Tax Guide For U.S. Citizens and Resident Aliens Abroad: Publication 54
Tax Guide For U.S. Citizens and Resident Aliens Abroad: Publication 54
Tax Guide For U.S. Citizens and Resident Aliens Abroad: Publication 54
Contents
What's New
2014 Returns
.................. 2
Reminders . . . . . . . . . . . . . . . . . . . 2
Introduction . . . . . . . . . . . . . . . . . . 2
Chapter 1. Filing Information . .
Filing Requirements . . . . . .
Nonresident Alien Spouse
Treated as a Resident . . .
Estimated Tax . . . . . . . . .
Other Forms You May Have To
File . . . . . . . . . . . . . .
Chapter 2. Withholding Tax . .
Income Tax Withholding . .
30% Flat Rate Withholding .
Social Security and Medicare
Taxes . . . . . . . . . . .
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IRS.gov/Korean ()
IRS.gov/Russian (P)
IRS.gov/Vietnamese (TingVit)
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Future Developments
For the latest information about developments
related to Publication 54, such as legislation
published,
go
to
Photographs of missing children. The Internal Revenue Service is a proud partner with the
National Center for Missing and Exploited Children. Photographs of missing children selected
by the Center may appear in this publication on
pages that would otherwise be blank. You can
help bring these children home by looking at the
photographs and calling 1-800-THE-LOST
(1-800-843-5678) if you recognize a child.
What's New
Reminders
Figuring tax on income not excluded. If you
claim the foreign earned income exclusion, the
housing exclusion, or both, you must figure the
tax on your nonexcluded income using the tax
rates that would have applied had you not
claimed the exclusions. See the Instructions for
Form 1040 and complete the Foreign Earned
Income Tax Worksheet to figure the amount of
tax to enter on Form 1040, line 44. If you must
attach Form 6251 to your return, use the For
eign Earned Income Tax Worksheet provided in
the Instructions for Form 6251.
Form 8938. If you had foreign financial assets
in 2014, you may have to file Form 8938 with
your return. See Form 8938 in chapter 1.
Page 2
Introduction
This publication discusses special tax rules for
U.S. citizens and resident aliens who work
abroad or who have income earned in foreign
countries.
If you are 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 filing requirements that apply to U.S. citizens or resident aliens living in the United
States. Expatriation tax provisions apply to U.S.
citizens who have renounced their citizenship
and long-term residents who have ended their
residency. These provisions are discussed in
chapter 4 of Publication 519, U.S. Tax Guide for
Aliens.
Resident alien. A resident alien is an individual who is not a citizen or national of the United
States and who meets either the green card test
or the substantial presence test for the calendar
year.
1. Green card test. You are a U.S. resident
if you were a lawful permanent resident of
the United States at any time during the
calendar year. This is known as the green
card test because resident aliens hold immigrant visas (also known as green
cards).
2. Substantial presence test. You are considered a U.S. resident if you meet the
substantial presence test for the calendar
year. To meet this test, you must be physically present in the United States on at
least:
a. 31 days during the current calendar
year, and
b. A total of 183 days during the current
year and the 2 preceding years,
counting all the days of physical presence in the current year, but only 1 3
the number of days of presence in the
first preceding year, and only 1 6 the
number of days in the second preceding year.
Example. You were physically present in
the United States on 120 days in each of the
years 2012, 2013, and 2014. To determine if
you meet the substantial presence test for
2014, count the full 120 days of presence in
2014, 40 days in 2013 (1 3 of 120), and 20 days
in 2012 (1 6 of 120). Because the total for the
3-year period is 180 days, you are not considered a resident under the substantial presence
test for 2014.
For more information on resident and nonresident status, the tests for residence, and the
exceptions to them, see Publication 519.
Filing information. Chapter 1 contains general filing information, such as:
Whether you must file a U.S. tax return,
When and where to file your return,
How to report your income if it is paid in
foreign currency,
How to treat a nonresident alien spouse as
a U.S. resident, and
Whether you must pay estimated tax.
