Question

Allen is an employee of the foreign subsidiary of a United States base company who lives...

Allen is an employee of the foreign subsidiary of a United States base company who lives and work in the United Kingdom. according to FATCA, how much of his wages may Allen exclude from United States' taxes, according to 2017 guidelines.

a. $ 46,700

b. $80,050

c. $102,100

d. none

Please breakdown and show how you got the answer.

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Answer #1

Ans is c $102,100

Explanation: As per rules, there is two method of us tax reduction, if you have foreign earned income, 1 is Foreign earned income exclusion, 2 is Foreign tax credit. If you have foreign earned income then you are allowed to deduct a maximum of $102,100 from this foreign income to mitigate the effect of double taxation. And this exclusion is only applicable to foreign earned income and not to pension, interest, dividends, capital gain, and us source income. Secondly income remain after exclusion will be taxed at the rate applicable for income before exclusion.

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