feic and ftc

Yes you can choose to exclude less. However, you will not be able to claim a deduction or a credit for earnings you could have excluded. In other words, you can't do what you are trying to do.

But if you only made a little bit, couldn't you not use 2555 at all, and just claim the Foreign Tax Credit and Making Work Pay?

Yes, but that wasn't what was asked. He was looking to maximize the FEIE but leave a little earnings left over for the Making Work Pay Credit.

Does Schedule M say this?

But does this mean that if you make just enough money, you could exclude the maximum with just a bit left over, which would then qualify for the Making Work Pay Credit?

I suppose if you were single, the phaseout would kick in at about the same point where the FEIE maximum hits, so this might not work. But for MFJ it may.

I believe it does. See the instructions for completing it. The law on this inability to obtain a "double" benefit is embedded in Sec. 911 and its regulations.

Reading the schedule M instructions there is a worksheet for what to enter for line 1a, the earned income (which for most people is just line 7 wages).

1. a. Enter the amount from line 7 of Form 1040A or Form 1040
2. b. Nontaxable combat pay received.

1. Is about Schedule C and Schedule F income

2. Combine lines 1a, 1b, 2a, 2b, and 2e.

**

1. Enter any amount included on line 1a that is: a. A scholarship or fellowship grant not reported on Form W-2 b. For work done while an inmate in a penal institution c. A pension or annuity from a nonqualified deferred compensation plan or ...

1. a. Enter any amount included on line 3 that is also included on Form 2555, line

**

-42000. Thus line 1 of this worksheet is 50000 and line 21 is 42000.

1. Enter the amount from Form 1040, line

3. Add lines 4a through 4c, 5c, and

2. Subtract line 7 from line 3. Enter the result here and on Schedule M, line 1a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

**

Basically I did not see a rule that says you must either either not use the FEIC at all or use it to the maximum value possible (and the remainder qualifies for the making work pay credit -- which as Tom points out might mean something in a MFJ return). I think you can elect.

Section 911 has this complicate section

BEGIN QUOTE

(6) Denial of double benefits No deduction or exclusion from gross income under this subtitle or credit against the tax imposed by this chapter (including any credit or deduction for the amount of taxes paid or accrued to a foreign country or possession of the United States) shall be allowed to the extent such deduction, exclusion, or credit is properly allocable to or chargeable against amounts excluded from gross income under subsection (a).

END QUOTE

Maybe it's late at night, but I have no idea what that means. It doesn't even sound like the English I know. Maybe it means the obvious that you can't claim the FEIC and FTC on the same income. That is, if you do 42,000 of FEIC then you can't take FTC on the tax paid on this 42,000.

. . . . . . . . . . . . . . . . . . . . .

Well, you forced me to actually look at Schedule M. I have to agree with you, that reading the instructions one would conclude that you can take the MWPC with the FEIE. Note, that I thought Congress had excluded the MWPC just like they excluded the EITC. Turns out, the code section for the MWPC does not include the exclusion that is written into the EITC section. All that said, it just means that you are not automatically excluded from taking the MWPC. We are still left with, when can you take both. Clearly, you can take both if you have FEI in excess of the excludable amount and your filing a joint return and you don't blow by the phase-out amount. (A single person with wages of $91,500 exceeds the $75,000 phaseout.) Checking Taxwise software, it certainly allows a taxpayer to take both.

Your question was whether you can take both if you elect to not use the full exclusion (Your 42K vs $50K scenario.). The instructions for completing the 2555, don't appear to allow you to take less than what you are allowed. Look at Part VII of the 2555. This is where you calculate the exclusion. Note that the exclusion is based on the fixed amount of $91500 on Line 37. The amount of wages to exclude is sourced from Line 27 (sourced from Line 19), the foreign wages. There is no way to enter a number that is less than the actual foreign wages without not following the instructions (ditto for Taxwise software). So, in your example, if the foreign wages were $50K, that $50K would feed line 19,

. . . . . . . . . . . . . . . . . . . . . .

I agree with Alan. The statute (IRC Sec. 911) does not provide an election to exclude "all or part" of the foreign earned income. The election is to exclude all foreign earned income, as defined, up to the applicable limitation. If the election is not made, nothing is excluded.

I believe a careful reading of the statute and Reg. Sec. 1.911-3 will lead you to that conclusion.

Katie in San Diego