UK income increases US taxes?

Hi all. We moved back to the US in 2012 about mid-way through the year, so we had earnings half the year in the UK and half the year in the US. I'm doing my taxes on Turbotax, and when I first input our UK income (which was for 6 months of the year), our tax owed jumped by more than $8,000. Then when I put in our living expenses, it went back down to about $4,500, with a message that all of our UK income was excluded from US taxes. But our tax before I input UK income was at about a $900 REFUND. So our "exempt" income brought us to now OWING $4,500??

Is there an error somewhere, or is it possible that even though our UK income was excluded, it still counted toward pushing us into a higher tax bracket on our US income?

As an aside, do you list your UK income amount before or after the UK taxes were taken out? I think I've always listed the amount before taxes came out, but I can't recall for certain.

something doesn't sound right to me, but I only used Turbotax when still in the USA

but yes, income is income, and it's pre-tax, not after tax

This sounds correct based on the "stacking rule" introduced by George W. Bush from 1 January 2006 which increased US tax for many Americans overseas. Since 2006 it has often saved tax to claim foreign tax credits instead of the foreign earned income exclusion.

Thanks! But I've got one yes and one no as to whether it sounds right. Does anyone else have experience with this?

This sounds correct based on the "stacking rule" introduced by George W. Bush from 1 January 2006 which increased US tax for many Americans overseas. Since 2006 it has often saved tax to claim foreign tax credits instead of the foreign earned income exclusion.

+1

Thank Senator Chucky Grassley.

I forgot about the stacking rule. Way back when I first lived here and had foreign earned income (in the 90's) that rule didn't exist.

Yet one more way that expats get zapped. Try figuring your tax using tax credits instead of exempting the UK income.

I forgot about the stacking rule. Way back when I first lived here and had foreign earned income (in the 90's) that rule didn't exist.

Yet one more way that expats get zapped. Try figuring your tax using tax credits instead of exempting the UK income.

Thanks, I'll give that a go. I haven't done tax credits before in Turbotax, but hopefully I'll figure it out!

I forgot about the stacking rule. Way back when I first lived here and had foreign earned income (in the 90's) that rule didn't exist.

Yet one more way that expats get zapped. Try figuring your tax using tax credits instead of exempting the UK income.

I just refigured my taxes taking a tax credit instead of the income exclusion. Doing it with a tax credit, we owe $500 less, so that's something. I'll have to look over it again to make sure I've got it right. Thanks for the tip!

New problem:

So I did federal taxes with a tax credit and saved $500. Then I did state taxes and it showed a huge amount owed! (We did get a large one-time pension payout this year, though).

Anyhow, the total income is was figuring in Turbotax included our overseas income. So I went back to the first turbotax file I did that exluded foreign income for federal, and that dropped my state taxes by $2,000-- so a total of $1,500 cheaper (because it increased my federal taxes by $500).

Does this sound right? I was blown away by the total on the state taxes!

Each individual State may, or may NOT, calculate your taxes in the same manner the Feds do (FEIE, foreign tax credits, etc.). Unfortunately, you're depending on TurboTax and it doesn't explain the anomaly. The only suggestion is to double check the accuracy of the info given to TurboTax for both methods.