# Foreign earned income tax worksheet HELP



## Transplant_DK

I got a letter from the IRS that I'd miscalculated my 2012 taxes. I'm still in the good, but they reduced what they owed me by a few $1000 that I think I may still be able to get if I can redo the figures and submit an amended return. 

In the letter, they seem to agree with my adjusted and taxable amounts (lines 37 and 43), but then told me that I should have used the FEI worksheet instead of the tax table. Problem is, I can't figure it out. 

I think the problem is actually on my 2555, line 44, which gets figured into the worksheet. It asks me for the amount of deductions allowed in figuring my adjusted gross income from line 1040, line 37, but that line doesn't show amount of deductions but instead my adjusted gross income. So that would mean that I'm subtracting my gross adjusted income from the FEIE. But then it says I should enter that amount on form 1040, line 21. How can that be, as line 21 was used to calculate line 37? 

If I go back and change the entry on 1040, line 21 as the 2555 states, then my adjusted gross income would also need to change, and again, the IRS concurred with this figure in my letter so I think that must be wrong. This seems too circular, or something. 

Can anyone provide a clue?


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## Bevdeforges

Take a look at the sample returns in Publication 54 for some examples of how all this works. I'm away from home at the moment and don't have access to my files and samples (and don't really have the time to download and research this just now). 
Cheers,
Bev


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## Transplant_DK

Thanks Bev, I have read Publication 54 several times and am still confused. I think my brain must just switch off when I start working with my taxes, and when I think I finally understand something it more often turns out to be wrong. 

Maybe someone else has filled out the FEI worksheet and can just tell me which figure to put in line 2. It refers to 2555 line 45 and 50. I didn't claim any housing deduction, although maybe I should have. In any case, that figure is 95,100 (the allowed foreign income exclusion). This is entered as a positive number on 2555 line 45, but a negative number on 1040 line 21. I assume I should use the positive number in the FEI worksheet. 

But then it states that I should add this to my gross adjusted income and to figure the tax on that amount, so basically I am adding back the amount I excluded, which makes no sense to me, as I only figured my foreign tax credit on the amount over 95,100. 

Can anyone help me see what I'm missing here?


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## Transplant_DK

Ok, so I finally figured out the worksheet, and now it looks like I need to totally redo my 1116 as the taxes this method shows me owing are as much as my adjusted gross income. Somehow that seems wrong though.


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## Bevdeforges

Still away from home, but I can explain the general principle about how the FEIE is supposed to work when you have earned income above the exclusion limit.

The idea is supposed to be that you determine the tax due on your whole income without the FEIE (but with your deductions and exemptions) and then the tax due on the excluded income (again, with the apportioned deductions). Subtract the taxes due on the excluded amount from the taxes on the entire amount and that's supposed to be your taxes due. That's the bit that you can apply your foreign income taxes to as a credit. (And I believe you have to apportion your foreign taxes paid between the part of your income covered by the FEIE and that over and above.)
Cheers,
Bev


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## Transplant_DK

Thanks, I did finally figure it out and came up with the amount the IRS had calculated. It's now obvious that I miscalculated the 3 years I sent prior since I didn't use the worksheet (used the tax table by mistake). I guess they will let me know that those are incorrect at some point? Or should I refigure and resubmit without waiting for them?


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## DavidMcKeegan

I have seen this kind of notice a few times... Most times it means you didn't use the FEIE tax calculation worksheet, and rather calculated tax the "regular" way. 

The IRS decided that it was not really fair that individuals who make over 100k get taxed at the same rate as someone who makes 20k, so for those that exclude income, the tax calculation is different, and that's where the FEIE tax calculation worksheet comes into play.

What the worksheet does is that it determines the tax rate as if income was not excluded, and then applies that tax rate to the actual taxable income as reported on the tax return.

Fortunately, you can usually use a Foreign Tax Credit for any income that is not excluded by the FEIE. However this may mean that you have to redo your Foreign Tax Credit form (depending on how you filled it out previously).

Hope this helps!


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## Transplant_DK

Thanks for the explanations. As stated, I did finally figure it out and did have to redo my 1116, but I think it's correct now. Just wondering if I should go ahead and redo the ones that I also calculated incorrectly for the 3 years prior or if I should wait on them to send me the same letter for those years. They think I owe them for at least one of those years, I'm sure I don't.


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## DavidMcKeegan

If you know they were calculated incorrectly, then I would definitely recommend amending the last three years and resubmitting them. Compared to just amending the returns now, it will be a much larger hassle if you get notified by the IRS, then have to amend the returns, defend your position, etc (plus there may be fines and penalties).

Better safe than sorry!


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## solost1992

Does this mean that persons collecting Social Security benefits and still working (no deduction from SS because of continuing to work) should use the Foreign Earned Income Tax Worksheet to calculate their tax? My income is way below the $100+ threshold. Is this worksheet necessary because I am collecting SS benefits and also working outside the US?


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## Moulard

The FEITW is simply a new way of calculating the tax due if you use the FEIE.

It replaces the standard tax tables at the end of the instructions.

Fundamentally, it changes the calculation of tax you pay on your income to reflect your AGI + excluded income but then only applies that tax rate on only your non-excluded income.

Say you had an income of 110,000 and excluded 100,000. 

Before they introduced this change you would have looked up 10,000 in the tax tables. 
In very simplistic terms, you now now calculate the tax you would owe on 110,000 but apply it to only the 10k of taxable income.


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