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DISCLAIMER: These materials do not, and are not intended to, constitute legal or tax advice. You should consult an attorney or tax advisor for individual advice regarding your own situation.Although we have made considerable efforts to be thorough in the construction of these pages, we offer no assurance that the information posted here is timely, accurate, complete or applicable to any particular set of facts. To the contrary, be aware that some of the material on these pages is out of date, incomplete and/or altered in relation to the official version. These documents are not posted here for commercial use and should not be relied upon for any purpose whatsoever.
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Tax Treatment of U.S. Persons Living Abroad |
A U.S. citizen or resident generally is taxed on his or her worldwide income, with the allowance of a foreign tax credit for foreign taxes paid on the foreign income. An individual who has his or her tax home in a foreign country and who meets either of two eligibility requirements, however, generally can elect to exclude an amount of foreign earned income from gross income. The maximum exclusion for 2008 is $87,600. (See Rev. Proc. 2007-66) The exclusion is indexed for inflation. An individual meeting the eligibility requirements generally may also elect to exclude (or deduct, in certain cases) certain housing costs.
To qualify for the foreign earned income exclusion, an individual must satisfy either a bona fide residence test or a physical presence test. Under the bona fide residence test, a citizen of the United States must establish to the satisfaction of the Treasury Secretary that he or she has been a bona fide resident of a foreign country for an uninterrupted period which includes an entire taxable year. In order to satisfy the physical presence test, the individual must be present overseas for 330 days out of any 12 consecutive month period. In either case, the taxpayer must have a tax home in a foreign country.
The combined earned income exclusion and housing amount exclusion may not exceed the taxpayer's total foreign earned income for the taxable year. Foreign earned income generally means income earned from sources outside the United States as compensation for personal services actually rendered by the taxpayer.
The foreign earned income provision contains a denial of double benefits by reducing such items as the foreign tax credit by the amount attributable to excluded income.
