What's Appropriate For Phaseout Rules And Refundable Credits?

Our federal tax law has several phaseout provisions designed to prevent higher income individuals from claiming certain credits and deductions. These phaseouts are mostly all different in terms of how income (“modified AGI”) is measured and the amount of MAGI. I think the different dollar amounts serve to prevent someone from having a very high marginal rate when they move one dollar past any single dollar amount for the entry into “high income.”

I have never understood the great variation in what items are included in MAGI. Usually the §911 foreign earned income exclusion which is $112,000 for 2022, is included. That makes sense as clearly that is income but excluded for other reasons. Rarely is tax-exempt interest income included in MAGI which is puzzling (it is included in measuring taxable social security benefits under §86). Also, exclusions are rarely added back such as gifts, inheritances and employer-provided health benefits, even though such amounts might be a significant amount of income.

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Ephraim Moss

A number of clients have asked us whether a U.S. expat can receive a tax refund from the IRS despite living overseas. While the answer to this question can be nuanced depending on the circumstances, the general rule is that living overseas does not preclude an expat from entitlement to a refund that is otherwise due to the individual.

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