Foreign Earned Income Exclusion: What US Expats Need to Know
Although the United States government taxes all of its citizens whether they live within the States or abroad, it’s possible for you to get foreign earned income tax exclusion. This tax concession offers US citizens a concession of up to $103,900 in taxes.
In order to qualify for the Foreign Earned Income Tax exclusion, you must meet certain criteria that will make the exclusion valid on you for any income you generate abroad. These are:
You Must Have Foreign Income
This one’s pretty straight forward, for you to qualify for the exclusion; you must have worked in a foreign country and generated income to qualify. If you don’t work abroad or if you have no records of your income being generated after working in a foreign organization, you cannot apply for this exclusion.
Tax homes are different from family homes. Tax home is your place of work, where you generate your income from. For example, you could work in an international organization that has offices in the United States. If you work in the United States offices you can’t apply for exclusion. If you do however work for an international organization and your work premises are also abroad, then you can qualify for income exclusion.
You Must Be A US Citizen or Resident Alien
The exclusion only applies to people who are residents of the United States or Resident Aliens in the United States. If you aren’t a citizen of the United States and you still fall under their tax laws, then you must pay the full tax without any exclusion. Non-residential aliens cannot apply for the exclusion laws.
Non-resident aliens are people who have lived in the US for less than 31 days in a given year and less than 183 days in the past three years. Anyone who has met these requirements is considered a residential alien.
Meeting Minimum Time Period Requirements
Resident Aliens of the United States qualify for the exclusion if they have lived in a country with which the United States has a tax treaty with, if and only if they’ve lived in the country for an entire year. If they live in a country with which the United States does not have a tax treaty with, they must have lived for a total of 330 days within the past 12 months to qualify. Citizens of the United States working abroad will qualify for the exclusion if they’ve worked in a foreign country for a full year or if they’ve spent 330 days in the past 12 months. For these people, the income tax treaty requirement is irrelevant.
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