Reducing withholdings for a partial year?

[labonall]

Next year I will work in the US until June 30 and then move abroad for the rest of the year

I will stay abroad for at least 330 days therefore qualifying for FEIE on my foreign salary for the rest of the year

I make $180k in the US, so unless I change something my withholding will be done at single income MFJ or approximately $2,000 per month or $12,000 withheld in the first half of the year, while my actual liability with a $90,000 income would be only $7,000

I currently deduct max possible 401(k) but will switch to Roth 401(k) since I don't think the deduction makes sense at 12% marginal rate

I have a dependent US citizen child so I would like to utilize CTC

I understand that refundable portion of ACTC is not available if you claim FEIE. In order to fully utilize regular CTC I would need to have at least $2,000 of tax liability for the year

Do I understand correctly that I could withhold approximately $4,000 during the first 2 months of the year, then submit a new W-4 claiming exempt status, offset full CTC and then pay a liability by 4/15/2026 that's below $1,000 and doesn't require quarterly prepayment

What am I missing?

 

[resjudicata]

@labonall If you use the FEIE it takes up the lowest tax brackets. Any income you earn in the US will be "stacked" on top of your FEIE-excludes income. So, your US income will be taxed at a pretty high rate. Look more into the "stacking rule for FEIE"

 

[labonall]

@resjudicata I see, so let's say I make $60,000 in foreign income during the second half of the year - it would be exempt, but it would fill the standard deduction bucket, the 10% bucket and part of the 12% bucket, so $63,500 ($94,300 upper limit of 12% bracket +$29,200 standard deduction -$60,000 of FEIE) from my US income would be taxed at 12% and another $26,500 at 22%?

that's roughly $13.5k in liability, with $12k withheld, so potentially I would still want to bring withholding down a bit to take the full advantage of CTC, right? so do the exempt W-4 at least for one last paycheck?

 

[resjudicata]

@labonall Sounds like you understand the calculation. I don't know much about the CTC so can't really comment on that part. Good luck

 

[victor3]

@labonall Your tax liability isn't net of withholding, so you'll get the full $2k either way if your tax liability is $13.5k. But yes if you're trying to not to get that $500 refund then you can reduce your withholding by $500.