Important Change

Foreign earned income exclusion increased.   For 2002, the maximum amount of foreign earned income that you may be able to exclude from your U.S. gross income has increased to $80,000. The foreign earned income exclusion is discussed in chapter 4.

Important Reminders

Social security numbers for dependents.   You generally must list on Form 1040 or Form 1040A the social security number (SSN) of any person for whom you claim an exemption. See Social security number under Exemptions in chapter 5.

Form 2555-EZ.   Instead of the longer Form 2555, Foreign Earned Income, you may be able to file Form 2555-EZ, Foreign Earned Income Exclusion, if:

• Your foreign earned income for the year was $80,000 or less, and
• Your return is not for a short year.

Form 2555-EZ has fewer lines than Form 2555. For more information, see Form 2555-EZ in chapter 4.

Foreign income tax withheld.   If your employer withheld foreign taxes from your pay, you cannot claim those taxes on your U.S. income tax return as federal income tax withheld.

You may be able to claim a foreign tax credit or a foreign tax deduction based on the amount withheld and paid to a foreign tax authority.

For more information about foreign taxes, see Taxes of Foreign Countries and U.S. Possessions in chapter 5.

Change of address.   If you change your mailing address, be sure to notify the Internal Revenue Service using Form 8822, Change of Address. If you are changing both your home and business addresses, you need to complete two forms.

Photographs of missing children.   The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843- 5678) if you recognize a child.

Introduction

This publication discusses special tax rules for U.S. citizens and resident aliens who work abroad or who have income earned in foreign countries. As a U.S. citizen or resident alien, your worldwide income generally is subject to U.S. income tax, regardless of where you are living. Also, you are subject to the same income tax filing requirements that apply to U.S. citizens or residents living in the United States.

Filing information.   Chapter 1 contains general filing information, such as:

• Whether you must file a U.S. tax return,
• When and where to file your return,
• How to report your income if it is paid in foreign currency,
• How to determine your filing status if your spouse is a nonresident alien, and
• Whether you must pay estimated tax.

If you own stock in a foreign corporation or have an interest in a foreign partnership, you may have to file information returns. See the instructions under Information Returns and Reports in chapter 1.

Withholding tax.   Chapter 2 discusses the withholding of income, social security, and Medicare taxes from the pay of U.S. citizens and resident aliens. It will help you determine if the correct amounts of taxes are being withheld and how to adjust your withholding if too much or too little is being withheld.

Self-employment tax.   Chapter 3 discusses who must pay self-employment tax.

Foreign earned income exclusion and housing exclusion and deduction.   Chapter 4 discusses income tax benefits that apply if you meet certain requirements while living abroad. You may qualify to treat up to $80,000 of your income as not taxable by the United States. You may also be able to either deduct part of your housing expenses from your income or treat a limited amount of income used for housing expenses as not taxable by the United States. These benefits are called the foreign earned income exclusion and the foreign housing deduction and exclusion.

To qualify for either of the exclusions or the deduction, you must have a tax home in a foreign country and earn income from personal services performed in a foreign country. These rules are explained in chapter 4.

If you are going to exclude or deduct your income as discussed above, you must file Form 2555 or Form 2555-EZ. You will find an example with filled-in Forms 2555 and 2555-EZ in chapter 4.

Exemptions, deductions, and credits.   Chapter 5 discusses exemptions, deductions, and credits you may be able to claim on your return. These are generally the same as if you were living in the United States. However, if you choose to exclude foreign earned income or housing amounts, you cannot deduct or exclude any item or take a credit for any item that is related to the amounts you exclude. Among the topics discussed in chapter 5 are:

• Exemptions you can claim,
• Contributions you can deduct,
• Moving expenses you can deduct, and
• Foreign taxes you can either deduct or take a credit for.

Tax treaty benefits.   Chapter 6 discusses some benefits that are common to most tax treaties and explains how to get help if you think you are not getting a treaty benefit to which you are entitled. It also explains how to get copies of tax treaties.

How to get tax help.   Chapter 7 is an explanation of how to get information and assistance from the IRS.

Questions and answers.   Frequently asked questions and answers to those questions are presented in the back of the publication.

Comments and suggestions.   We welcome your comments about this publication and your suggestions for future editions.

You can e-mail us while visiting our web site at www.irs.gov.

You can write to us at the following address:

Internal Revenue Service
Tax Forms and Publications
W:CAR:MP:FP
1111 Constitution Ave. NW
Washington, DC 20224

We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.

Filing Information

Topics

This chapter discusses:

• Whether you have to file a return,
• When to file your return and pay any tax due,
• How to treat foreign currency,
• Where to file your return,
• When you can treat your nonresident spouse as a resident,
• When you may have to make estimated tax payments, and
• Information returns and reports you may have to file.

