International Tax Foreign Earned Income Exclusion Form 2555

Foreign Earned Income
Share on facebook
Share on google
Share on twitter
Share on linkedin
Reading Time: 3 minutes

Residing and working outside the United States

Update 2019

As a U.S. citizen or resident alien having a tax home in a foreign country (i.e., place of business/employment permanently or indefinitely based in a foreign country) and meeting one of either of the below mentioned tests, you can elect “Foreign Earned Income Exclusion”. “Permanent” foreign assignment is defined for a period of more than one year. If your foreign assignment is less than one year and you do not qualify for the exclusion, the food and lodging expenses involved can be deducted or expense using form 2555 when filing tax returns with form 1040.

Individuals must meet one of two types of tests namely, Bona Fide Residence Test and Physical Presence Test in order to qualify for foreign earned income exclusion. Let’s understand each test in detail:

Bona Fide Residence Test

A bona fide resident is either a U.S citizen or a resident alien who is a citizen of a country which has an income tax treaty with the U.S. You qualify this test if you are a resident of a foreign country/countries for a continuous period covering at least one calendar tax year (i.e., Jan. through Dec.). The residence described here is temporary and you can return to your home country eventually. During the period of bona fide residency, brief vacation/business trips back to the U.S or other countries will not result in failure of this test.

Physical Presence Test

To meet this test, you must be physically present in a foreign country/countries for 330 full days during a period of 12 consecutive months. This period can run from any month or any day of any month covering 12 consecutive months thereon. You can also qualify for the current year by including overlapping days with the preceding 12 month period. For example, a 20-month period (Jan1st, 2018 to Aug 31st, 2019) can be broken down to 2 qualifying 12 month periods such as Jan1st, 2018 – Dec 31st, 2018 and Sept 1st, 2018 – Aug 31st, 2019. Here, overlapping months from 2018 are used to qualify for 2019.

What is foreign earned income exclusion amount?

The foreign earned income exclusion for 2019 is $105,900. If you satisfy the above requirements, you can exclude the lesser of (a) $105,900 – (indexed to inflation) or (b) your foreign earned income for the year (upon qualifying, exclusion for your spouse foreign income is separately determined). Exclusion applies only to foreign employment income NOT including pension/annuity payments or payments received as a U.S government employee.

Exclusion must be calculated on a daily basis if you do not satisfy tests for a year. Let’s look at an example: If you qualify for exclusion for the last 50 days of 2019 (followed by rest of 2020) under the bona fide residence test, then for 2019, the maximum exclusion is $14,507 (50/365 times $105,900). A similar computation of exclusion will be made if you qualify under the Physical Presence Test.

Foreign housing cost exclusion: This exclusion is eligible for payments made by an employer either on your behalf or as a reimbursement for incurred housing cost. This amount is taxable foreign earned income. (Availing this may in some cases offset your earned income exclusion).

Should I elect for foreign earned income exclusion?

1. Scenarios to elect for exclusion:

  • As an employee expecting to work in a country with no employment tax or lower tax rate than the U.S.
  • Involved in a profitable trade/business in a foreign country that has no corporation/business tax or has a lower tax rate than the U.S.
  • In some cases, if foreign housing costs are covered by the employer.

2. Scenarios to NOT elect for exclusion:

  • If you pay foreign tax rates that are higher than rates in the U.S and claiming foreign tax credit is preferable. This situation can apply to U.S. citizens or permanent residents living in Canada or most countries in Europe.
  • A business in foreign country with has a net loss in the taxable year. By claiming foreign earned income exclusion, the effects of net loss will be reduced thus reducing the benefit of net loss to offset other worldwide income.

