Introduction
This publication discusses in general terms some provisions of the
U.S. federal income tax law that apply to U.S. citizens and resident
aliens who live or work abroad and who expect to receive income from
foreign sources.
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 return filing
requirements that apply to U.S. citizens or residents living in the
United States.
However, several income tax benefits might apply if you meet
certain requirements while living abroad. You may be able to exclude
from your income a limited amount of your foreign earned income. You
also may be able either to exclude or to deduct from gross income your
housing amount (defined later). To claim these benefits,
you must file a tax return and attach Form 2555, Foreign Earned
Income. If you are claiming the foreign earned income exclusion
only, you may be able to use the shorter Form 2555-EZ,
Foreign Earned Income Exclusion, rather than Form 2555.
You may, on your U.S. return, be able to claim a tax credit or an
itemized deduction for the foreign income taxes that you pay. Also,
under tax treaties or conventions that the United States has with many
foreign countries, you may be able to reduce your foreign tax
liability.
Publications 54, Tax Guide for U.S. Citizens and Resident
Aliens Abroad, 514, Foreign Tax Credit for Individuals,
and 901, U.S. Tax Treaties, discuss in detail the
treatment of your foreign income, the foreign tax credit, and the
general tax treaty benefits available to you.
Students or professors who receive income from teaching or while
studying abroad should also get Publication 520, Scholarships and
Fellowships.
See How To Get More Information near the end of this
publication for information about getting publications and forms.
Filing Information
The U.S. filing requirements for U.S. citizens and resident aliens
in foreign countries are generally the same as those for citizens and
residents living in the United States.
Who must file.
Your age, marital status, gross income, and whether you can be
claimed as a dependent by another taxpayer determine whether you must
file a U.S. federal income tax return. To determine if you meet the
gross income requirement for filing purposes, you must include all
income you receive from foreign sources as well as your U.S. income.
It does not matter that:
- The income is paid in foreign money,
- The foreign country imposes an income tax on that income,
or
- The income is excludable under the foreign earned income
exclusion, discussed later.
Self-employed persons.
You must file a U.S. income tax return if you had $400 or more of
net earnings from self-employment, regardless of your age. You
must pay self-employment tax on your self-employment income even if it
is earned in a foreign country and is excludable as foreign earned
income in figuring your income tax. Net earnings from
self-employment include the income earned both in a foreign country
and in the United States.
When to file.
If your tax year is the calendar year, the due date for filing your
income tax return is usually April 15 of the following year.
Extensions of time to file.
If you are a U.S. citizen or resident and both your tax home and
your abode (the place where you regularly live) are outside the United
States and Puerto Rico on the regular due date of your return, or you
are in military or naval service on duty outside the United States and
Puerto Rico, you are automatically granted an extension to June 15 to
file your return and pay any tax due. You must pay interest on any
unpaid tax from the regular due date to the date you pay the tax. You
do not have to file a special form to receive this extension. You
must, however, attach a statement to your tax return explaining what
situation qualified you for the extension.
It may benefit you to file for an additional extension of time to
file. You may benefit if, on the due date for filing, you have not yet
met either the bona fide residence test or the physical presence test,
but you expect to qualify after the automatic extension discussed
above. To obtain an additional extension, file Form 2350,
Application for Extension of Time To File U.S. Individual Income
Tax Return, with the Internal Revenue Service Center in
Philadelphia or your local IRS representative. You must file Form 2350
after the close of your tax year but before the end of the first
extension. If an additional extension is granted, it will be to a date
after you expect to meet the time requirements for the bona fide
residence or the physical presence test.
Where to file.
If any of the following situations apply to you, you should file
your return with the Internal Revenue Service Center, Philadelphia, PA
19255-0215.
- You claim the foreign earned income exclusion.
- You claim the foreign housing exclusion or deduction.
- You claim the exclusion of income for bona fide residents of
American Samoa.
- You live in a foreign country or U.S. possession and have no
legal residence or principal place of business in the United
States.
All other taxpayers should see Publication 54 or the instructions
for Form 1040.
Foreign bank and financial accounts.
If you had any financial interest in, or signature or other
authority over, a bank account, securities account, or other financial
account in a foreign country at any time during the tax year, you may
have to complete Treasury Department Form TD F 90-22.1,
Report of Foreign Bank and Financial Accounts, and file it
with the Department of the Treasury at the address listed on the form.