Useful Items You may want to see:

Publication

• 3   Armed Forces' Tax Guide
• 501   Exemptions, Standard Deduction, and Filing Information
• 505   Tax Withholding and Estimated Tax
• 519   U.S. Tax Guide for Aliens
• 520   Scholarships and Fellowships

Form (and Instructions)

• 1040-ES   Estimated Tax for Individuals
• 1040X   Amended U.S. Individual Income Tax Return
• 2350   Application for Extension of Time To File U.S. Income Tax Return
• 2555   Foreign Earned Income
• 2555-EZ   Foreign Earned Income Exclusion
• 2688   Application for Additional Extension of Time To File U.S. Individual Income Tax Return
• 3520   Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts
• 4790   Report of International Transportation of Currency or Monetary Instruments
• 4868   Application for Automatic Extension of Time To File U.S. Individual Income Tax Return
• 5471   Information Return of U.S. Persons With Respect To Certain Foreign Corporations
• 8822   Change of Address
• 8865   Return of U.S. Persons With Respect to Certain Foreign Partnerships
• SS-5   Application for a Social Security Card
• TD F 90-22.1   Report of Foreign Bank and Financial Accounts
• W-7   Application for IRS Individual Taxpayer Identification Number

See chapter 7 for information about getting these publications and forms.

Filing Requirements

If you are a U.S. citizen or resident alien, the rules for filing income, estate, and gift tax returns and for paying estimated tax are generally the same whether you are in the United States or abroad.

Your income, filing status, and age generally determine whether you must file an income tax return. Generally, you must file a return for 2002 if your gross income from worldwide sources is at least the amount shown for your filing status in the following table:

Filing Status*	Amount
Single	$ 7,700
65 or older	$ 8,850
Head of household	$ 9,900
65 or older	$11,050
Qualifying widow(er)	$10,850
65 or older	$11,750
Married filing jointly	$13,850
Not living with spouse at end of year	$ 3,000
One spouse 65 or older	$14,750
Both spouses 65 or older	$15,650
Married filing separately	$ 3,000
*If you are the dependent of another taxpayer, see the instructions for Form 1040 for more information on whether you must file a return.

Gross income.   This includes all income you receive in the form of money, goods, property, and services that is not exempt from tax.

For purposes of determining whether you must file a return, gross income includes any income that you can exclude as foreign earned income or as a foreign housing amount.

Self-employed individuals.   If you are self-employed, your gross income includes the amount on line 7 of Schedule C (Form 1040), Profit or Loss From Business, or line 1 of Schedule C-EZ (Form 1040), Net Profit From Business.

If your net self-employment income is $400 or more, you must file a return even if your gross income is below the amount listed for your filing status in the table shown earlier.

65 or older.   You are considered to be age 65 on the day before your 65th birthday. Therefore, you are 65 at the end of the year if your 65th birthday is on January 1 of the following year.

When To File and Pay

If you file on the calendar year basis, the due date for filing your return is April 15 of the following year. If you file on a fiscal year basis (a year ending on the last day of any month except December), the due date is 3 months and 15 days after the close of your fiscal year. In general, the tax shown on your return should be paid by the due date of the return, without regard to any extension of time for filing the return.

A tax return delivered by the U.S. mail or a designated delivery service that is postmarked or dated by the delivery service on or before the due date is considered to have been filed on or before that date.

You can use certain private delivery services designated by the IRS to meet the timely mailing as timely filing/paying rule for tax returns and payments. See your Form 1040 or Form 1040A instructions for a list of designated delivery services.

Extensions

You can get an extension of time to file your return. In some circumstances, you can also get an extension of time to file and pay any tax due.

However, if you pay the tax due after the regular due date, interest will be charged from the regular due date until the date the tax is paid.

Automatic 2-month extension.   You may be allowed an automatic 2-month extension to file your return and pay any federal income tax that is due. You will be allowed the extension if you are a U.S. citizen or resident and on the regular due date of your return:

1. You are living outside of the United States and Puerto Rico and your main place of business or post of duty is outside the United States and Puerto Rico, or
2. You are in military or naval service on duty outside the United States and Puerto Rico.

If you use a calendar year, the regular due date of your return is April 15.

Service in a combat zone.   If you served in a combat zone or qualified hazardous duty area, see Extension of Deadline in Publication 3.

Married taxpayers.   If you file a joint return, either you or your spouse can qualify for the automatic extension. If you and your spouse file separate returns, this automatic extension applies only to the spouse who qualifies.

How to get the extension.   To use this automatic 2-month extension, you must attach a statement to your return explaining which of the two situations listed earlier qualified you for the extension.

4-month extension.   If you are not able to file your return by the due date, you generally can get an automatic 4-month extension of time to file. To get this automatic extension, you must file Form 4868. The form must show your properly estimated tax liability based on the information available to you.

