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Foreign earned income exclusion Form: What You Should Know

Foreign Earned Income Exclusion, Form 2555 If you're an eligible individual, this tax return contains instructions for filing and paying the foreign earned income exclusion, in addition to Form 2555, the tax form used to claim income based deductions. When you file Form 2555, make sure to: Claim the exclusion for the years you want it to apply to; File the appropriate Form 1040 and Schedule F (Form 1040NR) electronically using the online service; For more information, visit our free tax guide on the FEE. If you use an IRS Form 1040EZ or IRS Form 1040NR, do not file Form 2555. If you are self-employed, it's important that you know that the tax code does not provide a foreign earned income exclusion, but you can exclude certain amounts from income. The tax code doesn't apply if: You're a student or trainee; or you plan to travel away from the United States for 1 full calendar year. When you pay income taxes in foreign countries, you must pay taxes on all earned or taxable international income. You may also have to pay taxes on income that you were unable to exclude on your U.S. tax return because of the following: The foreign country doesn't recognize the Social Security number you used for income tax purposes; The IRS isn't notified that you were an alien or the IRS determines this information is not in its records; You're asked to furnish supporting tax returns to prove that you are an eligible individual; Foreign tax credits do not apply when claiming the foreign earned income exclusion. To claim the foreign earned income exclusion, complete the forms shown below: Tax Forms For Claiming the Exclusion or Deduction for FEE Form 2555 — Foreign Earned Income Exclusion, Part I — Form 2555, U.S. Tax Return, Part I The Form 2555 form you used to claim the foreign earned income exclusion and foreign housing exclusion must be filed every year to keep your FEE status. You can file it electronically using the online service or print it and sign and mail it to yourself. The form must be filed by Jan. 31, and you must keep all supporting documents with the form. FEE Exclusion and Exclusion of Interest: Form 2555 — Form 2555, U.S. Tax Return Part I Form 2555 Part II — Form 2555, U.S.

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FAQ - Foreign earned income exclusion form

2023 Tax Law Change. IRS FORM 2555 Foreign Earned Income Exclusion (FEIE). Can someone help explain what actually changed for deployed contractors?
Prior to 2023. a contractor who worked overseas in support of US Armed Forces could not typically qualify for foreign earned income exclusion if they maintained a home in the US, no matter how long they stayed overseas. Beginning with 2023 tax year, keeping a home in the US no longer disqualifies a defense contractor if he or she is working overseas in a designated combat zone.
What does the IRS mean by Line 13 of Form 2555-EZ? Does "Maximum foreign earned income exclusion" refer to the maximum allowed by law? If so, shouldn't they already know that?
They do know the number and is already filled in. You need that number lower down in the form. See line 16. They could provide the number in some other way, such as in the text at line 16, but this is the IRS’s writing style.
What is the American expat tax exclusion amount?
The answer is not simple. You should use a tax preparer familiar with the tax needs of expatriate American taxpayers.Even if your US tax is zero, you are legally obliged to file US taxes until your death or until your income level falls below statutory minimum.Expats have INDEPENDENT sets of filing requirements concerning their foreign financial matters; failure to comply makes you liable to high penalties:Income tax declarationForeign financial accounts and instruments reportForeign corporate interestsIncome tax on income earned from foreign activities is treated by one of two alternative regimes:FEIC (Foreign Earned Income Exclusion) If you are a legal resident of a foreign nation where you are taxed, you can opt to exclude up to a threshold maximum of some $90k, PRORATED only for the time you were not in the United States. If you are not a legal resident of the foreign nation, you cannot use this regime unless you were physically present for more than 6 months per calendar year (but most foreign nations would oblige you to be legally resident for that period length, anyway). This exclusion is ONLY FOR EARNED INCOME, not other sources of income like interest, social benefits, dividends, capital gains, gifts, inheritance or trust disbursements.FTC (Foreign Tax Credit) If you are taxed by a foreign government with which there is a double taxation treaty with the USA, you may opt for the regime where you deduct certain taxes paid to foreign governments from your calculated US tax amount.I reiterate, you also have to file “FBAR” reports every year that you total non-US liquid assets exceeded USD10k at any point in the year.
I am a US citizen and I am moving to Nigeria to start a business. I don't want to pay US taxes because I won't be living in America anymore. How do I not pay US taxes on my Nigerian sourced income (I have no American sourced income)?
