Foreign Earned Income Exclusion for U.S. Expats (FEIE)

The Foreign Earned Income Exclusion (FEIE) is the most prominent and certainly the most utilized — tax advantage for U.S. expats, allowing Americans to exempt all or a portion of their foreign earned income from U.S. taxes.

The Foreign Earned Income Exclusion applies (FEIE) only if the Taxpayer (TP) meets all the following requirements

-          The taxpayer is a qualifying individual

-          Has qualified foreign earned income

The Foreign Earned Income Exclusion is limited to a certain amount, which is adjusted annually for inflation.  To avail this exclusion, the TP needs to file Form 2555

For tax year2022, the maximum exclusion is $112,000 per person. If two individuals are married, and both works 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 $224,000 for the 2022 tax year.

Be mindful when you are claiming Foreign Earned Income Exclusion and Foreign Tax Credit / Deduction.

 

Who is a Qualified Individual?

Those who have lived abroad for a specified amount of time during the tax year qualify for the foreign income tax exclusion. However, partial-year exemptions are allowed if taxpayer recently moved to a foreign nation or returned to the United States during the tax year.

The FEIE is available to expats who either:

-          Work outside the U.S. as employees, whether for a U.S. or non-U.S. employer

-          Work outside the U.S in a self-employed or partner capacity

AND

-          Pass either the Bona Fide Residency Test or the Physical Presence Test

What is Qualified Earned Income?

This exclusion applies exclusively to earned income and not to passive or investment income, such as interest and dividends. Foreign income comprises the following:

-          Salary

-          Wages

-          Bonuses

-          Commissions

-          Independent earnings

If taxpayer living and have investment or passive income, the taxpayer don't qualify for the FEIE.

How to exclude Foreign Earned Income?

If the taxpayer has eligible income, Form 2555 must be filed in order to claim this exclusion.

How much can be excluded?

If taxpayer qualify for a foreign earned income exclusion from U.S. taxes as an expat, the taxpayer can exclude up to $112,000 or more if you incurred housing costs in 2022. Each spouse can claim the FEIE if both spouses satisfy either the bona fide residency requirement or the physical presence condition.

Let us handle your tax planning, tax preparation and tax compliance. To address your case, please dial 908.300.9193 or email services@surefintaxsvs.com

The taxpayer needs to consider other related reporting requirement 

       -          USA Taxpayer and Foreign Financial Reporting Requirement

o   https://surefintaxsvs.blogspot.com/2022/05/usa-taxpayer-and-foreign-financial.html

-          Foreign Tax Credit [FTC] - A Anti Double Taxation Tool. What Do You Need to Know?

o   https://surefintaxsvs.blogspot.com/2022/08/foreign-tax-credit-ftc-anti-doube.html