Turbotax says I am due a refund, but I don’t trust it. I can’t find the answer to my specific situation. I’m trying to confirm this is not a bug before I continue.
Married, Filing Jointly.
Both people live together overseas. No trips back to the states.
I do not qualify for FEIE, because military salary is not exempt.
However, she qualifies for FEIE. US based company, paying her salary, issuing W2, deducting no Fed Tax all year.
This year the FEIE is $126,500 per person. If we both qualified, we both could deduct $126,500 for a total of $253,00. Correct so far?
Since my income doesn’t qualify, she can only exempt $126,500. . . but here is the question:
Is it $126,500 of HER earned income? Or is it $126,500 of OUR earned income?
Turbtax, even though I clicked every button that says I am not eligible, and I selected the part where I am only trying to have her evaluated for the credit, not both of us. . . Turbotax still says that together we are exempt a total of $126,500. With that logic, if she made $26,500 and I made $100,000, then I will get back all of the federal tax I paid? Shouldn’t only $26,500 be exempt in that situation?
If Turbotax is correct, then I need to refile last year’s. I’d get back from the IRS thrice as much as I paid them last April.
I am not an expert on anybody’s taxes but my own. But I did find this online tool that the IRS provides to answer this question. So you can use this to confirm what TurboTax says.
I’m not an accountant, but I’ve been filing taxes overseas for many decades. If an accountant shows up, then completely ignore this.
My WAG is that Turbotax is incorrect, because Line 14(d) of form 2555 has you enter the amount of income earned within the US.(Note below) This then is excluded from the amount which counts towards FEIE. See instructions for Line 19.
This which may not be literally true, but I guess would be taken as income which doesn’t qualify for FEIE. Again, this is just a WAG.
But whenever TurboTax suggests something on my taxes that smells “off”, I switch to forms view and see what it’s generating. Often from the forms I can see where they used a joint total in a box meant for one or the other spouse. Or vice versa. etc. You might find that informative.
I also sometimes go to IRS.gov and get the instructions PDF for the form (2555? ref @TokyoBayer) that TT is generating. Then I work through what the instructions tell me versus what it’s filling in.
That’s my understanding as well. I’ll have to fudge around with TurboTax to see why it keeps doing that. I get to the part where I choose whose income to exclude, I pick the option for just her, and it starts with the total joint income amount instead of just hers. It’s such a large refund, that it might be worth it to just pay TurboTax for their audit protection package, and run with it. j/k
I figured it out. There’s a part where it asks you for a wage adjustment, if necessary. Basically, it’s where you put a negative number in there to subtract any of the salary that wasn’t earned overseas. But, it defaults to show the actual earned income. This makes it seem like the box should have 50,000 if all 50,000 was earned outside the US. And how it defaults, so I just clicked NEXT. However, it’s supposed to be that if all 50,000 is earned outside the US, then the box should have a “0” in it. If 10,000 of the 50,000 was earned in the US, then you’re supposed to put -$10,000 in the box instead of $40,000.
So, since I left it at the default, it was doubling her excluded income! Since our salaries are nearly the same, doubling her income made it appear that the system was counting both of our salaries. But it was actually just counting hers twice.