Welcome back! Ask questions, get answers, and join our large community of tax professionals.
cancel
Showing results for 
Search instead for 
Did you mean: 

Foreign

Level 1

why is the excluded foreign income added back on the foreign earned income tax worksheet? 

My client worked in US and Switzerland.  Her original return only reported the US wages.  I am now amending to reflect the Swiss wages also.  The 2555 excluded the swiss wages but on the 1040 the tax worksheet adds the income back in and the client owes $.  What am I doing wrong?

Labels (1)
0 Cheers
7 Replies 7
Level 15

That's the stacking rule.  It determines the marginal rates that are applicable to taxable income and excludes foreign earned income at the lower brackets.  Similar to how some European countries exempt treaty income based on progression.

---------------------------------------------------------------------------------
Still an AllStar
Level 1

So then the tax calculation is correct?  What will happen for 2020 when her income is all from Switzerland?  It will all be excluded then, correct? (subject to the limits that is)  

0 Cheers
Level 15

If there's no income other than what's been excluded under §911 or that the sum of other income does not exceed your client's adjustments/deductions, there'd be no income tax liability -- unless, of course, your client has other liabilities such as SE-tax, additional medicare tax, NIIT, §965 installment, §951A GILTI, etc.

---------------------------------------------------------------------------------
Still an AllStar
Level 1

But there is other income.

US earnings of 40,000 and Swiss income of $46,000 this is the tax calculation from the return:

FOREIGN EARNED INCOME TAX WORKSHEET (FORM 1040 OR 1040-SR, LINE 12A)
1. ENTER THE AMOUNT FROM FORM 1040 OR FORM 1040SR, LINE 11B. . . . . . . . . . . . . . $ 28,469.
2A. ENTER THE AMOUNT FROM YOUR (AND YOUR SPOUSE'S, IF FILING JOINTLY)
FORM 2555 LINE 45 AND LINE 50, EXCLUDED INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,614.
2B. ITEMIZED DEDUCTIONS OR EXCLUSIONS YOU COULD NOT CLAIM BECAUSE
THEY ARE RELATED TO EXCLUDED INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.
2C. SUBTRACT LINE 2B FROM LINE 2A. IF ZERO OR LESS, ENTER 0. . . . . . . . . . . . . . . . 46,614.
3. ADD LINES 1 AND 2C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,083.
4. TAX ON AMOUNT ON LINE 3. USE TAX TABLE, TAX COMPUTATION
WORKSHEET, QUALIFIED DIVIDENDS AND CAPITAL GAIN TAX WORKSHEET,
SCHEDULE D TAX WORKSHEET, OR FORM 8615, WHICHEVER APPLIES. . . . . . . . . . . . . 12,375.
5. TAX ON AMOUNT ON LINE 2C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,116.
6. SUBTRACT LINE 5 FROM LINE 4. IF ZERO OR LESS, ENTER 0.
ALSO INCLUDE THIS AMOUNT ON FORM 1040 OR FORM 1040SR, LINE 12A. . . . . $ 6,259

Is this correct? I appreciate you time and expertise.  

0 Cheers
Level 15

The math is correct.  Next time, please make sure you give sufficient info.  In this case, that'd be the tax year and filing status.  No one should have to go look these up to try to match up your numbers.

---------------------------------------------------------------------------------
Still an AllStar
0 Cheers
Level 1

My apologies, this is my first time using the message board.  I appreciate your time.  

Thank you again.

0 Cheers
Level 15

NP, @eav!  If any of the posts above solved your problem, please consider marking that as the solution to help others who may have similar questions.  Have a great day!

---------------------------------------------------------------------------------
Still an AllStar
0 Cheers