Do I need to pay US income tax on foreign (UK) earned income?

Is the Foreign Earned Income Exclusion in any way dependent on the amount of tax you pay to a foreign country?

• I am a U.S. citizen living abroad, and have in past years taken the foreign earned income exclusion. It has, in the past, always reduced my taxable income to zero in the U.S. This year my circumstances have allowed me to qualify for a sizable tax deduction in the foreign country, meaning my wages will remain the same but my taxable income will be much less. So I'll be paying less taxes to the foreign country. Is the Foreign Earned Income Exclusion in any way dependent on the amount of tax you pay to a foreign country? Should I still expect to be able to take the exclusion exactly as I have in the past, reducing my U.S. taxable income to zero in the same way?

• Answer:

  No. Even if you live in a country with no income tax at all you can benefit from the FEIE and reduce or eliminate your US tax liability. You always have the option of choosing the Foreign Tax Credit instead of the FEIE. When I lived in Europe, the FTC was always the better deal because European taxes are considerably higher than US taxes, with the possible exception of Ireland at the lowest income levels.