If live and work abroad, you may qualify for the foreign earned income and foreign housing exclusions and the foreign housing deduction.
If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. However, you may qualify to exclude from income up to an amount of your foreign earnings that is adjusted annually for inflation ($92,900 for 2011, $95,100 for 2012, $97,600 for 2013, $99,200 for 2014 and $100,800 for 2015). In addition, you can exclude or deduct certain foreign housing amounts.
You may also be entitled to exclude from income the value of meals and lodging provided to you by your employer. Refer to Exclusion of Meals and Lodging in Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, and Publication 15-B, Employer's Tax Guide to Fringe Benefits for more information
Foreign earned income elgible for exclusion does include wages (even if paid from US employer) or self employment income and does not include the following amounts:
Foreign earned income elgible for exclusion does include wages (even if paid from US employer) or self employment income and does not include the following amounts:
- Pay received as a military or civilian employee of the U.S. Government or any of its agencies
- Pay for services conducted in international waters (not a foreign country)
- Pay in specific combat zones, as designated by an Executive Order from the President, that is excludable from income
- Payments received after the end of the tax year following the year in which the services that earned the income were performed
- The value of meals and lodging that are excluded from income because it was furnished for the convenience of the employer
- Pension or annuity payments, including social security benefits
Self-employment income: A qualifying individual may claim the foreign earned income exclusion on foreign earned self-employment income. The excluded amount will reduce the individual’s regular income tax, but will not reduce the individual’s self-employment tax. Also, the foreign housing deduction – instead of a foreign housing exclusion – may be claimed. Unless the country you work in has an agreement with the US Social Security Admnistration you will have the pay US self employment tax (social security plus medicare) on your net profit. The foreign earned income exclusion does not apply to the self employment tax.
Figuring the tax: Beginning with tax year 2006, a qualifying individual claiming the foreign earned income exclusion, the housing exclusion, or both, must figure the tax on the remaining non-excluded income using the tax rates that would have applied had the individual not claimed the exclusions.
- Requirements
- Can I Claim the Exclusion or Deduction?
- Tax Home In A Foreign Country
- Bona Fide Resident test
- Physical Presence Test
- Exceptions to Tests
- Figuring The Exclusion
- Choosing The Exclusion
- Revocation
- Which Form to File
- Foreign Housing Exclusion or Deduction
- Individual Retirement Arrangements
- Extension to Claim Foreign Earned Income Exclusion
- Application of Foreign Earned Income Exclusion and the Combat Zone Exclusion to Civilian Contractors Working in Combat Zones (PDF)
References/Related Topics
- Form 2555, Foreign Earned Income
- Form 2555-EZ, Foreign Earned Income Exclusion
- Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return
- Form 2350, Application for Extension of Time to File U.S. Income Tax Return
- Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad
- U.S. Citizens and Resident Aliens Abroad
Need more information or wish to discuss your situation, or need help with the preparation of your expat tax return or catching up for past unfiled years, then email us at ddnelson@gmail.com or go to our website at www.taxmeless.com for more information. We have been assisting expats with their US taxes for over 30 years.
