I earned 10K abroad, and qualify for an exemption, yet, because I'm filing jointly with my husband, tax bill increases by 2K when I add this income. What am I missing?

[kerriP · Accepted solution]

Your Income from outside the US is entered in a certain place.

Click on Wages and Income,  Select I'll Chose What I work on

Scroll  all the way down to Less Common Income,  Foreign Earned Income and Exclusion.  This section will walk you through entering your information. 

Note: To qualify, you have to meet 1 of 2 tests:

Bona Fide Residence Test -You're considered a "bona fide resident" of a foreign country if you reside in that country for "an uninterrupted period that includes an entire tax year." A tax year is January 1 through December 31, so the qualifying period for the bona fide residence test must include one full calendar year.  (brief trips or vacations outside do not jeopardize)

Physical Presence Test You're considered physically present in a foreign country if you reside there for at least 330 full days in any consecutive 12-month period.

You can live and work in any number of foreign countries, but you must be physically present in those countries for at least 330 full days. A "full day" is 24 hours, so the days of arrival in and departure from a foreign country generally don't count toward the physical presence test.

[Anka]

Thank you so much for your answer Kerri. So the income is entered in the Foreign Income Earned and Exclusion section is the section, and TurboTax confirms that I qualify for the exclusion based on my data, yet the balance due remains unchanged. However, if I leave this 10K amount unreported, we’re due a refund (it’s a 2K difference).

[bine22]

Although foreign earned income can be excluded, the amount is still used to determine the tax bracket for all non-excluded income and pushes the non-excluded income into a higher tax bracket. 

Another point to consider is, that if the foreign earned income is self employment income, you would still owe self employment taxes (unless you pay into the foreign system in a country with a totalization agreement)