Foreign Earned Income Exclusion for US Expatriates

One of the most essential tax benefits enjoyed by expats is Foreign Earned Income Exclusion. It helps them in avoiding double taxation. The FEIE helps you eradicate your tax liability as a US citizen abroad.

FEIE is form 2555 on US Tax return. It helps a taxpaying American expat to remove some foreign income amounts from their taxes through IRS. As per IRS, you can remove around $107,600 of your foreign income for the 2020-21 tax year.

Foreign Earned Income Exclusion

How can you claim the FEIE?

If you want to claim the tax benefits as US expat, there are criteria for it. You should fit in either of the following categories:

Bona Fide Residence test: if you have been a registered resident and charged with local taxes there for a complete year? Then you can claim the FEIE for the full amount.

Physical Presence test: you have to be outside America for 330 days in 12 months’ time, which starts and ends with the financial tax year. If yes, then you are eligible for FEIE.

Even if you have been in America for over 36 days in a financial year, then also you can claim IRS Foreign Earned Income Exclusion.

Foreign Earned Income Exclusion

Some incomes which don’t qualify for the FEIE are recommended by the IRS are:

  1. Income earned as a US government employee
  2. Income received in international waters
  3. Income from particular combat zones
  4. Income received after the end of the taxation year for the services performed in the subsequent year.
  5. Pension or annuity income along with social security benefits.

How to qualify and claim the FEIE?

In order to avail of the IRS Foreign Earned Income Exclusion, you should qualify for a bona fide residence or physical presence test. For bona fide eligibility, you have to live in another nation for a full year. For the physical presence test, you have to stay for 330 days in a 12 month time.

When you have qualified for either of the tests, you can also use the foreign housing deduction to lessen your tab liability more. You can get rid of more housing expenditures like repair, utilities, and rent from tax.

Once you have qualified for FEIE, you can use it by completing Form 2555 or Form 2555-EZ. The Form 2555-EZ is a specialized form for expats who don’t want to use foreign housing deducting along with FEIE. Once you have finished the form, just submit it with your Federal Tax Return.