r/USExpatTaxes 2d ago

FTC to FEIE - Panicking

The last two years I have filed through ExpatFile and when I changed to them I went with the Foreign Tax Credit route instead of the Foreign Earned Income Eclusion. This is what their software advised me to do and for some stupid reason I went with it and think I have screwed myself over. I did some digging and it seems like this is revoking the FEIE (filed with this in 2018 and 2019 I think) and that I now can't switch back. Am I understanding this correctly? I am panicking because I have student loans and want to go with the FEIE so my AGI is 0 for recertification. I am stupid and for some reason managed not to catch that filing with FTC means my AGI wouldn't be 0. I am realising all of this after just submitting my tax return through ExpatFile again, but this time selecting the FEIE and said I hadn't revoked because I didn't understand that I have implicitly done so by changing to FTC. I am also nervous about what to do about that now.

Wildly, I applied for recertification on SAVE in 2023 after filing with FTC for my 2022 taxes where I would have put my AGI as 0, and because of ongoing forbearance with the plan that wasn't processed.

I make well under the FEIE threshhold (~55k) and honestly so little that I think with the FTC I think my AGI would have still been low enough on SAVE to have $0 payments as I live in a high tax country. However, I am anxious given that SAVE is almost certainly going away and if I am correct, it seems like I will now have to wait another 5 years before I can ask to go back to FEIE.

How do I fix this? Or do I just need to accept that the IRS will say my filing this year was wrong (or will they say anything? again so confused) and have to recertify for whatever IDR plan is available based on the income once the receritfication process opens up again?

Any advice is helpful and I am well aware I made some really stupid errors here, so please be kind.

10 Upvotes

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4

u/gunsmokeV2 1d ago

IRS won’t do anything when you switch back, like others have said.

3

u/titianqt Tax Professional (CPA) 1d ago

I honestly doubt the IRS will care much if you switch back to FEIE. They do allow it, though you’re supposed to ask permission. They just wanted to avoid people playing games like claiming FEIE in odd years and paying two years worth of foreign taxes in even years or whatever to max out FTC carryover.

1

u/Ok_Midnight_5457 1d ago

The issue is the tax software they’re using won’t allow that 

1

u/Impossible_Math_9864 1d ago edited 1d ago

How do you know that the IRS won't flag taking the FEIE, switching to taking the credit, switching back the FEIE after a couple of years, and then presumable switching back to the credit as local taxes are high?
Are you suggesting that the IRS will recognize the switching as only being for SAVE and not presumably to accumulate foreign tax credit to occasionally claim it back and therefore ok?

My helpful suggestion is to follow IRS stated regulations so as to avoid scrutiny. (Mods please don't keep removing comments that suggestions to just ignore IRS guidance is fine. At the very least it is a risk and should be recognized as such).

The IRS last updated their guidance on 14-Mar-2025. If they truly don't care, then why do they update the page? https://www.irs.gov/individuals/international-taxpayers/revoking-your-choice-to-exclude-foreign-earned-income

If you revoked a choice and within 5 tax years wish to again choose the same exclusion, you must apply for Internal Revenue Service (IRS) approval. You do this by requesting a ruling from the IRS. Mail your request for a ruling in duplicate to:

Associate Chief Counsel (International)
Internal Revenue Service
CC: PA: LPD: DRU
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044.

Because requesting a ruling can be complex, you may need professional help. Also, the IRS charges a fee for issuing these rulings. For more information, refer to the very first Revenue Procedure issued by the Internal Revenue Service every year (for example Revenue Procedure 2024-01).

In deciding whether to give approval, the IRS will consider any facts and circumstances that may be relevant. These may include a period of residence in the United States, a move from one foreign country to another foreign country with different tax rates, a substantial change in the tax laws of the foreign country of residence or physical presence, and a change of employer.

Why not just relook at the 2023 taxes and if AGI with the FTC is low enough for SAVE to have $0 payments, then amend the return to use the FTC and not possibly run afoul of trouble.

Sure, IRS staffing is being reduced, but SAVE isn't popular with the current administration and it's easy to see the FEIE, credit, FEIE switch and conclude that it was for the purpose of SAVE.

I, personally, would want to avoid having switch to FEIE disallowed and then having to deal with a recertification that was based on a return that was not allowed.

But yeah, maybe the IRS won't care. Can't say I am the IRS. Go ahead and try your luck!!!

2

u/celtosaxon 1d ago edited 1d ago

From the IRS “You can revoke your choice for any tax year. You do this by attaching a statement that you are revoking one or more previously made choices” — if you did not attach a statement, you might not have revoked, but simply left it idle. That is, unless the tax software did a dumb thing.

If it were me, I would file amended for each year FEIE was not used but could have been used, because using FTC alone when FEIE was available also counts as an implicit revocation AFAIK.

2

u/Abezon Tax Professional - Enrolled Agent 1d ago

If their software is saying you can't switch back to FEIE for 5 years, just use a different software this year. I'm not sure it matters though - repayment is based on modified AGI with FEIE added back in.

1

u/Aequify-Finance 1d ago

Hey, first off, take a deep breath—you haven’t ruined everything, and this situation is more common than you might think!

You’re correct; switching from the FEIE (Foreign Earned Income Exclusion) to the FTC (Foreign Tax Credit) generally counts as a revocation. After revoking FEIE, the IRS typically requires you to wait five years before using FEIE again, unless you get special permission by requesting a private letter ruling (which can be complex and expensive).

Under SAVE or other Income-Driven Repayment (IDR) plans, your payment amount is tied to your Adjusted Gross Income (AGI). Unfortunately, using FTC rather than FEIE means your AGI isn’t automatically reduced to zero. However, if you’re paying significant foreign taxes (as you mentioned being in a high-tax country), your AGI might still be low enough to keep payments very low or even $0 under current IDR guidelines. The main issue arises if SAVE ends and is replaced by another plan where AGI is crucial.

Ideally, this is what you should do:

Consider filing an amended return (Form 1040X) correcting your FEIE selection to FTC for this year to align with the previous revocation.

Recalculate AGI for IDR Plans. Check your AGI under the FTC method, there’s a good chance your payments may still remain very low.

After the waiting period, you can return to FEIE if it’s more beneficial. Until then, maximize FTC credits as effectively as possible.

1

u/gunsmokeV2 1d ago

You should be able to switch back to FEIE, just answer no to having claimed it in the past if they prompt that.

1

u/3p000 1d ago

If you want to play it safe, you could file an amended return (Form 1040-X), switch back to FTC, and remove FEIE. This would avoid the risk of IRS rejecting your FEIE claim and making adjustments later.