Excluding Foreign Earned Income

Increasingly we live in a global environment. This means a U.S. taxpayer may earn income overseas. If so, there is an exclusion from gross income for foreign earned income. A taxpayer may exclude up to $85,700 of income earned overseas, overseas housing exclusion or overseas housing deduction. To qualify the taxpayer must fulfill certain requirements.

First, the home must be in a foreign country. Next the income must be earned overseas. Finally the taxpayer must be either 1) a U.S. citizen with actual residency in a foreign country that includes and entire tax year, 2) a U.S. resident alien who is a citizen or national of a country the U.S. has established a tax treaty who is an actual resident of a foreign country for an uninterrupted period of time covering a full tax year, or 3) a U.S. citizen or a U.S. resident alien who is living physically in a foreign county for a minimum of 330 days during any consecutive 12 month period.

This can become quite confusing and is best left to a certified tax professional. Great must be taken to make sure the qualified taxpayer receives the full benefit of the law under a foreign earned income arrangement. Tax liabilities can result if this is not handled correctly.