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Discussion Starter · #1 ·
I am having trouble understanding how to claim Foreign Earned Income Exclusion during the first part of the year that I move overseas. I will be moving from California to South Korea in July, and living and working there until July 2016 (>330 contiguous days). I have an F-6 visa (Korean resident through marriage) and I will pay Korea taxes. My income will be well under the $99,200 limit.

According to IRS publication 54, it seems that I am not eligible to claim Foreign Earned Income Exclusion for my 2015 taxes as I will only have been a resident for 6 months during filing. Am I really expected to pay double taxes in Korea and USA/California on my income?

Many thanks in advance for your help.
 

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According to IRS publication 54, it seems that I am not eligible to claim Foreign Earned Income Exclusion for my 2015 taxes as I will only have been a resident for 6 months during filing. Am I really expected to pay double taxes in Korea and USA/California on my income?
You will file your 2015 U.S. tax return on January 1, 2016? That's the point in time when you will have had about 6 months of residence in South Korea, so that should give you a clue you may have misread the instructions. :)

First, California has its own, separate rules that you'll have to check separately.

One approach: You can file for an extension (using IRS Form 4868) then file your 2015 tax return when you have qualified for the Foreign Earned Income Exclusion -- in late June, 2016, for example. You become eligible for the FEIE based on the physical presence test when you've been physically outside the United States for the required minimum period of time.

Another approach: skip the FEIE and take only the Foreign Tax Credit.

Yet another approach: do both. File a timely tax return taking only the FTC, then file an amended return (1040X) taking the FEIE.
 

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Discussion Starter · #3 ·
Thanks for the information; it's very helpful. I'll go the extension route. This means that for my 2016 taxes I will also claim FEIE even though I will be back in the USA?

The reason I file my taxes early is that I get a significant return every year. I expect a large return for 2015 taxes due to significant withholding for the first half of this year. When I claim FEIE, is my effective AGI going to be my income from the USA (assuming my foreign income is under the $99,200 limit)?

Thanks again for your insight.
 

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The two options (assuming you want to take the FEIE) are:
1. You file as usual, without taking the FEIE (because you won't qualify until you have spent 12 consecutive months outside the US). Then, once you pass the 12 months out of the country mark, you amend and claim back the "excess" taxes you paid.

2. You delay filing until you hit the 12 month mark (using whatever extensions you need to claim) and then take the pro rated FEIE for the 6 months in 2015 that you were working in Korea. When you file for 2016, you take the FEIE for the remaining time you were in Korea (and again, if it wasn't the full year, you'll have to apportion the available FEIE).

In essence, your Adjusted AGI will wind up (in both tax years) being your US source income plus any "unearned" income (interest, dividends, etc.).

It has been a good while since I filed California taxes, but I think it's very possible that they do NOT recognize the FEIE and so you'll wind up paying state tax on that income. (Check the instructions, though, and see if there is any way to file a NR form for the period that you are outside the country.)
Cheers,
Bev
 

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FYI, the Foreign Earned Income Exclusion in tax year 2015 is up to $100,800 on a full year basis, plus any eligible Foreign Housing Exclusion. That does not include your personal exemption, standard deduction, etc. The $99,200 figure was for last year (tax year 2014). The 2016 figure has not been announced yet but will presumably be something higher than $100,800. Exactly how much higher depends on the inflation rate.
 
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