# FEIE vs FTC or Both?



## B_Nic_Thom (9 mo ago)

Hello everyone,

I have encountered an issue filing me and my spouses 2021 taxes.

I moved to the UK in 2020 and qualify for FEIE, my husband moved to the UK in April 2021 so he does not qualify for FEIE. He cannot pass the bonafide or Physical Presence Test as he had to visit the US for almost two months in December for an emergency. He also has been self employed and has not paid any taxes since and has made significant income.

We have attempted to file our taxes but I am unsure if we can leverage FTC for his portion of the income and FEIE for mine? I have paid my taxes via PAYE and would love to credit this amount against the amount he owes.

We also are not sure if we should file and pay for our US taxes first and he can claim Foreign Tax Credit from HMRC or if an extension should be filed from the IRS so we can claim FEIE for both incomes eventually.

We now reside in the UK so I am pretty sure we should be paying our tax to HMRC not the IRS.

Should we file for an IRS extension and pay his self assessment taxes first and came FTC against IRS?
Should we file our US tax claim both FEIE and FTC then file his Self Assesment and claim FTC against the UK tax owed?
Or is there a better way? Reeally appreciative of any help I can get

Thanks!!


----------



## Moulard (Feb 3, 2017)

If only he had made some form of voluntary payg before the end of 2021, it would actually have all been quite straight forward... but

I presume you are intending to file jointly and are both US Citizens or greencard holders who have not formally abandoned permanent residency via Form I-407

A few short thoughts on your questions. Maybe someone with UK specific experience will jump in..

In order to use Foreign Tax Credits one must either have paid or accrued a foreign tax liability. So while he may not have paid UK taxes he almost certainly will have accrued a tax liability.

Ordinarily it is far easier to use a cash basis, but given the circumstances of not actually having paid with it may be better to use an accrual basis. Alas that will lock him into using accrual moving forward, as you cannot move from an accrual method back to a cash method.

That said, If income tax has been withheld by his clients you might be able to "fake" a cash basis of accounting, by treating what was withheld as if it was paid...

There is nothing that I am aware of that would prevent you from filing using the FEIE with a spouse who was using FTCs

However, excluding your income using the FEIE would not offset any US tax liability that he had because you cannot claim tax credits for income that you have excluded.

One option you might want to consider is using FTCs instead for your income. Doing this would allow you to "share" the credit for taxes between you.

You do need to be aware that doing so would mean you could not use FEIE for 5 years as you would have been deemed to have revoked the election to use the FEIE.

If your income is high enough and the UK tax on your income is high enough to cover any US tax liability he might have on his income you might consider using a cash basis of accounting.

Fundamentally using your UK taxes to cover both of you. Its a long shot, you would have to do the sums. 

You might also consider using a cash basis of accounting and then carry-back UK taxes into this years return. 

Of course this has the disadvantage of having to pay the US now, and get a refund in a when you submit your 2022 return in 2023. 

So what would I do? 

I suspect what I would look at doing is something along the lines of..

Calculate what your expected UK tax liabillities will be after things like the personal allowance and trading allowance
Draft up a joint US tax return, using those figure so that I understood my potential US tax liability - file for an extension to file my US return to give you some breathing space.
Pay any US taxes that would be owed based on those figures .. This is purely to prevent ongoing interest charges etc.
Hold off filing my US tax return until after my UK return had been finalised. 
Complete the UK return
File my US return.
But given it is after 6 April, this may be complicated on the UK tax front as we have crossed into a new UK tax year if my memory is correct.

The only other thing he may need to consider is US Self Employment taxes and the totalisation agreement. I have no idea whether or not NI coverage would be backdated if you have not made voluntary contributions. Again one for the UK contributors.

If you have made it this far... Pub 54 and Pub 514 are good starting points



https://www.irs.gov/pub/irs-pdf/p54.pdf





https://www.irs.gov/pub/irs-pdf/p514.pdf


----------



## MyExpatTaxes (10 mo ago)

B_Nic_Thom said:


> Hello everyone,
> 
> I have encountered an issue filing me and my spouses 2021 taxes.
> 
> ...


Hi! My apologies for the delay in responding.

There is no requirement to make the same choice. You can take the FEIE and your spouse can take the FTC. Depending on your income you may even take the FEIE and the FTC. However, note that you are not allowed to take both FEIE and FTC for the same income so if you use FEIE to exclude your income you will not be able to use FTC for the same amount to offset any residual income.

It seems that your spouse might qualify for FEIE based on the Physical Presence Test.
To pass the Physical Presence test you must spend 330 days during a 12-month period outside of the United States. The 12 months don't need to be within the same year but at least a part must fall in 2021.

As a self-employed person even if he can exclude a part of his income from US tax, he will owe self-employment tax in the US unless he is formally paying social security taxes in the UK on this income. It seems this is not the case at least for tax year 2021.

As your tax home is in the UK, generally, you must pay and declare your taxes in the UK and then take credit as available on your US tax return.

You can file an extension so you have enough time to figure out everything you need. When you create an account, fill in the questionnaire as much as possible and this will give you at least a rough estimate of your US tax due. You will be able to file an extension to file until October 15th for free too.
Make sure to make a conservative estimate of your US tax and pay by April 18th because the extension is for filing not for payment.


----------

