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AZ State tax questions dont incl Foreign Earned Income Excl. Fed exclusion. ShouId I manually override in forms or use negative number in "Other Income" or "Adjustments"?

Forum|Forum|6 years ago
June 1, 2019
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I work-live overseas & qualify for Foreign Earned Income Excl. My Federal Turbo Tax form worked fine, and it gave me a full exclusion. In working AZ State taxes, Turbo tax has questions only and it does not acknowledge federal FEIE. AZ does in fact recognize federal deductions, including FEIE.

ShouId I manually override in forms or enter a negative number with the value of the federal exclusion in the section "Other income" or "Adjustments"?

TurboTax Premier Windows

Best answer by LeeM

OK, I misunderstood the question. You can review the Forms I reference below by clicking on the Forms icon on the top right of the screen.

If you are granted the foreign income exclusion, it should appear on line 21 of your federal Form 1040 as a negative number. This negative number (foreign income exclusion) is subtracted from your wages and other income to determine your AGI or adjusted gross income on line 37 of your Form 1040.

The Arizona Return Form 140 uses the AGI from your 1040 as a starting point for the tax calculation on line 37. So, it has already figured in the foreign earned income exclusion, since your federal AGI already excluded the income once.

I would verify though that your Form 1040, line 21 shows a negative amount with the notation "Form 2555, Foreign Earned Inc/Housing Excl".

L

LeeMAnswer

OK, I misunderstood the question. You can review the Forms I reference below by clicking on the Forms icon on the top right of the screen.

If you are granted the foreign income exclusion, it should appear on line 21 of your federal Form 1040 as a negative number. This negative number (foreign income exclusion) is subtracted from your wages and other income to determine your AGI or adjusted gross income on line 37 of your Form 1040.

The Arizona Return Form 140 uses the AGI from your 1040 as a starting point for the tax calculation on line 37. So, it has already figured in the foreign earned income exclusion, since your federal AGI already excluded the income once.

I would verify though that your Form 1040, line 21 shows a negative amount with the notation "Form 2555, Foreign Earned Inc/Housing Excl".

L

LeeM

I would not use the override as that will prevent you from e-filing your return.

I have listed the directions below along with some screen images to help you enter the information to be able to correctly calculate the adjustment for the Foreign Earned Income Exclusion.

Select "State Taxes" and then "Arizona"
Walk through the interview until you see the screen "Taxes Paid to Another State or Country". Select "Yes" (see the attached screen image)
On the next screen select "Yes" to continue entering information for credit for taxes paid to another country.
Continue through the interview until you come to the screen Taxes Paid to A Foreign Country" (image attached below that allows you to enter the taxable income and tax paid from the foreign country. This would be where you would enter the amounts related to your foreign income.

B

bturn06Author

Thnx for the fast response. Good advice on not manually overriding. However to use the add income taxes paid to foreign country is in error. I am not paying taxes to a foreign govt - it is the exclusion from my US federal income earned working for private US company overseas (the federal government excludes up to $100,800 of income earned in overseas locations - a monetary exemption which reduces taxable income). The AZ Turbo tax form doesn't reduce it and shows my full adjusted gross income. I looked at putting in the country as you suggested, but in adding income and listing taxes paid, it doesn't give me the same result). Am I looking at this wrong? Thnx again