You need not file this form if the combined assets in the account(s)
are $10,000 or less during the entire year, or if the assets are with
a U.S. military banking facility operated by a U.S. financial
institution.
You can get Form TD F 90-22.1 from the offices listed at the
end of this publication or from the IRS Forms Distribution Center,
P.O. Box 25866, Richmond, VA 23286-8107.
Estate and gift taxes.
Under certain conditions, you may have to file a federal estate or
gift tax return. For more information, see Publication 950,
Introduction to Estate and Gift Taxes.
You can also request additional information by writing to:
Internal Revenue Service
International Estate Tax
Group 4
950 L'Enfant Plaza South, S.W.
Washington, DC 20024.
Income Earned Abroad
You may qualify for an exclusion from tax of a limited amount of
income earned while working abroad. However, you must file a tax
return to claim it. In general, foreign earned income is income
received for services you perform in a foreign country. You also may
be able to claim an exclusion or a deduction from gross income for
your reasonable housing costs that are over a certain base amount.
Generally, you will qualify for these benefits if your tax home
(defined below) is in a foreign country, or
countries, throughout your period of bona fide foreign residence or
physical presence and you are one of the following:
- A U.S. citizen who is a bona fide resident of a foreign
country or countries for an uninterrupted period that includes a
complete tax year, or
- A U.S. resident alien who is a citizen or national of a
country with which the United States has an income tax treaty in
effect and who is a bona fide resident of a foreign country or
countries for an uninterrupted period that includes an entire tax
year, or
- A U.S. citizen or a U.S. resident alien who is physically
present in a foreign country or countries for at least 330 full days
during any period of 12 consecutive months.
Tax home.
Your tax home is the general area of your main place of business,
employment, or post of duty where you are permanently or indefinitely
engaged to work. You are not considered to have a tax home in a
foreign country for any period during which your abode is in the
United States. However, being temporarily present in the United
States, or maintaining a dwelling there, does not necessarily mean
that your abode is in the United States. For details, see Publication
54.
Foreign country.
A foreign country, for this purpose, means any territory under the
sovereignty of a government other than that of the United States,
including territorial waters (determined under U.S. laws) and air
space. A foreign country also includes the seabed and subsoil of those
submarine areas which are adjacent to the territorial waters of the
foreign country and over which it has exclusive rights under
international law to explore and exploit natural resources. For this
purpose, U.S. possessions or territories are not foreign countries.
Waiver of time requirements.
You may not have to meet the minimum time requirements for bona
fide residence or physical presence if you have to leave the foreign
country because war, civil unrest, or similar adverse conditions in
the country prevented you from conducting normal business. You must,
however, be able to show that you reasonably could have expected to
meet the minimum time requirements if the adverse conditions had not
occurred. See Publication 54 for a list of foreign countries that
individuals have had to leave due to these conditions.
Travel restrictions.
If you violate U.S. travel restrictions, you will not be treated as
being a bona fide resident of, or physically present in, a foreign
country for any day during which you are present in a country in
violation of the restrictions. (These restrictions generally prohibit
U.S. citizens and residents from engaging in transactions related to
travel to, from, or within certain countries.) Also, income that you
earn from sources within such a country for services performed during
a period of travel restrictions does not qualify as foreign earned
income. Housing expenses that you incur within that country (or
outside that country for housing your spouse or dependents) while you
are in violation of travel restrictions cannot be included in figuring
your foreign housing amount.
Currently, these travel restrictions apply to Cuba, Libya, and
Iraq.
Exclusion of foreign earned income.
If your tax home is in a foreign country and you meet either the
bona fide residence test or the physical presence test, you can choose
to exclude from gross income a limited amount of your foreign earned
income. Your income must be for services performed in a foreign
country during your period of foreign residence or presence, whichever
applies. You cannot, however, exclude the pay you receive as an
employee of the U.S. Government or its agencies. You cannot exclude
pay you receive for services performed abroad for Armed Forces
exchanges, officers' messes, etc., operated by the U.S. Army, Navy, or
Air Force.
Credits and deductions.
If you claim the exclusion, you cannot claim any credits or
deductions that are related to the excluded income. Thus, you cannot
claim a foreign tax credit or deduction for any foreign income tax
paid on the excluded income. Nor can you claim the earned income
credit if you claim the exclusion. Also, for IRA purposes,
the excluded income is not considered compensation and, for
figuring deductible contributions when you are covered by an employer
retirement plan, the excluded income is included in your modified
adjusted gross income.
