These tests essentially make a person eligible to claim foreign income by validating their presence in another country. The source of your wages is not the decisive factor in determining your eligibility to claim the FEIE. That said, the nuances of what qualifies as earned income and applicable residence in a foreign country can be tricky. Maximum Foreign Earned Income Exclusion Amount. Check out our features and pricing here! The following facts would support the bonafide residence test: Simply staying in a foreign country for longer than a year does not meet this test. [1] For 2019, the maximum exclusion is $105,900 per taxpayer (future years indexed for inflation). The FEIE is elective (i.e. However, only income considered earned by the taxpayer can be excluded on Form 2555. Some expats meanwhile benefit from claiming the Foreign Tax Credit, either instead of or as well as the FEIE (although it can’t be applied to the same income). Qualifying presence status is met by satisfying the Bonafide Resident Test by being a resident in the country for a full tax year. Typically, you begin your bona fide residence period the day you moved abroad. The 2019 standard deduction for a taxpayer claiming the “single” filing status is $12,200 (everyone gets this), meaning your taxable income would be $2,900. You have paid foreign taxes on foreign earned income. Internal Revenue Service. You would pay US federal taxes on the $2,900, and not the full amount of your foreign wages of $120,000. Resident aliens who are a citizen or national of a country with which the U.S. has an income tax treaty in effect may also qualify. The foreign housing amount is the housing costs you paid with foreign earned income that exceeds 16% of the maximum exclusion, or base, amount. Individual Income Tax Return, Form 2350, Application for Extension of Time to File U.S. Income Tax Return, Treasury Inspector General for Tax Administration. If you are married to a US citizen or green card holder, and both you and your spouse are working and living abroad, then both of you may be eligible to individually exclude up to $105,900 by using the FEIE. Once revoked though, it can’t be claimed again for five years. "Instructions for Form 2555 (2019)," Pages 2–3. Citizens and residents living and working outside the U.S. may be entitled to a foreign earned income exclusion that reduces taxable income. If you claim the FEIE, you cannot claim the Additional Child Tax Credit (a refundable tax credit of up to $2,000 per child per year). Investopedia requires writers to use primary sources to support their work. The United States taxes citizens and residents on their worldwide income. Accessed Jan. 28, 2020. https://www.irs.gov/individuals/international-taxpayers/figuring-the-foreign-earned-income-exclusion#:~:text=For%20tax%20year%202020%2C%20the,for%20the%202020%20tax%20year.

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