What is the Foreign Earned Income Exclusion?
A US citizen living abroad can elect to exclude a certain amount of foreign earned income on their US income tax return. This is known as the foreign earned income exclusion. The foreign earned income exclusion is indexed for inflation. The foreign earned income exclusion for the 2014 tax year is $99,200.
What are the requirements to claim the Foreign Earned Income Exclusion?
A US citizen can claim the foreign earned income exclusion if (1) they have foreign earned income, (2) their tax home is in a foreign country, and (3) they satisfy the requirements of either the bona residence test or physical presence test.
What does it mean to have a tax home in a foreign country?
For purposes of the foreign earned income exclusion, a tax home is the place where an individual is permanently or indefinitely engaged to work as an employee or self employed individual. A tax home does not have to be the family home.
What is the Bona Fide Residence test?
An individual meets the bona fide residence test by being a bona fide resident of a foreign country or countries for an interrupted period that includes an entire tax year. An individual can leave the foreign country or countries for brief or temporary trips back to the US or elsewhere for vacation or business and still satisfy the bona fide residence test.
What is the Physical Presence Test?
An individual meets the physical presence test by being physically present in a foreign country or countries for 330 full days during a period of 12 consecutive months.