Amount excludable.
If your tax home is in a foreign country and you qualify under
either the bona fide residence test or physical presence test for the
entire tax year, you can exclude your foreign income earned during the
year up to the maximum amount shown in the schedule below.
Year |
Maximum Exclusion |
1997 |
$70,000 |
1998 |
$72,000 |
1999 |
$74,000 |
2000 |
$76,000 |
2001 |
$78,000 |
2002 and after |
$80,000 |
inflation.
If you qualify under either test for only part of the year, you
must reduce ratably the maximum amount based on the number of days
within the tax year you qualified under one of the two tests.
Housing amount.
If your tax home is in a foreign country and you meet either the
bona fide residence test or the physical presence test, you may be
able to claim an exclusion or a deduction from gross income for a
housing amount.
A housing amount is the excess, if any, of your
allowable housing expenses for the tax year over a base amount.
Allowable housing expenses are the reasonable expenses (such as
rent, utilities other than telephone charges, and real and personal
property insurance) paid or incurred during the tax year by you, or on
your behalf, for your foreign housing and that of your spouse and
dependents if they lived with you. You can include the rental value of
housing provided by your employer in return for your services. You can
also include the allowable housing expenses of a second foreign
household for your spouse and dependents if they did not live with you
because of dangerous, unhealthy, or otherwise adverse living
conditions at your tax home. Allowable housing expenses do not include
the cost of home purchase or other capital items, wages of domestic
servants, or deductible interest and taxes.
The base amount is 16% of the annual salary of a GS-14,
step 1, U.S. Government employee, figured on a daily basis, times the
number of days during the year that you meet the bona fide residence
test or the physical presence test. The annual salary is determined on
January 1 of the year in which your tax year begins. You figure the
base amount on Form 2555.
Exclusion.
You can exclude (up to the limits) your entire housing amount from
income if it is considered paid for with employer-provided amounts.
Employer-provided amounts are any amounts paid to or for you by your
employer, including your salary, housing reimbursements, and the fair
market value of pay given in the form of goods and services. If you
have no self-employment income, your entire housing amount is
considered paid for with employer-provided amounts.
If you claim the exclusion, you cannot claim any credits or
deductions related to excluded income, including a credit or deduction
for any foreign income tax paid on the excluded income.
Deduction.
If you are self-employed and your housing amount is not provided by
an employer, you can deduct it in arriving at your adjusted gross
income. However, the deduction cannot be more than your foreign earned
income for the tax year minus the total of your excluded foreign
earned income plus your housing exclusion.
Carryover.
If you cannot deduct all of your housing amount in a tax year
because of the limit, you can carry over the unused part to the
following year only. If you cannot deduct it in the following year,
you cannot carry it over to any other year. You deduct the carryover
in figuring adjusted gross income. The amount of carryover you can
deduct is limited to your foreign earned income for the year of the
carryover minus the total of your foreign earned income exclusion,
housing exclusion, and housing deduction for that year.
Choosing the exclusion(s).
You make separate choices to exclude foreign earned income and/or
to exclude or deduct your foreign housing amount. If you choose to
take both the foreign housing exclusion and the foreign earned income
exclusion, you must figure your foreign housing exclusion first. Your
foreign earned income exclusion is then limited to the smaller of (a)
your annual exclusion limit or (b) the excess of your foreign earned
income over your foreign housing exclusion.
Once you choose to exclude your foreign earned income or housing
amount, that choice remains in effect for that year and all future
years unless you revoke it. You can revoke your choice for any tax
year. However, if you revoke your choice for a tax year, you cannot
claim the exclusion again for your next 5 tax years without the
approval of the IRS. For more information on revoking the exclusion,
see Publication 54.
Exclusion of employer-provided meals and lodging.
If as a condition of employment you are required to live in a camp
in a foreign country that is provided by or for your employer, you can
exclude the value of any meals and lodging furnished to you, your
spouse, and your dependents. For this exclusion, a camp is lodging
that is:
- Provided for your employer's convenience because the place
where you work is in a remote area where satisfactory housing is not
available to you on the open market within a reasonable commuting
distance,
- Located as close as practicable in the area where you work,
and
- Provided in a common area or enclave that is not available
to the public for lodging or accommodations and that normally houses
at least 10 employees.
