Possible bug in turbo tax after filling in Foreign Earned Income Exclusion

Forum|Forum|2 years ago
March 19, 2024
2 replies
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I think I might have found a possible bug in Turbo Tax with Foreign Earn Income Exclusion where tax are not calculated properly.

This is the behavior which I observed last year as well (and I probably overpaid)

1. Fill income for myself via W-2

2. Fill in my wife income as FEIE and becos it is less than 120k and she pass the physical presence test, turbotax says she qualifies.

3. However, my total tax liability still went up by a huge amount.

Now, I am puzzled... so I printed 2 copies of 1040 (one with and one without my wife income in line 1h)

When I compare side by side... both forms for 1040 line 15 - taxable amount is the exactly the same value!

However, line 16's value is different!

I used this link https://turbotax.intuit.com/tax-tips/irs-tax-return/current-federal-tax-rate-schedules/L7Bjs1EAD
to calculate the tax value in line 16 and I got the exact match! but I could not figure out how TurboTax derive the amount with FEIE enabled.

Will this be a bug ? should line 15 be the definitive value to get to line 16 ?

Best answer by taxericko

Thank PK,

This is the answer I am worried about. But it is what it is... for more information on this complex tax compute, can you send me the link where is the 'logic; for it ?

I can find the tax table for 2023 Tax Computation Worksheet

here: https://www.irs.gov/publications/p17#d0e50213

But where can I find the one with FEIE ?

Thanks in advance

pk12_2

Employee

@taxericko , without having the exact numbers it is difficult to opine whether TurboTax is correct or not. However, the tax computation for purposes of Foreign Earned Income Exclusion ( FEIE) is a little bit convoluted.

There is a separate worksheet in TurboTax doing this computation. The way it works is (a) compute tax liability based on total world income ( including the Excluded income; (b) subtract the tax attracted by the excluded income ONLY. Thus it always pushes you into a higher bracket ( marginal Tax rate ) and then subtracts the contribution of the excluded income as if it were the ONLY income.

This is not a bug -- this is per IRS instructions.