Can I Claim the Foreign Earned Income Exclusion?

What is the Foreign Earned INcome Exclusion?

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 some or all of your foreign earnings.  The amount allowed to be excluded is adjusted annually for inflation.

How do I qualify for the Exclusion?

Requirements to claim the foreign earned income exclusion are; 1) Your tax home must be in a foreign country.  2) You must have foreign earned income.  3)  a)You must be a US citizen who is a Bona Fide Residence for an uninterrupted period that includes an entire tax year, b) or a US resident alien who is a citizen or national of a country which the United States has an income tax treaty and who is a Bona Fide Resident uninterrupted for an entire year, c) or US citizen or US resident alient who is physically present for at least 330 full days during any period of 12 consecutive months and pass the Physical Presence Test.

Your tax home is your regular or principal place of business, employment, or post of duty, regardless of where you maintain your family residence. If you do not have a regular or principal place of business because of the nature of your trade or business, your tax home is your regular place of abode (the place where you regularly live). You are not considered to have a tax home in a foreign country for any period during which your abode is in the United States. However, if you are temporarily present in the United States, or you maintain a dwelling in the United States (whether or not that dwelling is used by your spouse and dependents), it does not necessarily mean that your abode is in the United States during that time. There are special rules, so be sure to speak to your tax professional or CPA.

HOW MUCH IS THE EXCLUSION?

The amount is adjusted annually for inflation. The most recent tax years are listed below:

For the Tax Year Max Exclusion
2016 $101,300
2015 $100,800
2014 $99,200
2013 $97,600
2012 $95,100
2011 $92,900
2010 $91,500

Does it Exclude Self Employment

No, you must still figure and pay self employment taxes on earned income from 1099’s, K-1’s, partnership’s, self employment, etc. .

Do the Exclusions apply for state taxes

Obviously for states where there is no state income tax no state tax is due. Each state has there own set of rules and some have harder standards to meet the exclusion. Be sure to speak to your tax professional or CPA.

Source:  IRS Publication 54

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