Does Utah require taxpayers to add back the federal foreign earned income exclusion (IRC § 911) when computing Utah taxable income?

Plain-English summary

A tax practitioner based abroad, working with American clients who are domiciled in Utah but living overseas, asked a simple but important question: when a client claims the federal foreign earned income exclusion under IRC § 911 (which reduces federal adjusted gross income), does Utah require that excluded amount to be added back to compute Utah taxable income?

The Commission's answer is no. Utah's starting point for individual taxable income is federal adjusted gross income (FAGI), adjusted only by the specific list of modifications, subtractions, and additions in Utah Code Ann. § 59-10-114. Because none of those listed adjustments mention the § 911 foreign earned income exclusion, there's simply no mechanism requiring an add-back. A taxpayer just carries their FAGI — already reduced by the exclusion — straight onto the Utah return.

The Commission also volunteered guidance on a closely related issue the practitioner hadn't asked about: foreign taxes paid. Federal law lets a taxpayer choose between treating foreign taxes as a deduction (reducing FAGI) or as a credit against federal tax owed. If the taxpayer deducts foreign taxes, that deduction flows through to the Utah return automatically the same way the § 911 exclusion does — no separate Utah adjustment needed. But if the taxpayer instead claims the foreign tax credit against federal tax (rather than deducting it), Utah law doesn't let that amount be deducted from Utah taxable income or credited against Utah tax due — Utah has no equivalent foreign tax credit mechanism for that election.

What this means for you

Americans living and working abroad who are Utah domiciliaries

Excluding foreign wages under IRC § 911 doesn't create a hidden Utah tax bill — the excluded income stays out of your Utah taxable income the same way it's out of your federal taxable income, automatically, just by using your FAGI.

Tax practitioners with expatriate clients

The deduction-vs-credit election for foreign taxes paid matters for Utah, even though it's invisible at the federal level in terms of which produces a better federal outcome. Electing the foreign tax deduction preserves a Utah benefit (it lowers FAGI, which flows through); electing the foreign tax credit does not carry any parallel benefit onto the Utah return.

Accountants preparing multi-jurisdiction returns for expats

Because Utah's income tax base is a straight pass-through of FAGI subject only to the enumerated § 59-10-114 list, always check that list first before assuming any federal exclusion or deduction needs a state-level adjustment — the default in Utah is federal conformity unless a specific statutory item says otherwise.

Common questions

Q: If I exclude my foreign wages under IRC § 911 on my federal return, do I have to add them back for Utah?
A: No. Utah's starting point (FAGI) already reflects the exclusion, and none of the § 59-10-114 adjustments require adding it back.

Q: I deducted the foreign taxes I paid instead of taking the federal foreign tax credit — does that carry through to Utah?
A: Yes. A foreign tax deduction reduces FAGI, and that reduced FAGI flows straight onto the Utah return with no additional adjustment.

Q: I took the federal foreign tax credit instead of the deduction — can I get any benefit on my Utah return?
A: No. Utah does not allow foreign taxes claimed as a federal credit to be deducted from Utah taxable income or credited against Utah tax.

Q: Does this apply to all types of Utah filers, or just expatriates?
A: The underlying rule (Utah taxable income = FAGI plus only the § 59-10-114 list of adjustments) applies to everyone; this ruling simply confirms that the § 911 exclusion and the foreign tax deduction aren't on that adjustment list, while the foreign tax credit gets no parallel Utah benefit.

Citations and references

Statutes:

• Utah Code Ann. § 59-10-114 (modifications, subtractions, and adjustments to FAGI for Utah tax purposes; does not address the IRC § 911 exclusion)

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original page: https://files.tax.utah.gov/tax/commission/ruling/02-014.htm

Original ruling text

REQUEST
LETTER

02-014

Response: 9/4/02

NAME

ADDRESS

Dear NAME,

I am an American tax practitioner in CITY, COUNTRY and among my clients are individuals �domiciled� in Utah while residing abroad. The question I have does Utah allow the Federal foreign earned income exclusion (IRC 911) or does the Federal foreign earned income exclusion have to be added back to arrive at Utah adjusted gross income and therefore taxable income?

Thank you for your kind assistance.

Sincerely yours,

NAME

RESPONSE
LETTER

September 4, 2002

NAME

ADDRESS

Re: How is the federal foreign earned income exclusion treated for purposes of Utah�s

individual income tax?

Dear NAME,

You have requested information regarding how Utah treats the federal foreign earned income exclusion (IRC 911) that, when claimed on the federal return, is reflected as a deduction in arriving at federal adjusted gross income (�FAGI�). Specifically, you inquire whether Utah requires a taxpayer to add the amount of the federal exclusion back when computing Utah adjusted gross income. The answer is no. Utah taxable income is based on FAGI with certain modifications, subtractions, and adjustments as provided in Utah Code Ann. �59-10-114. None of the Section 114 modifications, subtractions, and adjustments address the federal foreign earned income exclusion. Accordingly, when the federal exclusion is allowed as a deduction from FAGI for federal tax purposes, it is excluded from taxation for Utah income tax purposes by entering the FAGI amount on the Utah return. No Utah law requires the amount of the federal exclusion to be added back to compute Utah taxable income.

Although you did not inquire whether Utah allows a deduction or credit for foreign taxes paid, this issue often arises with foreign-based filers and we take this opportunity to explain it. For federal income tax purposes, the taxpayer may elect to treat foreign taxes as either a deduction from taxable income, which reduces FAGI, or as a credit against federal taxes due. If the taxpayer elects to treat the foreign taxes as a deduction from income, the deduction is carried forwarded on the Utah tax return when FAGI is entered on the Utah return. No further adjustment is made. On the other hand, if the taxpayer elects to treat the foreign taxes as a credit against federal taxes due, Utah law does not permit these taxes to be deducted when computing Utah taxable income or credited against Utah taxes due.

Should you need further clarification, please contact us.

For the Commission,

Marc B. Johnson

Commissioner

MBJ/PL

02-014