Withholding tax. Chapter 2 discusses the
withholding of income, social security, and
Medicare taxes from the pay of U.S. citizens
and resident aliens.
Self-employment tax. Chapter 3 discusses
who must pay self-employment tax.
Foreign earned income exclusion and
housing exclusion and deduction. Chapter 4 discusses income tax benefits that apply if
you meet certain requirements while living
abroad. You may qualify to treat up to $99,200
of your income as not taxable by the United
States. You also may be able to either deduct
part of your housing expenses from your income or treat a limited amount of income used
for housing expenses as not taxable by the United States. These benefits are called the foreign
earned income exclusion and the foreign housing deduction and exclusion.
To qualify for either of the exclusions or the
deduction, you must have a tax home in a foreign country and earn income from personal
services performed in a foreign country. These
rules are explained in chapter 4.
If you are going to exclude or deduct your income as discussed above, you must file Form
2555, Foreign Earned Income, or Form
2555-EZ, Foreign Earned Income Exclusion.
Exemptions, deductions, and credits.
Chapter 5 discusses exemptions, deductions,
and credits you may be able to claim on your return. These are generally the same as if you
were living in the United States. However, if you
choose to exclude foreign earned income or
housing amounts, you cannot deduct or exclude any item or take a credit for any item that
is related to the amounts you exclude. Among
the topics discussed in chapter 5 are:
Exemptions,
Contributions to foreign organizations,
Foreign moving expenses,
Contributions to individual retirement arrangements (IRAs), and
Foreign taxes.
Tax treaty benefits. Chapter 6 discusses
some benefits that are common to most tax
treaties and explains how to get help if you think
you are not receiving a treaty benefit to which
you are entitled. It also explains how to get copies of tax treaties.
Publication 54 (2014)
How to get tax help. Chapter 7 is an explanation of how to get information and assistance
from the IRS.
Questions and answers. Frequently asked
questions and answers to those questions are
presented in the back of the publication.
Comments and suggestions. We welcome
your comments about this publication and your
suggestions for future editions.
You can send us comments from
www.irs.gov/formspubs. Click on More Information and then on Give us feedback.
Or you can write to:
Internal Revenue Service
Tax Forms and Publications
1111 Constitution Ave. NW, IR-6526
Washington, DC 20224
We respond to many letters by telephone.
Therefore, it would be helpful if you would include your daytime phone number, including
the area code, in your correspondence.
Although we cannot respond individually to
each comment received, we do appreciate your
feedback and will consider your comments as
we revise our tax products.
Ordering forms and publications. Visit
www.irs.gov/formspubs to download forms and
publications. Otherwise, you can go to
www.irs.gov/orderforms to order forms or call
1-800-829-3676 to order current and prior-year
forms and instructions. Your order should arrive
within 10 business days.
Tax questions. If you have a tax question,
check the information available on IRS.gov or
call 1-800-829-1040. We cannot answer tax
questions sent to the above address.
1.
Filing
Information
Topics
Useful Items
Filing Requirements
If you are a U.S. citizen or resident alien, the
rules for filing income, estate, and gift tax returns and for paying estimated tax are generally
the same whether you are in the United States
or abroad.
Your income, filing status, and age generally
determine whether you must file an income tax
return. Generally, you must file a return for 2014
if your gross income from worldwide sources is
at least the amount shown for your filing status
in the following table.
Filing Status*
Amount
Single . . . . . . . . . . . . . . . . . . . . . . . . . $10,150
65 or older . . . . . . . . . . . . . . . . . . . $11,700
Head of household . . . . . . . . . . . . . . . $13,050
65 or older . . . . . . . . . . . . . . . . . . . $14,600
Qualifying widow(er) . . . . . . . . . . . . .
$16,350
65 or older . . . . . . . . . . . . . . . . . . . $17,550
Married filing jointly . . . . . . . . . . . . . .
$20,300
Not living with spouse at end of
year . . . . . . . . . . . . . . . . . . . . . . . .
$3,950
One spouse 65 or older . . . . . . . . . $21,500
Both spouses 65 or older . . . . . . .