Paperless filing.   You can file Form 4868 electronically (e-file) by telephone, using your personal computer, or through a tax professional. For more information about filing electronically, see the form instructions.

You may not be eligible. You cannot use the automatic 4-month extension of time to file if:

• You want the IRS to figure your tax, or
• You are under a court order to file by the regular due date.

When to file.   Generally, you must request the 4-month extension by the regular due date of your return.

Previous 2-month extension.   If you cannot file your return within the automatic 2-month extension period, you generally can get an additional 2-month extension of time to file your return, for a total of 4 months. The automatic 2-month extension and the 4-month extension start at the same time. You do not have to request the 4-month extension until the new due date allowed by the first extension, but the total combined extension will still only be 4 months from the regular due date.

Time to pay not extended.   A 4-month extension of time to file is not an extension of time to pay. You must make an accurate estimate of your tax based on the information available to you. If you find you cannot pay the full amount due with Form 4868, you can still get the extension. You will owe interest on the unpaid amount.

You also may be charged a penalty for paying the tax late unless you have reasonable cause for not paying your tax when due. Interest and penalties are assessed (charged) from the original due date of your return.

Extension beyond 4 months.   If you qualify for the 4-month extension and you later find that you cannot file within the 4-month extension period, you may be able to get 2 more months to file, for a total of 6 months.

You can apply for an extension beyond the 4-month extension either by sending a letter to the IRS or by filing Form 2688 . You should request the extension early so that, if refused, you still will be able to file on time. Except in cases of undue hardship, Form 2688 or a request by letter will not be accepted until you have first used the 4-month extension. Form 2688 or your letter will not be considered if you send it after the extended due date.

To get an extension beyond the automatic 4-month extension, you must give all the following information.

• Your reason for requesting the extension.
• The tax year to which the extension applies.
• The amount of additional time you need.
• Whether you have already requested another extension for time to file for this tax year.

You can sign the request for this extension, or it can be signed by your attorney, CPA, enrolled agent, or a person with a power of attorney. If you are unable to sign the request because of illness or for another good reason, a person in close personal or business relationship to you can sign the request.

Extension granted.   If IRS approves your application for this extension, you will be notified. If an extension is granted and the IRS later determines that the statements made on your request for this extension are false or misleading and an extension would not have been granted based on the true facts, the extension is null and void. You may have to pay the failure-to-file penalty if you file after the regular due date.

Extension not granted.   If your application for this extension is not approved, you must file your return by the extended due date of the automatic extension. You may be allowed to file within 10 days of the date of the notice you get from the IRS if the end of the 10-day period is later than the due date. The notice will tell you if the 10-day grace period is granted.

Further extensions.   You generally cannot get an extension of more than 6 months. However, if you are outside the United States and meet certain tests, you may be able to get a longer extension.

You can get an extension of more than 6 months to file your tax return if you need the time to meet either the bona fide residence test or the physical presence test to qualify for either the foreign earned income exclusion or the foreign housing exclusion or deduction. The tests, the exclusions, and the deduction are explained in chapter 4.

You should request an extension if all three of the following apply.

1. You are a U.S. citizen or resident.
2. You expect to meet either the bona fide residence test or the physical presence test, but not until after your tax return is due.
3. Your tax home is in a foreign country (or countries) throughout your period of bona fide residence or physical presence, whichever applies.

Generally, if you are granted an extension, it will be to 30 days beyond the date on which you can reasonably expect to qualify under either the bona fide residence test or the physical presence test. However, if you have moving expenses that are for services performed in 2 years, you may be granted an extension to 90 days beyond the close of the year following the year of first arrival in the foreign country.

How to get an extension.   To obtain an extension, you should file Form 2350 with the Internal Revenue Service Center, Philadelphia, PA 19255-0002, the local IRS representative, or other IRS employee.

You must file Form 2350 by the due date for filing your return. Generally, if both your tax home and your abode are outside the United States and Puerto Rico on the regular due date of your return and you file on a calendar year basis, the due date for filing your return is June 15.

What if tests are not met.   If you obtain an extension and unforeseen events make it impossible for you to satisfy either the bona fide residence test or the physical presence test, you should file your income tax return as soon as possible because you must pay interest on any tax due after the regular due date of the return (even though an extension was granted).

You should make any request for an extension early, so that if it is denied you still can file your return on time. Otherwise, if you file late and additional tax is due, you may be subject to a penalty.

Return filed before test is met.   If you file a return before you meet the bona fide residence test or the physical presence test, you must include all income from both U.S. and foreign sources and pay the tax on that income. If you later qualify for the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction under the bona fide residence or physical presence rules, you can file a claim for refund of tax on Form 1040X. The refund will be the difference between the amount of tax already paid and the tax liability as figured after the exclusion or deduction.

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