U.S. citizens and resident aliens who live abroad are taxed on their worldwide income. But such taxpayers may qualify for the foreign earned income exclusion, which allows certain taxpayers to exclude up to $112,000 (in 2022) of their foreign earnings from income, as well as to exclude or deduct certain foreign housing costs. Note, however, that not all U.S. expats qualify to take advantage of the foreign earned income exclusion. In addition, business owners may be subject to other complications and taxpayers residing in countries that have tax treaties with the United States may have certain tax planning opportunities.
The Foreign Earned Income Exclusion: The Basic Requirements
To qualify for the foreign earned income exclusion, the taxpayer must have (i) foreign earned income, (ii) a tax home in a foreign country (the “tax home” test), and (iii) the taxpayer must be one of the following: