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11751: 2555 - Foreign Earned Income Exclusion


1040 Individual Data Entry

Form 2555 - Foreign Earned Income Exclusion

 

Data entry:

  • Do not fill out both Parts II (Bona Fide Residence Test) and III (Physical Presence Test) - IRS wants either one or the other. If both are filled out, F2555 or F2555EZ series rejects may result. Use the tabs at the top of screen 2555 to navigate to the various parts of the form.
  • To prepare a 2555 for both the taxpayer and spouse, after completing the initial 2555 screen for the taxpayer, press Page Down to access another form for the spouse.
  • Be sure to enter the number of days the taxpayer and/or spouse worked in the country (Part IV). The software uses this to calculate the percentage of the foreign income to be excluded. The exclusion cannot exceed $103,900 (2018).
  • Be sure that the country code is correct and that information such as the city and country are spelled correctly and matches for each entry; for example, "South Korea" is always keyed as "South Korea" and not "Korea" in some places.

Results:

  • The exclusion appears on Schedule 1, line 21 (line 21 of the 1040 in Drake17 and prior), with the literal "Form 2555". If the exclusion does not show there, check data entry as to how the taxpayer qualifies (the tests he passed to exclude the income).
  • If you have Form 2555 or Form 2555-EZ attached to the return, the taxpayer cannot receive EIC, per IRS rules (see Publication 596).

Problems:

  • Error Code 5204 - Remove the bank product. Many banks do not allow bank products for returns with foreign addresses. Direct deposits are also not allowed.
  • If the taxpayer is required to file the long form rather than the short form, check the Suppress 2555-EZ option box on the first 2555 data entry screen.
  • The Housing Deduction is not being produced - The housing deduction can be claimed only if the taxpayer has self-employment income. If there is no self-employment income, the deduction is not available and the software does not produce Part IX of Form 2555. Self-employment income appears on lines 20a and 20b in Part IV of Form 2555.  The housing exclusion may be available to a taxpayer who received income from an employer.
See Pub. 54, page 21, and the Instructions for Form 2555 for more information.

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