Picture
U.S. Expatriates  living abroad
U.S. citizens and Green Card holders living outside the U.S.  If you are a U.S. citizen or resident alien, the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same whether you are in the United States or abroad. Your worldwide income is subject to U.S. income tax, regardless of where you reside.

Under Section 911 of the US tax code, the Foreign Earned Income Exclusion for 2018 increases from $102,100 in 2017 to $104,100 in 2018. The FEIE amount for 2016 was $101,300, 2015 was $100,800, and 2014 was $99,200.

U.S. Citizens & Green Card Holders must file a U.S. tax return and report worldwide income even if living outside the U.S.  (unless you don't meet the minimum filing requirements).  However, tax can generally be                                                    reduced or eliminated by the: 

  • foreign earned income exclusion (for 2017, up to $102,100 per qualifying person (i.e., if you are married and both work abroad, you may be able to each exclude up to $102,100 of your earned income),
  • ​​foreign housing exclusion (if renting)
  • foreign tax credit

The foreign earned income exclusion may be available if you meet either the:

  • bona fide resident test (you've lived in a foreign country for over a year, made it your home, and (generally) pay taxes there.  There are no specific time restrictions; for instance, it is possible to be away from your foreign residence for months and still meet the test), or

  • physical presence test (you were physically outside the U.S. for 330 days out of any 365 day period and your tax home was abroad).  See below.

Note:  You cannot claim a foreign tax credit or foreign earned income exclusion on the portion of your wages generated during business trips to the U.S.  Any income earned while working in the U.S. is subject to U.S. tax.  For some people, it is significantly more beneficial to claim the foreign tax credit and not claim the exclusion.  I will determine which is best for you.  

 Meeting the physical presence test and determining your maximum foreign earned income exclusion  

  • If your tax home was in a foreign country and you were outside the U.S. for at least 330 days in the full calendar year (January 1 - December 31, 2017), then your maximum exclusion for 2017 is $102,100.  If you are married and both work, then you each get a maximum exclusion of $102,100 (it is not combined).

  • If you don't meet the above test, then you may use an alternate 365 day period for a prorated exclusion (i.e., for tax year 2017, you would use a 365 period either between 2015-2016 or 2016-17).  For instance, if you were outside the U.S. for at least 330 days during the period of August 1, 2016 - July 31, 2017, then your maximum exclusion will be calculated as follows:  153 (days in 2015) / 365 x $102,100 = $42,798.  Since your maximum exclusion will be reduced if you use an alternative 365 period, I always try to calculate the time period that will give you the largest exclusion.  If your alternate period includes a date in 2017 that has not yet passed, you may need to file an extension because you cannot file your tax return until you have met the physical presence test.

  • Remember, 330 days out of the U.S. in a calendar year (or an alternate 365 day period) means that you can only spend a maximum of 35 days in the U.S., including partial days. 

  • If you had business trips to the U.S. in 2017 while working for your foreign employer, your exclusion will be reduced by income earned during your U.S. work days.

  • If your foreign earned income was greater than the maximum foreign earned income exclusion, then you may also be able to claim a foreign tax credit and/or a foreign housing exclusion.

  • Sometimes it works out better not to claim the foreign earned income exclusion and just claim a foreign tax credit.  I always check this when preparing your tax return.

Bona fide foreign residency  

  • If you are a bona fide resident of a foreign country, then you do not need to meet the physical presence test.  You can have more lengthy trips to the U.S.  Your maximum exclusion for 2017 will be $102,100.

  • If you had business trips to the U.S. in 2017 while working for your foreign employer, your exclusion will be reduced by any income earned during your U.S. work days.

  • If your foreign earned income was greater than the maximum foreign earned income exclusion of $102,100, then you may also be able to claim a foreign tax credit and/or a foreign housing exclusion.

  • Sometimes it works out better not to claim the foreign earned income exclusion and just claim a foreign tax credit.  I always check this when preparing your tax return.

If you don't meet the physical presence test or the bona fide resident test

  • Your only option would be to claim a foreign tax credit for any foreign income taxes that you paid on your foreign earned income.

  • If you were working in a foreign country paying an income tax rate that was higher than the rate would be in the U.S., then in general, you are likely to receive a full foreign tax credit for those foreign taxes that you paid on your income.  If you are working in foreign country paying less income tax than the rate would be in the U.S., then in general, you would owe the difference in tax to the IRS.  If you spent any time working in the U.S. for your foreign employer, then that income is not available for a foreign tax credit.

When to File
  • If you are a U.S. citizen or resident alien residing overseas, or are in the military on duty outside the U.S., on the regular due date of your return, you are allowed an automatic 2-month extension to file your return without requesting an extension. For a calendar year return, the automatic 2-month extension is to June 15.  Note that you must pay any tax due by April 15 or interest will be charged starting from April 15.