Aliens and U.S. Citizens Living Abroad:
Foreign Income & Foreign Income Exclusion
This is archived information that pertains only to the 2005 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.
What is foreign earned income? Is it income from a foreign source
or income paid by a U.S. company while living abroad?
Earned income is pay for personal services performed, such as wages, salaries,
or professional fees. Foreign earned income is income you receive for services
you perform in a foreign country during a period when your tax home is in
a foreign country and during which time you meet either the bona fide residence
test or the physical presence test. It does not matter whether earned income
is paid by a U.S. employer or a foreign employer. Foreign earned income does
not include the following amounts.
- The previously excluded value of meals and lodging furnished for the convenience
of your employer.
- Pension or annuity payments including social security benefits.
- Payments by the U.S. Government, or any U.S. government agency or instrumentality,
to its employees.
- Amounts included in your income because of your employer's contributions
to a nonexempt employee trust or to a nonqualifying annuity contract.
- Recaptured unallowable moving expenses
- Payments received after the end of the tax year following the tax year
in which you performed the services that earned the income.
Do I have to meet the 330-day presence test or have a valid working
resident visa to meet the requirement for foreign income exclusion?
To claim the foreign earned income exclusion, the foreign housing exclusion,
or the foreign housing deduction, you must have foreign earned income, your
tax home must be in a foreign country, and you must be 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 an entire tax year,
- A U.S. resident alien who is a citizen or national of a country with which
the United States has an income tax treaty with a nondiscrimination article
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.
U.S. tax law does not specifically require a foreign resident visa or work
visa for this purpose, but you (must/should) comply with the other country's
laws.
I am a nonresident alien. Can I take the foreign earned income exclusion
if I meet the bona fide resident test or physical presence test? If yes, what
is the tax form used for nonresident taxpayer?
No, nonresident aliens do not qualify for the foreign earned income exclusion.
Only if you are a U.S. citizen or a resident alien of the United States and
live abroad, may you qualify to exclude a specific amount of your foreign
earned income. Refer to chapter 4 of Publication 54 Tax
Guides for U.S. Citizens and Resident Aliens Abroad, for limitation that
apply. If you are the nonresident alien spouse of a U.S. citizen or resident
alien, you can elect to be treated as a U.S. resident in order to file a joint
return. In this case, you can take the foreign earned income exclusion if
otherwise qualified. Refer to Publication 519, U.S. Tax
Guide for Aliens, for detailed instructions on how to make this election.
However, nonresident aliens would be able to exclude their foreign earned
income under the dual-status rules. Refer to Tax Topic 852 for dual-status
information. A nonresident alien is generally not subject to U.S. tax on compensation
for services performed outside the U.S.
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