Tax Calculated on FEIE

[cpacountry]

My question deals with the amount of tax calculated on the Foreign Income Exclusion. I calculated that my client is able to receive a prorated exclusion of roughly $57K for 2019 (remainder to be had in 2020).  However, their income is about $420K prior to the exclusion.  Yet the tax savings is calculated based on the $57K solely as if it was the only income (from the 10% and 12% brackets), so it is only saving $6400 in tax.  Am I missing something or is this correct?

[Catherine]

I'm so tired tonight that when I first read this I read "E I E I O" and was going to make a joke about Old MacDonald.

You might be missing something.  About ten or a dozen years ago they changed the foreign exclusion so that income above the exclusion would be taxed at the rate applicable without the exclusion (hit one of my clients, living in the Philppines, hard that first year post-change).  If your client's income was at $420K, they will get taxed at the highest bracket.  The $57K excluded will be 22% marginal bracket income, and the tax on that amount (assuming what you have given is the TAXABLE income, after deductions) is about $8,400.  So a number closer to $8,400 should be the amount of tax less than otherwise.

Does that make sense, or am I too tired to explain it correctly?  Maybe I should just go back to reciting "Old MacDonald had a farm" instead.