$22,700
Married filing separately . . . . . . . . . . . $3,950
Filing Information
Page 3
Extensions
You can get an extension of time to file your return. In some circumstances, you also can get
an extension of time to file and pay any tax due.
However, if you pay the tax due after the
regular due date, interest will be charged from
the regular due date until the date the tax is
paid.
This publication discusses four extensions:
an automatic 2-month extension, an automatic
6-month extension, an additional extension for
taxpayers out of the country, and an extension
of time to meet tests. If you served in a combat
zone or qualified hazardous duty area, see Publication 3 for a discussion of extensions of
deadlines.
Automatic 2-month extension. You are allowed an automatic 2-month extension to file
your return and pay federal income tax if you
are a U.S. citizen or resident alien, and on the
regular due date of your return:
You are living outside the United States
and Puerto Rico and your main place of
business or post of duty is outside the United States and Puerto Rico, or
You are in military or naval service on duty
outside the United States and Puerto Rico.
If you use a calendar year, the regular due
date of your return is April 15. Even if you are allowed an extension, you will have to pay interest on any tax not paid by the regular due date
of your return.
Married taxpayers. If you file a joint return,
either you or your spouse can qualify for the automatic extension. If you and your spouse file
separate returns, this automatic extension applies only to the spouse who qualifies for it.
How to get the extension. To use this automatic 2-month extension, you must attach a
statement to your return explaining which of the
two situations listed earlier qualified you for the
extension.
Automatic 6-month extension. If you are not
able to file your return by the due date, you generally can get an automatic 6-month extension
of time to file (but not of time to pay). To get this
automatic extension, you must file a paper
Form 4868 or use IRS efile (electronic filing).
For more information about filing electronically,
see Efile options, later.
The form must show your properly estimated tax liability based on the information available to you.
You may not be eligible. You cannot
use the automatic 6month extension
CAUTION
of time to file if:
You want the IRS to figure your tax, or
Chapter 1
Filing Information
Foreign Currency
You must express the amounts you report on
your U.S. tax return in U.S. dollars. If you receive all or part of your income or pay some or
all of your expenses in foreign currency, you
must translate the foreign currency into U.S.
dollars. How you do this depends on your functional currency. Your functional currency generally is the U.S. dollar unless you are required to
use the currency of a foreign country.
You must make all federal income tax determinations in your functional currency. The U.S.
dollar is the functional currency for all taxpayers
except some qualified business units (QBUs). A
QBU is a separate and clearly identified unit of
a trade or business that maintains separate
books and records.
Even if you have a QBU, your functional currency is the dollar if any of the following apply.
You conduct the business in U.S. dollars.
The principal place of business is located
in the United States.
You choose to or are required to use the
U.S. dollar as your functional currency.
The business books and records are not
kept in the currency of the economic environment in which a significant part of the
business activities is conducted.
Make all income tax determinations in your
functional currency. If your functional currency
is the U.S. dollar, you must immediately translate into U.S. dollars all items of income, expense, etc. (including taxes), that you receive,
pay, or accrue in a foreign currency and that will
affect computation of your income tax. Use the
exchange rate prevailing when you receive,
pay, or accrue the item. If there is more than
one exchange rate, use the one that most properly reflects your income. You can generally get
exchange rates from banks and U.S. Embassies.
If your functional currency is not the U.S.
dollar, make all income tax determinations in
your functional currency. At the end of the year,
translate the results, such as income or loss,
into U.S. dollars to report on your income tax return.
Blocked Income
You generally must report your foreign income
in terms of U.S. dollars and, with one exception
(see Fulbright Grant, later), you must pay taxes
due on it in U.S. dollars.
If, because of restrictions in a foreign country, your income is not readily convertible into
U.S. dollars or into other money or property that
is readily convertible into U.S. dollars, your income is blocked or deferrable income. You
can report this income in one of two ways:
Report the income and pay your federal income tax with U.S. dollars that you have in
the United States or in some other country,
or
Postpone the reporting of the income until
it becomes unblocked.