One of the options is renouncing your US citizenship. It is important to cleanly cut your ties and avoid being a covered expatriate if you don’t want the IRS pursuing you for past sins. Surrendering U.S. citizenship removes your filing obligation going forward, but doesn’t remove past obligations. There is also no statute of limitation on unfiled returns. Avoiding covered expatriate status also means that you can give assets to U.S. persons without making them liable for gift taxes, among other things. Once you renounce your U.S. citizenship, it’s best to cut ties completely if you can. That means properly filing 5 years of tax returns so that the IRS will not be able to challenge these filings.If you’d like to know more, you can find the relevant book on Amazon: U.S. Taxes for Worldly Americans: The Traveling Expat's Guide to Living, Working, and Staying Tax Compliant Abroad. It explains how expats and most people who work overseas can legally lower their U.S. tax to $0 and keep their income and assets safe from the IRS, and how to renounce the citizenship correctly.
Will my wife and I still be able to jointly file taxes and qualify for the foreign earned income exclusion if my wife spends less than 330 days abroad (and I stay over 330 days abroad)?
Yes, that’s not a problem at all. You can file a joint tax return with only you claiming the foreign earned income exclusion.The tests to qualify for the foreign earned income exclusion work completely separately for each spouse. So, each spouse must independently qualify (or not) for the foreign earned income exclusion.Then, as a reporting matter, the foreign earned income exclusion is claimed by each applicable person by including IRS Form 2555 for that person in the joint tax return.So, your joint tax return would only have an IRS Form 2555 for you.Here’s more detail on how the tests work for the foreign earned income exclusion: Reduce or Eliminate Your US Tax Bill with the Foreign Earned Income Exclusion - U.S Tax Services
My friend pays US taxes despite residing in Canada for many years. She doesn't earn any money within the US. Why does she have to pay the Americans taxes?
She is far from alone as there are estimated 8 million US Persons (citizens or Green Card holders) who reside outside of the US. The vast majority are not wealthy individuals.She may not distinguish between the obligation to FILE and being assessed a TAX BILL; the first is unavoidable, the second may often not exist.You friend is obliged to FILE reports to two different agencies a) US Federal Income tax to the IRS AND b) Foreign Accounts reporting to FinCEN every year.In most cases, the tax bill to the IRS is zero due to tax treaties to avoid double taxation.However, US taxation is very complex and on a schedule that is usually not in sync with foreign taxation so complying, under threat of severe penalty, is very onerous to the ordinary expatriate.FILING OBLIGATIONS TO IRS AND TO FinCEN (paperwork)Regardless of location of residency, Americans have worldwide lifelong obligation to officially provide worldwide financial information to two separate US Federal entities:to FILE US income tax to the IRS every year (even if your US tax would be zero) andto REPORT on any non-US bank accounts to FinCen if, at any point, your total non-US holdings reached $10k or more. (FATCA)US FEDERAL TAX OFTEN ZERO DUE TO FOREIGN INCOME TREATMENT (rarely, a tax bill)However, the tax due to the IRS may be reduced (even to nil) if you are an official resident of another country and are eligible to either one of two tax regimes:Either Foreign Earned Income Exclusion. You choose not the be subject to US taxes for income under a threshold, prorated for any period physically present in the US in any given year. This amount is currently around $90k maximum. Note that this is best for salaried expatriates as non-earned income (foreign fund investments, foreign capital gain on real estate, foreign pensions ARE NOT eligible for the FEIE!)Or Foreign Tax Credit. This regime allow you to apply the income tax paid to a foreign tax authority as a credit to the calculated US income tax. This is a better choice if most of your income is NOT from salary.If your foreign income tax (in a treaty-linked country) is greater than the calculated US income tax, your US tax is reduced to zero.If your foreign tax is less than the US’, then you have to pay the IRS the difference.Problems/Unfairness for US Expatriates and Dual NationalsUnearned foreign income from foreign investments may be taxed by both the foreign tax authority AND the IRS. Thus, foreign pensions, capital gains and investments may suffer from the cumulative taxation of two countries!Non-US investments such as in collective investment instruments are dissuasively taxed relative to mutual and stock funds in the US. Foreign capital gains are taxed at higher “ordinary income” rates. If one wishes to invest in foreign stocks, it’s best to use a US-based fund investing in ADRs of foreign companies. One can also invest in individual foreign stocks but you would have to deal with the multiplicity of reporting and accounting tasks.It costs to prepare US taxes, sometimes over a thousand dollars depending upon the complexity of your US tax situation. For Americans resident overseas of limited means, the actual cost of complying may be in the hundreds to thousands of dollars - even if the net IRS tax bill is zero!In some countries, access to timely and relevant US tax information and advice is poor.Out of sight, out of mind is NOT an option as the US has forced foreign banks to comply with warrantless financial information reporting arising from FATCA!Accidental “US Persons” are targeted, not just people with a US SS# or passport. Israelis, Indians etc. have received penalty notices only to find out that one parent may have been an American or that they had been born in the US but left as a baby.Sanctions are drastic on foreign banks who don’t comply with acting as screeners for the IRS in identifying US Persons. Americans and their spouses have had their foreign bank accounts blocked until they provide proof that they are not subject to US taxation or compliant with FATCA reporting requirements!Tax evasion is a Federal felony in the US versus an administrative infraction in other countries. The IRS is the best resourced fiscal agency in the world and never forgets.If an American wishes to give up US citizenship, it is not easy or free of cost or fiscally definitive:Your tax compliance status with the IRS must be complete.All your US assets would be subject to an Exit Tax, tantamount to a tax on gifting to a foreigner!If the IRS deems, unilaterally, that you will have renounced your US citizenship mainly for the purpose of avoiding US taxes, it may pursue you for up to 10 years after renunciation!10. Expatriate American taxpayers have little effective political representation. Unlike some countries that have a specific parliamentarian group for expatriate voters, Americans can ONLY vote in the most recent US local district. Thus, their concerns are usually submerged by their former local US communities‣ concerns. Even though the vast majority of expatriate Americans are not wealthy, many are stressed out by the cost and complexity of filing US taxes as well as local taxes, the populist, inaccurate political propaganda that they are wealthy tax cheats. In fact, there are far higher levels of tax “optimization” by US corporation using tax havens than by the millions of ordinary expatriates.
