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The Foreign Earned Income Exclusion: Are You a U.S. Citizen Working Abroad? Are You a Company Employing U.S. Citizens Working Abroad? This is For You.

Posted on April 12th, 2010 | Author: Norris McLaughlin & Marcus

Generally speaking, if you are a “Qualified Individual” (generally a United States citizen or resident) and you  live and work outside of the U.S., then you can exclude all or part of your foreign wages from U.S. income tax. Here’s how it works:

  • You must work and reside outside the U.S.
  • You must qualify under the Bona Fide Resident or Physical Presence tests.
  • You can exclude up to $91,400 (indexed for inflation) annually in foreign wages.

Whether a person is a “Bona Fide” resident for these purposes is a matter of facts and circumstances, e.g., actual presence in the foreign country, intent to stay there and the nature and extent of ties with the foreign country.  “Physical Presence” requires presence in the country for at least 330 full days during a consecutive 12 month period.

The benefits of this exclusion can be huge for someone working in the U.S. and then given a temporary assignment abroad.  An exclusion from gross income of almost $100,000 – not bad for a year.  This may be an attractive incentive for employers to highlight when they have a need for employees abroad.  Employers and employees can also incorporate provisions relating to the 911 credit into the employment contract.