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.
@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
@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