Foreign Earned Income Exclusion?

Question

Okay here's the situation. I work overseas and when I file my taxes I file a 2555 Foreign Earned Income Exlusion with my 1040. In previous years I've declined having taxes withheld because I knew I would meet the requirements for the Foreign Earned Income Exclusion.

This year however, I wasn't sure if I was going to stay overseas so I've been having taxes withheld. I was talking to a coworker who told me she had taxes withheld for the same reason last year but met all requirements and when she filed, instead of getting the $14k + back she only got around $700. I called the IRS and they said I should get it all back, but, it is the IRS we're talking about here.

So, on one hand I have the IRS telling me Ill get it back and on the other I have someone telling me from experiance I won't.

Does anyone have knowledge of this and if so what do you suggest?

Answer 1

http://www.irs.gov/businesses/small/international/article/0,,id=97130,00.html

Answer 2

I doubt that the IRS could actually tell you over the phone that you will get all your withholding back. There are too many factors involved, and the year isn't over yet.

The rules for the foreign earned income exclusion changed last year. If you qualify for the exclusion and make less than the exclusion, there is no difference. But if you make more than the exclusion, your income is taxes as if it is the last dollars earned, rather than the first dollars earned. So some workers are paying a lot more tax.

All you can do is submit your 2555 correctly. You'll get back whatever you are entitled to. Read over the instructions to see the changes effective 2006.

Answer 3

Your tax return and your co-worker's tax return are two separate issues entirely. You can't compare yours to hers. Period.

If you're eligible for the FEIE, you'll get it. If not, you won't.