Tax Withholding and Estimated Tax
Generally, you must pay U.S. tax on the income earned abroad in the
same way you pay the tax on income earned in the United States. If you
are an employee, your employer probably withholds income tax from your
pay. If income tax is not withheld or if not enough tax is withheld,
you might have to pay estimated tax.
Withholding tax.
You may be able to have your employer discontinue withholding
income tax from all or a part of your wages. You can do this if you
expect to qualify for the income exclusions under either the bona fide
residence test or the physical presence test. See Publication 54 for
information.
Withholding from pension payments.
U.S. payers of benefits from employer deferred compensation plans
(such as employer pension, annuity, or profit-sharing plans),
individual retirement plans, and commercial annuities generally must
withhold income tax from the payments or distributions. Withholding
will apply unless you choose exemption from withholding. You cannot
choose exemption unless you provide the payer of the benefits with a
residence address in the United States or a U.S. possession or unless
you certify to the payer that you are not a U.S. citizen or resident
alien or someone who left the United States to avoid tax.
For rules that apply to nonperiodic distributions from qualified
employer plans and tax-sheltered annuity plans, get Publication 575,
Pension and Annuity Income.
Estimated tax.
If you are working abroad for a foreign employer, you may have to
pay estimated tax, since not all foreign employers withhold U.S. tax
from your wages.
Your estimated tax is the total of your estimated income tax and
self-employment tax for the year minus your expected withholding for
the year.
When you estimate your gross income, do not include the income that
you expect to exclude. You can subtract from income your estimated
housing deduction in figuring your estimated tax liability. However,
if the actual exclusion or deduction is less than you expected, you
may be subject to a penalty on the underpayment.
Use Form 1040-ES, Estimated Tax for Individuals,
to estimate your tax. The requirements for filing and paying
estimated tax are generally the same as those you would follow if you
were in the United States.
Foreign Income Taxes
A limited amount of the foreign income tax you pay can be credited
against your U.S. tax liability or deducted in figuring taxable income
on your U.S. income tax return. It is usually to your advantage to
claim a credit for foreign taxes rather than to deduct them. A credit
reduces your U.S. tax liability, and any excess can be carried back
and carried forward to other years. A deduction only reduces your
taxable income and can be taken only in the current year. You must
treat all foreign income taxes in the same way. You generally cannot
deduct some foreign income taxes and take a credit for others.
Tax credit.
If you choose to credit foreign taxes against your tax liability,
complete Form 1116, Foreign Tax Credit (Individual, Estate,
Trust, or Nonresident Alien Individual), and attach it to your
U.S. income tax return. Do not include the foreign taxes paid or
accrued as withheld income taxes on Form 1040.
Limit.
Your credit cannot be more than the part of your U.S. income tax
liability allocable to your taxable income from sources outside the
United States. So, if you have no U.S. income tax liability, or if all
your foreign income is excludable, you will not be able to claim a
foreign tax credit.
If the foreign taxes you paid or incurred during the year exceed
the limit on your credit for the current year, you can carry back the
unused foreign taxes as credits to the 2 previous tax years and then
carry forward any remaining unused foreign taxes to the next 5 tax
years.
You will not be subject to this limit and may be able to claim the
credit without using Form 1116 if the following requirements are met.
- You are an individual.
- Your only foreign source income for the tax year is passive
income (dividends, interest, royalties, etc.) that is reported to you
on a payee statement (such as a Form 1099-DIV or
1099-INT).
- Your qualified foreign taxes for the tax year are not more
than $300 ($600 if filing a joint return) and are reported on a payee
statement.
- You elect this procedure for the tax year.
If you make this election, you cannot carryback or carryover any
unused foreign tax to or from this tax year.
Foreign taxes paid on excluded income.
You cannot claim a credit for foreign taxes paid on amounts
excluded from gross income under the foreign earned income exclusion
or the housing amount exclusion, discussed earlier.
Deduction.
If you choose to deduct all foreign income taxes on your U.S.
income tax return, itemize the deduction on Schedule A (Form 1040).
You cannot deduct foreign taxes paid on income you exclude from your
U.S. income tax return.
More information.
The foreign tax credit and deduction, their limits, and the
carryback and carryover provisions are discussed in detail in
Publication 514.
