Foreign Earned Income Exclusion in header of articles
Foreign Earned Income Exclusion in content page of articles
U.S. resident aliens living in a foreign country are subject to the same U.S. tax laws as those living in the United States. However, if you lived and worked abroad for most of the year, you might qualify for the foreign earned income exclusion. If you qualify, you can exclude up to $95,100 in income earned in 2012 while working abroad.
To qualify, you must have foreign-source earned income. All of these must apply:
This earned income includes compensation like:
You earned your income while performing services in a foreign country.
You satisfy the bona fide resident or physical presence test.
To be considered a bona fide resident, you must:
Live in foreign country for the entire tax year without interruption
Not have made a statement to the foreign government denying residence status
Intend to make a home in the foreign country for an indefinite period of time. You must apply a facts-and-circumstances test to determine where you intend to make your home.
To pass the physical presence test, you must be present in a foreign country for at least 330 full days within a consecutive 12-month period.
You satisfy the tax-home test. Your tax home must be in a foreign country throughout your period of bona fide residence or throughout your physical presence.
Earnings while self-employed in industries where capital is a material income-producing factor might be considered earned income. In this situation, the earnings considered earned income are the lesser of 1 of these:
The value of the services actually rendered
30% of net profit
Material income-producing factors include activities like those involving labor and inventory.
Foreign-source earned income doesn't include:
Compensation from the U.S. government or its agencies paid to members of the military or civilians working abroad
Value of meals and lodging excluded from income since it was furnished for the convenience of the employer
Pension and annuity income, including Social Security benefits
Wages paid by the U.S. government or 1 of its agencies
Amounts included in income due to employer contributions to a nonexempt employee trust or nonqualified annuity contract
Payments received after the end of the tax year following the tax year when you performed the services that earned the income
Any portion of your 2012 moving expense deduction allocable to 2013 that's included in your 2013 gross income
To learn more, see IRS Publication 54: Tax Guide for U.S. Citizens and Resident Aliens Abroad.