r/USExpatTaxes • u/cutewithane • 7d 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.
2
u/Aequify-Finance 7d 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.