Foreign Earned Income Inclusion

08 Feb 2024

Foreign Earned Income Exclusion For US Expats

Even if you’ve moved abroad for a brighter future, you still might have obligations towards the IRS. What happens if you earn income from sources outside the United States? If you live abroad, you might qualify for the foreign earned income exclusion (FEIE). This article explains what FEIE is and how it works, and provides some examples of situations where you might benefit from claiming it.

The U.S. retains its right to tax citizens and Green Card holders who live abroad and they must file their taxes even if they’re not physically present in the country. The foreign earned income exclusion (FEIE) allows U.S. taxpayers to exclude from their taxable income certain amounts they earn outside the United States. The FEIE was created in 1954 to relive American Citizens from the burden of double taxation when they move overseas.

WHAT IS THE FOREIGN EARNED INCOME EXCLUSION?

The Foreign Earned Income Exclusion is an IRS exclusion that American expats can use to reduce their taxable income (or in some cases completely eliminate) i.e. their U.S. tax owing. It is the most common and the most widely used tool to reduce US expat tax owing that the IRS offers.

You don’t automatically receive the benefit of FEIE by just living abroad — you must meet specific qualifications which we will discuss later and submit the Form 2555.

HOW MUCH FOREIGN EARNED INCOME CAN YOU EXCLUDE?

U.S. citizens and resident aliens who meet certain requirements to exclude up to $120,000 of foreign-earned income in 2023 (The FEIE is adjusted every year for inflation). If used correctly, the FEIE can help you save thousands of dollars on your US taxes.

The maximum exclusion for 2024 is $126,500. If you’re filing under the married filing jointly status and your spouse also meets the FEIE requirements, you can exclude up to $253,000 of your foreign income in 2024.

FILING FOR THE FOREIGN EARNED INCOME EXCLUSION: A GUIDE FOR MARRIED COUPLES FILING JOINTLY

25 Jul 2018

How To Qualify For The Physical Presence Test To Use Foreign Earned Income Exclusion

Olivier Wagner, Tax Expatriate Tax Preparer

U.S. expats can use the Foreign Earned Income Exclusion to reduce taxable income. And if you did you research on this topic, then you probably heard about tests to pass. American abroad has to qualify for one of the two tests. Today we explain what you need to pass the Physical Presence Test.

Let’s take another look at few general requirements to use FEIE:

You should have foreign earned income
Your tax home must be in a foreign country
and one must qualify for one of the two tests, either Bona Fide Residence or the Physical Presence Test.

The IRS states that a U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months qualifies for the Physical Presence Test, but is it really that simple?

Written by Olivier Wagner | Posted in Foreign Earned Income Inclusion • Physical Presence Test

11 Jun 2018

Tax Deductions And Credits Available For U.S. Expats

Olivier Wagner, Virtual Tax Advisor, Expatriate Tax Expert

There are a few deductions and exemptions available to a U.S. person who lives and works overseas. These will help you to lower your expat taxes and might even get you a refund.

If you meet certain requirements, you may qualify for the foreign earned income and foreign housing exclusions and the foreign housing deduction. The most common deduction is the Foreign Earned Income Exclusion, which is calculated on Form 2555. If you qualify for this you may exclude up to $101,300 of your foreign earned income. To qualify, you will need to meet either the Physical Present Test or Bona Fide Resident Test for living outside of the U.S.

Foreign Housing Exclusion or Deduction is another option that can save you some money on your taxable income. You need to be either a salaried employee, a wage earner or a self-employed individual to qualify for this deduction. It’s in an addition to FEIE and increases the exempted income by the amount of your qualified housing expenses. Depending on the country of your residence, the allowable deductions for the foreign housing will vary and are subject to limitations.

Written by Olivier Wagner | Posted in Deductions And Credits • Foreign Earned Income Inclusion • US Expats