Tax Treaty Benefits
U.S. tax treaties or conventions with many foreign countries
entitle U.S. residents to certain credits, deductions, exemptions, and
reduced foreign tax rates. In this way, you may be able to pay less
tax to those countries.
For example, most tax treaties allow U.S. residents to exempt part
or all of their income for personal services from the treaty country's
income tax if they are in the treaty country for a limited number of
days.
Treaties also generally provide U.S. students, teachers, and
trainees with special exemptions from the foreign treaty country's
income tax. Publication 901 contains detailed information on tax
treaties and tells you where you can get copies of them.
How To Get More Information
You can get help from the IRS in several ways. The IRS has combined
special forms and instructions as well as Publication 54 in Package
1040-7 for U.S. citizens and residents living abroad.
You can get the package and additional assistance by writing to:
Internal Revenue Service
Assistant Commissioner (International)
Attn: CP:IN:D:CS:HQ
950 L'Enfant Plaza South, S.W.
Washington, DC 20024
During the filing period, you can also get the necessary federal
income tax forms and publications from U.S. embassies and consulates.
You can also call your nearest U.S. embassy or consulate, or the
IRS office numbers listed below, to find out when and where assistance
will be available. These IRS telephone numbers include the country and
city codes required if you are outside the local dialing area.
Berlin, Germany |
(49) |
(30) |
8305-1140 |
London, England |
(44) |
(207) |
408-8077 |
Mexico City, Mexico |
(52) |
(5) |
209-9100 |
|
Ext. 3557 |
|
|
Paris, France |
(33) |
(1) |
4312-2555 |
|
Ext. 1210 |
|
|
Rome, Italy |
(39) |
(6) |
4674-2560 |
Singapore |
(65) |
|
476-9413 |
Tokyo, Japan |
(81) |
(3) |
3224-5466 |
TaxFax Service. Using the phone attached to your fax
machine, you can receive forms and instructions. Forms can be ordered
by fax at the following locations:
San Juan, Puerto Rico |
|
(787) |
759-4524 |
Tokyo, Japan |
(81) |
(3) |
3224-5465 |
Virginia, USA |
|
(703) |
368-9694 |
enter the catalog number for the form you need. The items you request
will be faxed to you.
Within the United States.
To find out what services are available, get Publication 910,
Guide to Free Tax Services. It contains a list of free tax
publications and an index of tax topics. It also describes other free
tax information services, including tax education and assistance
programs and a list of TeleTax topics.
Personal computer. With your personal computer and
modem, you can access the IRS on the Internet at
www.irs.gov. While visiting our web site, you can select:
- Frequently Asked Tax Questions (located under
Taxpayer Help & Ed) to find answers to questions you
may have.
- Forms & Pubs to download forms and
publications or search for forms and publications by topic or
keyword.
- Fill-in Forms (located under Forms &
Pubs) to enter information while the form is displayed and then
print the completed form.
- Tax Info For You to view Internal Revenue
Bulletins published in the last few years.
- Tax Regs in English to search regulations and the
Internal Revenue Code (under United States Code
(USC)).
- Digital Dispatch and IRS Local News Net
(both located under Tax Info For Business) to receive
our electronic newsletters on hot tax issues and news.
- Small Business Corner (located under Tax
Info For Business) to get information on starting and operating
a small business.
You can also reach us with your computer using File Transfer
Protocol at ftp.irs.gov.
Phone. Many services are available by phone.
- Ordering forms, instructions, and publications.
Call 1-800-829-3676 to order
current and prior year forms, instructions, and publications.
- Asking tax questions. Call the IRS with your tax
questions at 1-800-829-1040.
- TTY/TDD equipment. If you have access to TTY/TDD
equipment, call 1-800-829- 4059 to ask
tax questions or to order forms and publications.
- TeleTax topics. Call
1-800-829-4477 to listen to pre-recorded
messages covering various tax topics.
Evaluating the quality of our telephone services. To
ensure that IRS representatives give accurate, courteous, and
professional answers, we evaluate the quality of our telephone
services in several ways.
- A second IRS representative sometimes monitors live
telephone calls. That person only evaluates the IRS assistor and does
not keep a record of any taxpayer's name or tax identification
number.
- We sometimes record telephone calls to evaluate IRS
assistors objectively. We hold these recordings no longer than one
week and use them only to measure the quality of assistance.
- We value our customers' opinions. Throughout this year, we
will be surveying our customers for their opinions on our
service.
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