American expatriates can significantly reduce their US tax liabilities with the Foreign Earned Income Exclusion (FEIE). For tax year 2024, the FEIE allows up to $126,500 of foreign income exclusion per person, contingent upon meeting specific tests like the physical presence or bona fide residence criteria.
However, you may qualify to exclude your foreign earnings from income up to an amount that is adjusted annually for inflation ($107,600 for 2020, $108,700 for 2021, $112,000 for 2022, and $120,000 for 2023). In addition, you can exclude or deduct certain foreign housing amounts.
To benefit from the foreign earned income exclusion, the taxpayer must meet one of the following criteria: Works full time in a foreign country for an entire calendar year—known as the Bona fide residence Test. Works outside of the United States for at least 330 of any 365 day period—known as the Physical Presence Test.
First, you cannot claim a foreign tax credit or a foreign tax deduction on the income you exclude. Generally speaking any credit or deduction that you normally would be allowed to take cannot be taken on the excluded income (IRS frowns on double-dipping). Second, you will not be eligible for the earned income credit.
Generally, FEIE is more beneficial in countries with zero or lower income tax rates, while FTC is advantageous in countries with higher income tax rates.
Form 2555 is the key form for claiming the Foreign Earned Income Exclusion (FEIE). To qualify, you must meet the following criteria: Foreign residence or physical presence test. You must pass either the bona fide residence test or the physical presence test.
To be exempt from withholding, both of the following must be true: You owed no federal income tax in the prior tax year, and. You expect to owe no federal income tax in the current tax year.
Cash received as an inheritance isn't taxable, according to the IRS. But, if the cash you received later generates further income–for example, if you have it in an interest-bearing account–subsequent earnings may be considered taxable income.
For example, income you receive for work done in France is income from a foreign source even if the income is paid directly to your bank account in the United States and your employer is in New York City.
In 2024, the standard deduction is $14,600 for single filers and married persons filing separately, $21,900 for a head of household, and $29,200 for a married couple filing jointly and surviving spouses.
One of the main catalysts for the IRS to learn about foreign income which was not reported is through FATCA, which is the Foreign Account Tax Compliance Act. In accordance with FATCA, more than 300,000 FFIs (Foreign Financial Institutions) in over 110 countries actively report account holder information to the IRS.
Yes, if you are a U.S. citizen or a resident alien living outside the United States, your worldwide income is subject to U.S. income tax, regardless of where you live. However, you may qualify for certain foreign earned income exclusions and/or foreign income tax credits.
The high income threshold changes each year. From 1 July 2024, it is $175,000.
To qualify, you must meet specific requirements, such as having a tax home in a foreign country. You must also meet the Bona Fide Residence Test or the Physical Presence Test. It's important to note that income earned from the U.S. government or its agencies does not qualify for this exclusion.
If you have income below the standard deduction threshold for 2024, which is $14,600 for single filers and $29,200 for those married filing jointly, you may not be required to file a return. However, you may want to file anyway.
Exemption from withholding
To qualify for this exempt status, the employee must have had no tax liability for the previous year and must expect to have no tax liability for the current year. A Form W-4 claiming exemption from withholding is valid for only the calendar year in which it's furnished to the employer.
If you work and have income tax withheld from your pay, you'll need to pay estimated tax only if your total withholding (and any tax credits) amounts to less than 90% of the total tax you expect to pay for the year.
For tax year 2024, the maximum exclusion is $126,500 per person. If two individuals are married, and both work abroad and meet either the bona fide residence test or the physical presence test, each one can choose the foreign earned income exclusion. Together, they can exclude as much as $253,000 for the 2024 tax year.
The US is one of the few countries in the world that taxes citizens regardless of where they live and work. Because of this, when a US citizen moves to another country with an income tax, they will have to report their income to both governments and face double taxation. This applies to “accidental Americans” as well.
The foreign earned income exclusion (FEIE) allows U.S. taxpayers living abroad to exclude up to $126,500 of foreign income if they meet foreign residency requirements. The FEIE may help you avoid paying taxes twice: once in a foreign country and again in the U.S.
High-taxed income is income if the foreign taxes you paid on the income (after allocation of expenses) exceed the highest U.S. tax that can be imposed on the income. Passive income also doesn't include financial services income derived by a financial services entity.
You can revoke your choice for any tax year. You do this by attaching a statement that you are revoking one or more previously made choices to the return or amended return for the first year that you do not wish to claim the exclusion(s). You must specify which choice(s) you are revoking.
The Foreign Earned Income Exclusion, or FEIE, is also known as Form 2555 by the IRS. This expat benefit allows you to avoid double taxation by excluding up to a certain amount of foreign earned income from your US taxes. In 2025, for the 2024 tax year, you can exclude up to $126,500 of foreign earned income.