If you choose to postpone the reporting of
the income, you must file an information return
with your tax return. For this information return,
you should use another Form 1040 labeled Report of Deferrable Foreign Income, pursuant to
Rev. Rul. 74-351. You must declare on the information return that you will include the deferrable income in your taxable income for the
year that it becomes unblocked. You also must
state that you waive any right to claim that the
deferrable income was includible in your income for any earlier year.
You must report your income on your information return using the foreign currency in
which you received that income. If you have
blocked income from more than one foreign
country, include a separate information return
for each country.
Income becomes unblocked and reportable
for tax purposes when it becomes convertible,
or when it is converted, into U.S. dollars or into
other money or property that is convertible into
U.S. currency. Also, if you use blocked income
for your personal expenses or dispose of it by
gift, bequest, or devise, you must treat it as unblocked and reportable.
If you have received blocked income on
which you have not paid tax, you should check
to see whether that income is still blocked. If it is
not, you should take immediate steps to pay tax
on it, file a declaration or amended declaration
of estimated tax, and include the income on
your tax return for the year in which the income
became unblocked.
If you choose to postpone reporting blocked
income and in a later tax year you wish to begin
including it in gross income although it is still
blocked, you must obtain the permission of the
IRS to do so. To apply for permission, file Form
3115, Application for Change in Accounting
Method. You also must request permission from
the IRS on Form 3115 if you have not chosen to
defer the reporting of blocked income in the
past, but now wish to begin reporting blocked
income under the deferred method. See the instructions for Form 3115 for information on
changing your accounting method.
Fulbright Grant
All income must be reported in U.S. dollars. In
most cases, the tax also must be paid in U.S.
dollars. If, however, at least 70% of your Fulbright grant has been paid in nonconvertible foreign currency (blocked income), you can use
the currency of the host country to pay the part
Total
=
U.S. tax
Tax on
blocked
income
Filing Information
Page 5
Does My Return
Have To Be On Paper?
IRS efile (electronic filing) is the fastest, easiest, and most convenient way to file your income tax return electronically.
IRS efile offers accurate, safe, and fast alternatives to filing on paper. IRS computers
quickly and automatically check for errors or
other missing information. Even returns with a
foreign address can be e-filed!
How to e-file. There are three ways you can
efile.
1. Use your personal computer.
2. Use a volunteer. Many programs offering
free tax help can efile your return.
3. Use a tax professional. Most tax professionals can efile your return.
These methods are explained in detail in the instructions for your tax return.
Where To File
If any of the following situations apply to you, do
not file your return with the service center listed
for your home state.
You claim the foreign earned income exclusion.
You claim the foreign housing exclusion or
deduction.
You live in a foreign country.
Instead, use one of the following special addresses. If you are not enclosing a check or
money order, file your return with the:
Department of the Treasury
Internal Revenue Service Center
Austin, TX 73301-0215 USA
If you are enclosing a check or money order, file
your return with:
Internal Revenue Service Center
P.O. Box 1303
Charlotte, NC 28201-1303 USA
Page 6
Chapter 1
Filing Information
If you do not know where your legal residence is and you do not have a principal place
of business in the United States, you can file
with the appropriate address listed above.
However, you should not file with the addresses listed above if you are a bona fide resident of the U.S. Virgin Islands, Guam, or the
Commonwealth of the Northern Mariana Islands
during your entire tax year.
Resident of U.S. Virgin Islands (USVI). If
you are a bona fide resident of the USVI during
your entire tax year, you generally are not required to file a U.S. return. However, you must
file a return with the USVI.
Send your return to the:
Nonresident Alien
Spouse Treated
as a Resident
If, at the end of your tax year, you are married
and one spouse is a U.S. citizen or a resident
alien and the other is a nonresident alien, you
can choose to treat the nonresident as a U.S.
resident. This includes situations in which one
of you is a nonresident alien at the beginning of
the tax year and a resident alien at the end of
the year and the other is a nonresident alien at
the end of the year.
If you make this choice, the following two
rules apply.
You and your spouse are treated, for income tax purposes, as residents for all tax
years that the choice is in effect.
