Earnings over foreign income exclusion

For each of the past 6 years I have earned less than the foreign earned income exclusion, so have filed 2555-EZ with my 1040. In 2011, I earned over $92,900. If I don't file 2555-EZ, the PAYE taxes will obviously cover the US taxes -- but does this count as "renouncing" my right to the exclusion? And, if this is "renouncing" must I do something additional?  I expect to earn below the limit in the future and it would be easier to file 2555-EZ. Any suggestions? Thank you.

My understanding from the IRS is that if you qualify for the foreign earned income exclusion, but choose not to take it, this counts as revoking the exclusion. You could then not take the exclusion for a period of 5 years without seeking IRS approval.

If you're concerned about the consequences of revoking the FEIE, you should take the FEIE on your earnings up to the limit, and then use the foreign tax credit on anything over that amount. You can use both. You just can't use them both on the same "slice" of your earnings.

Having said that, it may work out better for you to just forget about the FEIE and take the foreign tax credit instead on your entire income - principally because you are likely to generate more excess foreign tax credits that can then be carried over to future tax years.

Shouldn't you file a 2555 to get the $92900 exemption, but leaving the balance as taxable?

I agree; look at using the available FEIE and the foreign tax credits OR the FTC on the entire amount, whichever gives you the best 'break'.

Rather than the 2555-EZ you will likely use the 2555 if memory serves.

TinaS, after deducting the UK PAYE suffered on the earned income, is the earned income still over $92900? If not, take those UK taxes as a deduction, as explained on page 32 of IRS publication 54.

Or if, as that page also explains, if the earned income less UK tax on that income exceeds $92900, do not take the deduction but instead file form 1116 to claim Foreign Tax Credit.

In 30 years of looking at US returns I have never yet seen an example where claiming a deduction gave a better answer than a credit; but theoretically it could.

Claiming more credits is often better especially for individuals with non-qualifying income to report such as members of UK pension plans.

I agree; look at using the available FEIE and the foreign tax credits OR the FTC on the entire amount, whichever gives you the best 'break'.

Rather than the 2555-EZ you will likely use the 2555 if memory serves.

+1
Here is a useful article on this very subject

http://www.aca.ch/ftc.htm

Thank you all for your responses and for pointing out that I need 2555, not the EZ form.  Nun's link led to an excellent summary of why FEIE doesn't help us in the UK.

I'll look at my numbers and determine what happens with FEIE + FTC vs FTC only. I hate attaching explanations, but I'd need to do that with first option since 2555 asks for details of original visa, whereas 2555-EZ simply asks when you arrived. I came here when I was 4, a dependent of father on work permit, later gaining ILR & UK citizenship.

I've been hesitant to revoke the FEIE for two reasons: (1) if I drop below the limit in future, I can simply file 2555-EZ and (2) the (probably delusional) thought that we'll return to the good old days when "excluded" meant "excluded", with passive income being taxed at lower rate.

Isn't it frustruating that income can be just above FEIE because of the exchange rate, something irrelevant if you're paid in Sterling and spend it all outside US?