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As a U.S. citizen or resident alien working abroad, you may be eligible for the Foreign Earned Income Exclusion (FEIE), a valuable tax benefit that can reduce your U.S. tax liability. This exclusion allows you to exclude a portion of your foreign-earned income from U.S. taxes, helping you avoid double taxation. Here’s what you need to know.

 

Introduction

The FEIE enables U.S. taxpayers to exclude up to $120,000 of foreign-earned income (for the tax year 2024). This exclusion applies to income earned while working in a foreign country and can provide significant savings for those living and working abroad.

 

Key Eligibility Requirements

To qualify for the FEIE, you must meet the following criteria:

  • Foreign Residence: You must be a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year.
  • Physical Presence Test: Alternatively, you can qualify if you are physically present in a foreign country for at least 330 full days during any 12-month period.
  • Foreign Earned Income: The income must be earned from working in a foreign country. It includes wages, salaries, and professional fees but excludes passive income like interest and dividends.

 

Additional Benefits: Foreign Housing Exclusion

In addition to the FEIE, you may also qualify for the Foreign Housing Exclusion. This benefit allows you to exclude certain housing costs incurred while living abroad, including rent and utilities, which can further reduce your taxable income.

 

How to Claim the Exclusion

To claim the Foreign Earned Income Exclusion, you must file IRS Form 2555, along with your annual tax return. The form requires detailed information about your foreign income and the foreign countries where you worked.

 

Conclusion

The Foreign Earned Income Exclusion is a powerful tax-saving tool for U.S. taxpayers living and working abroad. By understanding the eligibility requirements and the process, you can potentially lower your U.S. tax liability and focus on your work overseas without the worry of double taxation.