You must file a joint income tax return for
the year you make the choice.
This means that neither of you can claim under
any tax treaty not to be a U.S. resident for a tax
year for which the choice is in effect.
You can file joint or separate returns in years
after the year in which you make the choice.
Example 1. Pat Smith, a U.S. citizen, is
married to Norman, a nonresident alien. Pat
and Norman make the choice to treat Norman
as a resident alien by attaching a statement to
their joint return. Pat and Norman must report
their worldwide income for the year they make
the choice and for all later years unless the
choice is ended or suspended. Although Pat
and Norman must file a joint return for the year
they make the choice, they can file either joint
or separate returns for later years.
Example 2. When Bob and Sharon Williams got married, both were nonresident aliens. In June of last year, Bob became a resident alien and remained a resident for the rest
of the year. Bob and Sharon both choose to be
treated as resident aliens by attaching a statement to their joint return for last year. Bob and
TIP
Social Security
Number (SSN)
If you choose to treat your nonresident alien
spouse as a U.S. resident, your spouse must
have either an SSN or an individual taxpayer
identification number (ITIN).
To get an SSN for a nonresident alien
spouse, apply at an office of the U.S. Social Security Administration (SSA) or U.S. consulate.
You must complete Form SS-5, Application for
a Social Security Card, available at
www.socialsecurity.gov
or
by
calling
1-800-772-1213. You must also provide original
or certified copies of documents to verify that
spouse's age, identity, and citizenship.
If the nonresident alien spouse is not eligible
to get an SSN, he or she can file Form W-7, Application for IRS Individual Taxpayer Identification Number, with the IRS to apply for an ITIN.
Estimated Tax
Table 11. Ending the Choice To Treat Nonresident Alien Spouse as a Resident
Revocation
Either spouse can revoke the choice for any tax year.
The revocation must be made by the due date for filing the tax return for that tax year.
The spouse who revokes the choice must attach a signed statement declaring that the choice is being revoked. The statement
revoking the choice must include the following:
The name, address, and social security number (or taxpayer identification number) of each spouse.
The name and address of any person who is revoking the choice for a deceased spouse.
A list of any states, foreign countries, and possessions that have community property laws in which either spouse is
domiciled or where real property is located from which either spouse receives income.
Death
If the spouse revoking the choice does not have to file a return and does not file a claim for refund, send the statement to the
Internal Revenue Service Center where the last joint return was filed.
The death of either spouse ends the choice, beginning with the first tax year following the year in which the spouse
died.
If the surviving spouse is a U.S. citizen or resident alien and is entitled to the joint tax rates as a surviving spouse, the choice
will not end until the close of the last year for which these joint rates may be used.
If both spouses die in the same tax year, the choice ends on the first day after the close of the tax year in which the spouses
died.
Divorce or
Legal separation
A divorce or legal separation ends the choice as of the beginning of the tax year in which the legal separation
occurs.
Inadequate records
The Internal Revenue Service can end the choice for any tax year that either spouse has failed to keep adequate
books, records, and other information necessary to determine the correct income tax liability, or to provide
adequate access to those records.
Chapter 1
Filing Information
Page 7
Chapter 2
Withholding Tax
cial assets include any financial account maintained by a foreign financial institution and, to
the extent held for investment, any stock, securities, or any other interest in a foreign entity and
any financial instrument or contract with an issuer or counterparty that is not a U.S. person.
You may have to pay penalties if you are required to file Form 8938 and fail to do so, or if
you have an understatement of tax due to any
transaction involving an undisclosed foreign financial asset.
More information about the filing of Form
8938 can be found in the separate instructions
for Form 8938.
2.
Withholding Tax
Topics
Useful Items
Form
673
The following statement, when completed and furnished by a citizen of the United States to his or her employer, permits the
employer to exclude from income tax withholding all or a part of the wages paid for services performed outside the United
States.
Name (please print or type)
Part I
I expect to qualify for the foreign earned income exclusion under either the bona fide residence or physical presence test for
calendar year
or other tax year beginning
and ending
.
