# FEIE in the year of the move



## jtrack21 (May 1, 2016)

I moved mid-year, last year to Canada and qualify under the physical presence test, but I believe the internet tax filing software programs are calculating my refund incorrectly. I have tried Turbo Tax, HR block, tax act or 1040.com, but the refund calculated seems incorrect.

Here is a simplified example:

US income prior to moving in 2015 = $30,000 USD
=Refund is $1000

Canadian Income after moving in 2015 = $15,000 USD
When I add this to the foreign income exclusion, my refund equals $2000.

When I look at the 1040 produced by the software, the foreign income exclusion reduces my total US income (subtracted on line 41 of the 1040), by the foreign amount.

To me, this does not make sense.

So, (1) would my foreign income increase my tax refund, as the internet filing websites have been doing? *I don't think it should, but I could be wrong.

If I mail in my tax return, should the income reported on form 2555, reduce my US income on line 41?

Thanks!


----------



## Bevdeforges (Nov 16, 2007)

Hi, I've moved you out to a thread of your own. Should be able to attract more help this way.

A couple of things: 

First of all, if you qualify under the physical presence test, then you can't file until you've passed your first anniversary of living outside the US. (You have to have lived outside the US for a full 12 months before you can file. You use the available extensions to notify the IRS that you'll be filing late for this reason.)

But it sounds like you're doing something wrong with the tax software. If you're using the FEIE (form 2555), you should only be entering your foreign earned income (i.e. what you earned for salary since moving to Canada) on form 2555. That will then subtract your proper FEIE on line 41.

In the example you give, US income (assuming this is salary) of $30,000 plus Canadian income (again, all salary) of $15,000 gives you $45,000 of salary income (line 7, I believe it is). Basically, if you enter the $15,000 on the 2555, that's what should be subtracted on line 41, so your AGI on the bottom of the page winds up being $30,000. And from that point on, the rest of the calculations are just like they have ever been.

It's a real shame that the tax preparation people have conditioned folks to judge things by the amount of their refund, since that is probably the most meaningless figure you're dealing with. What you want to check is the amount of taxes due. Your refund is merely how much you had over-withheld while you were still working in the US.
Cheers,
Bev


----------



## Bevdeforges (Nov 16, 2007)

Just saw your question over on the Canadian forum.

The problem seems to be that you have not included your Canadian income on line 7. Whichever tax software you use, you need to scroll all the way down (usually the last item) on the drop down menu for entering income (the one that offers you the choice of a W2) to find their caption for "foreign earned income" or "foreign employer compensation" or some equally arcane terminology.

You enter foreign salary income on a different form (because there is no W2 to match it to in the IRS system), but the total winds up on line 7 with your US W2 income. That should fix your problem.
Cheers,
Bev


----------



## jtrack21 (May 1, 2016)

Thanks for answering both so quickly!

Best regards


----------



## jtrack21 (May 1, 2016)

One more question, in the first year, am I allowed to file a 2555ez? The wording "Are you filing a calendar year return that covers a 12-month period?" is not explained well.

By "calendar year", does the IRS mean was I in Canada from Jan 1 2015 to Dec 31, 2015 or does it mean 12 months from the date moved? Possibly this fits in with the one year anniversary you mentioned.

Thanks again!


----------

