CPA · Question 10 · Area 1: Individual Tax
A US citizen working abroad qualifies for the Foreign Earned Income Exclusion (FEIE). In Year 1, they earned $140,000 in salary and had $15,000 in foreign taxes withheld. The FEIE limit for Year 1 is $120,000. The taxpayer also has $10,000 of U.S. source interest income. If the taxpayer elects the FEIE, how is the tax on the remaining income calculated?
Answer options:
The remaining $20,000 of salary is taxed at the lowest tax bracket rates.
The taxpayer cannot claim a Foreign Tax Credit on the excluded income, but can on the excess.
The tax is calculated using the rates that would apply if the excluded income were present (stacking rule).
The $10,000 interest income is excluded because it is less than the standard deduction.
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