I expect to remain a bona fide resident and retain my tax home in a foreign country (or countries) until the end of the tax year for
which this statement is made. Or, if not that period, from the date of this statement until
, 20
I have not submitted a statement to the authorities of any foreign country named above that I am not a resident of that country.
Or, if I made such a statement, the authorities of that country thereafter made a determination to the effect that I am a resident of
that country.
Based on the facts in my case, I have good reason to believe that for this period of foreign residence I will satisfy the tax home
and the bona fide foreign resident requirements prescribed by section 911(d)(1)(A) of the Internal Revenue Code and qualify for the
exclusion Code section 911(a) allows.
Based on the facts in my case, I have good reason to believe that for this period of presence in a foreign country or
countries, I will satisfy the tax home and the 330 full-day requirements within a 12-month period under section 911(d)(1)(B).
Part II
1
2
3
4
5
6
7
8
9
Estimated Housing Cost Amount for Foreign Housing Exclusion (see instructions)
Rent . . . . . . . . . . . . . . . . . . . . . .
Utilities (other than telephone charges) . . . . . . . . . . .
Real and personal property insurance . . . . . . . . . . .
Occupancy tax not deductible under section 164 . . . . . . . .
Nonrefundable fees paid for securing a leasehold
. . . . . . .
Household repairs . . . . . . . . . . . . . . . . . .
Estimated qualified housing expenses. Add lines 1 through 6 . . .
Estimated base housing amount for qualifying period . . . . . .
Subtract line 8 from line 7. This is your estimated housing cost amount
Part III
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Certification
Under penalties of perjury, I declare that I have examined the information on this form and to the best of my knowledge and
belief it is true, correct, and complete. I further certify under penalties of perjury that:
The estimated housing cost amount entered in Part II, plus the amount reported on any other statements outstanding with other
employers, is not more than my total estimated housing cost amount.
If I become disqualified for the exclusions, I will immediately notify my employer and advise what part, if any, of the period for
which I am qualified.
I understand that any exemption from income tax withholding permitted by reason of furnishing this statement is not a
determination by the Internal Revenue Service that any amount paid to me for any services performed during the tax year is
excludable from gross income under the provisions of Code section 911(a).
Your Signature
Date
Form 673 (Rev. 12-2007)
Chapter 2
Withholding Tax
Page 9
Social Security
and Medicare Taxes
Social security and Medicare taxes may apply
to wages paid to an employee regardless of
where the services are performed.
General Information
In general, U.S. social security and Medicare
taxes do not apply to wages for services you
perform as an employee outside the United
States unless one of the following exceptions
applies.
1. You perform the services on or in connection with an American vessel or aircraft
(defined later) and either:
a. You entered into your employment
contract within the United States, or
b. The vessel or aircraft touches at a
U.S. port while you are employed on
it.
2. You are working in one of the countries
with which the United States has entered
into a bilateral social security agreement
(discussed later).
3. You are working for an American employer
(defined later).
Page 10
Chapter 2
Withholding Tax
4. You are working for a foreign affiliate (defined later) of an American employer under a voluntary agreement entered into
between the American employer and the
U.S. Treasury Department.
American vessel or aircraft. An American
vessel is any vessel documented or numbered
under the laws of the United States and any
other vessel whose crew is employed solely by
one or more U.S. citizens, residents, or corporations. An American aircraft is an aircraft registered under the laws of the United States.
American employer. An American employer
includes any of the following.
The U.S. Government or any of its instrumentalities.
An individual who is a resident of the United States.
A partnership of which at least two-thirds of
the partners are U.S. residents.
A trust of which all the trustees are U.S.
residents.
A corporation organized under the laws of
the United States, any U.S. state, or the
District of Columbia, Puerto Rico, the U.S.
Virgin Islands, Guam, or American Samoa.
An American employer also includes any
foreign person with an employee who is performing services in connection with a contract
between the U.S. government (or any instrumentality thereof) and a member of a domestically controlled group of entities which includes
such foreign person.