US expatriate taxes: Should my US employer take out Federal taxes when I don't work in the US?
If you are in fact exempt from US tax due to the Foreign Earned Income Exclusion, give your employer a Form 673 http://www.irs.gov/pub/irs-pdf/f...  which will allow them to stop withholding US income tax from your pay.
The United States double taxes US citizens that live in EU countries, hence penalizing emigration. Should EU countries do the same?
No.What the US is doing is absolutely unconscionable; it is making an awful lot of people’s lives very difficult for a very small amount of money. Compliance costs of FATCA alone are estimated to be well above the amount of taxes it will collect. Citizenship means different things to different people - to the US, it is a way to make money.There have been persistent attempts to legislate new punishments for people who renounce US citizenship. So far, they haven’t been successful. But the fact that the state department discourages duel-citizenship doesn’t necessarily mean the US won’t react with outrage in the future if you solve your duel-citizenship problem by renouncing US citizenship. In many American’s minds, being American isn’t just a nationality; it’s more like belong to a cult, and the biggest crime you can commit is apostasy. Just read some comments here on Quora.So it might be tempting for European Union countries (or any other country, for that matter) to fight back, and impose extraterritorial taxation, FATCA-like reporting, etc., on Europeans living in the US. The US, of course, would howl with outrage that anyone would dare to do this, since only the US has the right to bully other countries.Just imagine, people who might not have even realised they were Italian, or Polish, or Estonian, might find that they are liable for fines equal to 50% of their net worth per year for failure to report their American bank accounts, even if no taxes are due. They might find they are unable to open bank accounts at all, or find jobs in the financial sector, since a US bank won’t want to hire a German employee if it means they have to comply with all the complicated rules (with incredibly severe fines for non-compliance) of German extraterritorial tax reporting legislation. People with no connection to any European country at all may find they have to fill out forms in Finnish language, complete with perjury penalties under Finnish law, when opening bank accounts in Nebraska, because they have to prove to the bank that they are not Finnish and therefore not subject to Finnish banking/taxation regulation.It might be comforting at an emotional level to fight back in this way, and watch Americans jump up and down with hypocritical indignation, maybe demanding that the US invade these European countries and overthrow their governments for having the temerity to do to the US what the US is doing to them. However, it would be wrong. It is rather like the view that if you can’t build a church in Mecca, then you shouldn’t be able to build a mosque in New York. The United States should not lower its standards of religious freedom to those of Saudi Arabia, and the European Union should not lower its standards of civil rights and personal freedom to those of the US. Because the US decides to punish US citizens for their crime of living outside the US, does not mean the EU should decide to punish EU citizens for living outside the EU. We need to be better than the US, not to sink to its level.
What's the total tax collected on Americans who are working abroad?
The IRS has some statistics here, in the form of Excel spreadsheets:SOI Tax Stats Individual Foreign Earned Income Foreign Tax CreditSo, in tax year 2023. they received 449,000 tax returns that included Form 2555: Foreign-Earned Income. Out of them, only 176,000 returns had a non-zero income tax calculated, for the total of $5 billion.So this gives us the following observations:A majority (60%) of US tax payers with foreign earned income did not have a US tax liability, due to a combination of the foreign earned income exclusion, foreign tax credit, standard or itemized deduction, and personal exemptions.Those taxpayers that had a tax liability, paid, on average, a lot of tax (over $28,000 per return, on average!)Most of this tax was paid by a comparatively small number of high-income taxpayers. Almost 90% of the tax came from the taxpayers with the AGI over $100K, and about half, from those with incomes above $500K.
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