo Tax source. This means the full redundancy payment.

As you know, the foreign income exclusion will exclude $108,700 of your foreign earned income. You also have an option of claiming a foreign tax credit in lieu of the income. You can't take both unless your foreign earned income is over the exclusion threshold.

For an example, if your income is $158,000, then you can claim the foreign tax credit based on $49,300 worth of foreign income ($158,000-$108,700). Here you can report the taxes paid to the UK and Turbo Tax will determine your foreign tax credit based on the data you record in the return. If you decide to claim a foreign tax credit, you may do so through the following steps.

1. Click on federal> Deductions and Credits at the top of the screen
2. Select I will choose what I work on
3. Scroll down to Estimates and Other Taxes Paid 
4. Select Foreign Taxes and then select start

[shansmw]

Well, this might be the best way to do it, BUT I have to wait till TT gets the form 1116 for Foreign Tax Credit.ready.  Then I'll be able to actually see how this will work for me.  Any idea on the estimated date it'll be ready to run?

Thanks very much for all your help.  Great community.

[DaveF1006]

@shansmw  Yes, it would be advisable to wait until the Form 1116 is ready to determine if the Foreign Income Exclusion, the Foreign Tax Credit, or a combination of the two would work best for you. According to Turbo Tax, the 1116 Form will be ready 03/03.