Also read The Delay of Tax Refunds in 2017

Leave a Reply

Your email address will not be published. Required fields are marked *

Client Reviews
Based on 107 reviews
powered by Google
Annie Phillips
Annie Phillips
12:35 10 Oct 21
Turn around time was amazing on the project I needed done. When you don’t understand all the different forms... communication is key and you will get that here. They are there to explain what and why you need more
Meru Kapadia
Meru Kapadia
23:33 01 Oct 21
I usually don't write reviews much as everyone has different experiences, but definitely wanted to share the positive... experience I have had here and why I would recommend them to all my family, friends and co-workers.I got a referral for here from a friend, so thought of giving them a try over my old CPA firm. I have been going here for a couple years now and have to say they are top notch. They are always responsive and willing to work with me even when I am delayed. I generally like to ask a lot of questions and not once did I feel like they were annoyed by it and would very thoroughly and positively answer all my concerns with detail explanations. Even during the pandemic, they worked with me 100% virtual and it was seamless. Overall, I am very happy with this firm and will continue with them for the foreseeable more
Kevan Shah
Kevan Shah
21:45 01 Oct 21
I’ve been going to them for 3 years now for multiple of my businesses. I changed to them after I had problems with my... previous CPA firm and I’m so glad I did! Best decision I ever made for my businesses. They have saved me thousands of dollars over the years as well as deal with my immensely complicated tax filling issues. No matter when I call, they always help answer all my questions (and trust me I have a lot) and put my mind at ease on all my concerns. I feel as if I am family the way they take care of me. The quality of their work has not changed; very consistent and professional. It is an understatement when I say I highly recommend more
Maunil Shah
Maunil Shah
16:19 01 Oct 21
AKIF CPA is the best place for your tax needs! Saim has been easily available for my all my questions and concerns. ... Couldn’t ask for a better firm that provides excellent service and a familiarity with their clients. I always recommend family and friends to AKIF CPA!!read more
Shah Hussain
Shah Hussain
03:58 01 Oct 21
Hello AKIF CPA,I wanted to share my experience with you, your team and whomever may be reading this message. My most... humble thanks to you and your team for a being such great part of my success.You have done a fabulous job for us this year, and since you took over our books (during our most devastating times) you have literally taken weight off of our shoulders.Thanks for bringing everything up to date and also providing us with numbers or as you call it consultations, ahead of time so we could seal the holes.Great work!!!Shah more
Sumit Dalwadi
Sumit Dalwadi
04:57 30 Sep 21
The professionals at Akif have been absolutely amazing! Quick to answer all the questions I had and always available... to offer their more
Calvin R
Calvin R
20:21 29 Sep 21
I recommend these guys! I will be going back next year. They made everything simple and we understood what was... happening. There we issues with our taxes due to our previous accountant and these guys fixed everything. They answered our questions and service was always with a more
Ammoria Daniels
Ammoria Daniels
02:11 16 Sep 21
We contacted Akif with an urgent matter regarding corporate taxes. Akif immediately understood what was needed and... within days had everything ready to sign. The level of service we received was amazing and unmatched. Waqar expertise in trucking industry made our situation seamless. His communication was outstanding; I heard from him daily and could have been completed sooner if I was as fast as he was 😃 Highly recommended!read more
Joe Paneitz
Joe Paneitz
18:30 18 Aug 21
What an absolute pleasure to work with this CPA firm. My business is already seeing such a positive impact and growth.... I cannot believe I didn't connect with them sooner. This firm is helping in so many ways! 5 stars is an understatement! Thank you so much for your help AKIF CPAread more
Helptest ARCpoint Labs
Helptest ARCpoint Labs
15:02 18 Aug 21
The firm is quick, responsive, and has the latest technological software. Thus far, I have been with them for 3+ years... and will continue to work with them even after relocating. They make it easy even when I'm miles away. Would highly recommend more
Luz Tipaz
Luz Tipaz
16:06 13 Jul 21
Saim and his team are the best CPAs in town. I have been their client for years. All started when I needed help with... company structure with multiple companies and then accounting and Taxes. I have been very happy ever since. Thank you AKIF more
Maria perez
Maria perez
18:31 08 Jun 21
Me and my husband have been getting all of our personal Taxes, business Taxes, monthly bookkeeping, accounting and... payroll done with AKIF CPA. Recently, we had more stuff come up and had detailed analysis done on capital gains, single family rentals (SFR) and business disposition. You will only know how great this CPA company is until you have worked with them and given them a chance. Words can’t describe our experience. AKIF CPA gets the job done every time - very reliable, professional and more
Afnaan Amin
Afnaan Amin
22:14 02 Jun 21
Very good experience, we had unique situation in regards to cross border income as Canadians currently residing in the... US. Income on both sides of the border through completely different channels. Everything was very easy and completed timely, I also had lots of random questions and Mohammad provided top notch service along the way and even after we finished our taxes!! Highly more
Ryan Paton
Ryan Paton
10:56 08 May 21
I moved to the USA from Canada late 2018 as part of a promotion/relocation for work. For my 2019 returns, I used an... accounting firm recommended by the local Canadian social club in my city, which was a terrible experience. They were slow to respond to inquiries and would follow up in piecemeal requests which dragged out my return process over several months, often asking for information I had already provided.For the price I paid, I vowed to find better service. I found Mohammad online and decided to reach out. Mohammad was extremely responsive, took care of my US and Canadian returns as well as my wife's business returns in a timely manner. Overall, it was a very positive experience and I would recommend him to another in my more
Tuan Vo
Tuan Vo
01:59 20 Apr 21
I relocated to Texas from Alberta, Canada and needed a CPA to help me with my cross-border taxes as I was not happy... with the CPA that I used previously. During my interviewing process to find another CPA, I had good feedback from Mohammad as he was able to answer my questions regarding my unique tax situation with expertise, and importantly to me, in a timely manner. I decided to use his services for the current tax year and I have nothing but compliments for the work Mohammad provided. If you are in need of a professional cross-border CPA, I highly recommend reaching out to Mohammad more
See All Reviews