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Foreign earned income exclusion 2023 Form: What You Should Know
Form 2555: The Foreign Earned Income Exclusion and Why You Should Claim It You may have heard or read of the term “foreign earned income” (EIT) used throughout this publication. Foreign earned income is generally income that is earned outside the United States. It also includes any dividend on the sale of a foreign corporation's stock and any distributions of the foreign fund's earnings and profits (which generally are taxed as capital gains). The amount of foreign earned income can be substantial — up to the tax bracket amount, up to the exclusion amount, and sometimes even more. Although your total tax for a year may be zero because the amount of your adjusted gross income, your foreign earned income, is zero for that year, your foreign earned income can be part of your income for the year. (The tax rate you pay will depend on your tax bracket.) When figuring your foreign earned taxes, it is important to include the amount of income (if any) that you would be taxed on if your income were earned in the United States — even if your adjusted gross income is zero. The amount of this income will generally not be large, but it does increase your tax. For example, if the amount is 400 and your standard deduction amount is 20, you are taxed on 240 of this income. To figure your FEE, do the following: FEE Example 2: Here's an example of how you can include the foreign earned income in your income in a particular year. Your foreign earned income for 2023 is 50,000. So, you are taxed on 200 (200 × 50,000 / 100,000 = 2,000). If you had income in the United States, you would have to itemize in order to figure your deductions. FEE Example 3: If, without itemizing, you paid income taxes on 350 for 2017, your FEE would be an amount equal to 1/400 of this amount. This income tax on 350 is in addition to the tax on 200. You must include as gross income the tax paid on your foreign earned income. Because this income is subject to taxation in the United States, you must include it as itemized deductions on line 30 of your tax return. You must also include it in your income when figuring the foreign tax credit and deduction.
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