tax calculation error with foreign income exclusion

[zhijiexia]

I found an error in tax calculation. When a person is qualified for foreign income exclusion, with different foreign income (say $17,000 and $77,000) and everything else is the same(same taxable income $157,542) , the tax is quite different: $27,883 vs $21,837).  Why is that?

[pk]

@zhijiexia , do you still need answer to this ?

If you do , please can you explain the situation a little ---- what I get is that you have two foreign incomes in the same year -- US$ 17,000 and US$ 77,000.  But I don't understand how you get your total taxable income to be US$157,542 -- please can you lay out the scenario completely and 

1.are you US citizen/Resident; 2. which country is your tax home; 3. is this your first year and if so when did you arrive abroad 4. what are the incomes for the year; 5. what is TurboTax saying about taxable income & tax computed, 6. etc. etc. ??

[zhijiexia]

What I have tried is for two persons with foreign income of US$ 17,000 and US$ 77,000 respectively.  Since the foreign income  is qualified for the exclusion, so it is filled in 7a of 1040 and deducted from the total income.  Because everything else is the same, two persons will have the same total taxable income, e.g., US$157,542 (11b of 1040).  However, the tax in 12a by using turbotax is quite different： $27,883（foreign income of US$ 77,000） vs $21,837（foreign income of US$ 17,000）.  Why did turboTax calculation has two different tax result?  Are they suppose to be the same with the same total taxable income and everything else except foreign income?  Is this an error with the turboTax calculation?

[pk]

@zhijiexia , I hope this is not a test question  but an actual tax scenario.   As I get  the situation from your articulation:

1. Person A has   US income of $157, 542 plus  foreign  excluded income of US$77,000  -- resulting a US tax liability of $27883.

2. Person B has  US income of $157,542 plus an excluded foreign income of US$17,000 -- resulting in a US tax liability of  $21, 837. 

 Therefore the question, why does the US tax amount change with the same un-excluded  / US sourced income -- should it not be the same?

The answer lies in how the taxes are computed when there is foreign earned income exclusion.   The tax is computed based on the total world income including the excluded  income.  Then the tax due to the excluded amount is subtracted in ratiometric manner  ( excluded amount divided by total income multiplied by the total tax on the total income) -- the result being that even though the income is excluded, it does affect the tax computation by pushing you into a higher marginal bracket.  Does this make sense ?   TurboTax is computing correctly.  If you are using downloaded version of the TurboTax there should be a worksheet  showing the computation of the  tax when foreign income is excluded.

Is there more I can do for you?