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Potential mistake when adding form 2555 in turbo tax

My income is about $150,000. My spouse who is a non-resident has $35,000 income. We are trying to add then exclude her income with form 2555. 

1. When i don't add her income or exclusion, my total federel tax is showing as $18,402

2. When i add her income and then exclude her income with 2555, it shows my total federal tax as $23,079

All her income is excludable perform 2555, so how is my tax obligation going up

It seems turbo tax is showing line 16 tax liability as more when i add her income and the exclusion. 

1 Best answer

Accepted Solutions
pk
Level 14
Level 14

Potential mistake when adding form 2555 in turbo tax

@superduper ,  when foreign earned income exclusion is used, the tax computation is a bit contorted ---  your  federal tax liability is computed on your world income without the exclusion  and then the tax on the excluded income is subtracted.  The modus used by TurboTax  is  generally tax table based and thus  ( and per the IRS ), your actual tax is at a higher even after exclusion.   While I personally disagree with the treatment ( because it is biased towards IRS benefit ), it is correct  as far as IRS rules are concerned.

 

pk

View solution in original post

2 Replies
pk
Level 14
Level 14

Potential mistake when adding form 2555 in turbo tax

@superduper ,  when foreign earned income exclusion is used, the tax computation is a bit contorted ---  your  federal tax liability is computed on your world income without the exclusion  and then the tax on the excluded income is subtracted.  The modus used by TurboTax  is  generally tax table based and thus  ( and per the IRS ), your actual tax is at a higher even after exclusion.   While I personally disagree with the treatment ( because it is biased towards IRS benefit ), it is correct  as far as IRS rules are concerned.

 

pk

Potential mistake when adding form 2555 in turbo tax

thanks pk, makes sense

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