Overseas American Income Taxes

Exclusion Related to Foreign-Earned Income

As mentioned previously, every citizen of the United States is subject to the income tax, even if They are residents of a foreign country receiving income from foreign sources. Special Provisions are available, however, so that these taxpayers are not taxed heavier than citizens Residing in the United States because of the foreign taxes they must pay and the higher cost of Living in the foreign country. To qualify for the Foreign Earned Income Exclusion, however, U.S. Citizens must establish that they are bona fide residents of a foreign country, or resident aliens who are present in a foreign country at least 330 days out of any consecutive twelve month period. Single taxpayers meeting the above individuals work abroad and both meet either the bona fide residence test or the physical presence test, each one can choose the foreign earned income. The taxpayer can also choose to exclude from income a foreign housing amount. If he or she chooses to exclude a foreign housing amount, the taxpayer must figure the foreign housing Exclusion before the foreign earned income exclusion. The foreign earned income exclusion is limited to the foreign earned income minus the foreign housing exclusion. The foreign housing Exclusion applies only to amounts considered paid for with employer provided funds and is the Total of the housing expenses for the year minus the base housing amount. The taxpayer`s housing amount is the total of his or her housing expenses for the year minus The base housing amount. The computation of the base housing amount (line 32 of Form 2555- Foreign Earned Income) is tied to the maximum foreign earned income exclusion. The amount is 16% of the exclusion amount (computed on a daily basis), multiplied by the number of days in The taxpayer`s qualifying period that fall within his or her tax year. For 2013, the maximum foreign earned income exclusion is $97,600 per year; 16% of this Amount is $15,616, or $42.78 per day. To figure the taxpayer`s base housing amount if he or she is a calendar-year taxpayer, multiply $42.78 by the number of his her qualifying days applicable limit) to find his or her housing amount. (200)


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