Foreign affiliate. A foreign affiliate of an
American employer is any foreign entity in
which the American employer has at least a
10% interest, directly or through one or more
entities. For a corporation, the 10% interest
must be in its voting stock. For any other entity,
the 10% interest must be in its profits.
Form 2032, Contract Coverage Under Title II
of the Social Security Act, is used by American
employers to extend social security coverage to
U.S. citizens and resident aliens working
abroad for foreign affiliates of American employers. Once you enter into an agreement,
coverage cannot be terminated.
Excludable meals and lodging. Social security tax does not apply to the value of meals and
lodging provided to you for the convenience of
your employer if it is reasonable to believe that
you will be able to exclude the value from your
income.
Australia
Austria
Belgium
Canada
Chile
Czech
Republic
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Japan
Korea, South
Luxembourg
Netherlands
Norway
Poland
Portugal
Slovak
Republic
Spain
Sweden
Switzerland
United
Kingdom
3.
Self-Employment
Tax
Topics
Useful Items
chose exemption from social security and Medicare taxes and you received wages of $108.28
or more from the organization, the amounts
paid to you are subject to self-employment tax.
However, you can choose to be exempt from
social security and Medicare taxes if you are a
member of a recognized religious sect. See
Publication 517 for more information about
church employees and self-employment tax.
Effect of Exclusion
You must take all of your self-employment income into account in figuring your net earnings
from self-employment, even income that is exempt from income tax because of the foreign
earned income exclusion.
Exemption From
Social Security and
Medicare Taxes
Income From
U.S. Possessions
Self-Employment Tax
Page 11
you can exclude or deduct certain foreign housing amounts. See Foreign Earned Income Ex
clusion and Foreign Housing Exclusion and De
duction, later.
4.
Foreign Earned
Income and
Housing:
Exclusion
Deduction
Topics
You also may be entitled to exclude from income the value of meals and lodging provided
to you by your employer. See Exclusion of
Meals and Lodging, later.
Requirements
To claim the foreign earned income exclusion,
the foreign housing exclusion, or the foreign
housing deduction, you must meet all three of
the following requirements.
1. Your tax home must be in a foreign country.
2. You must have foreign earned income.
Useful Items
If you meet certain requirements, you may qualify for the foreign earned income and foreign
housing exclusions and the foreign housing deduction.
Tax Home in
Foreign Country
To qualify for the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, your tax home must be
in a foreign country throughout your period of
bona fide residence or physical presence
Page 12
Chapter 4
abroad. Bona fide residence and physical presence are explained later.
Tax Home
Your tax home is the general area of your main
place of business, employment, or post of duty,
regardless of where you maintain your family
home. Your tax home is the place where you
are permanently or indefinitely engaged to work
as an employee or self-employed individual.
Having a tax home in a given location does
not necessarily mean that the given location is
your residence or domicile for tax purposes.
If you do not have a regular or main place of
business because of the nature of your work,
your tax home may be the place where you regularly live. If you have neither a regular or main
place of business nor a place where you regularly live, you are considered an itinerant and
your tax home is wherever you work.
You are not considered to have a tax home
in a foreign country for any period in which your
abode is in the United States. However, your
abode is not necessarily in the United States
while you are temporarily in the United States.
Your abode is also not necessarily in the United
States merely because you maintain a dwelling
in the United States, whether or not your
spouse or dependents use the dwelling.
Abode has been variously defined as one's
home, habitation, residence, domicile, or place
of dwelling. It does not mean your principal
place of business. Abode has a domestic
rather than a vocational meaning and does not
mean the same as tax home. The location of
your abode often will depend on where you
maintain your economic, family, and personal
ties.
Example 1. You are employed on an offshore oil rig in the territorial waters of a foreign
country and work a 28-day on/28-day off schedule. You return to your family residence in the
United States during your off periods. You are
considered to have an abode in the United
States and do not satisfy the tax home test in
the foreign country. You cannot claim either of
the exclusions or the housing deduction.
Example 2. For several years, you were a
marketing executive with a producer of machine
tools in Toledo, Ohio. In November of last year,
your employer transferred you to London, England, for a minimum of 18 months to set up a
sales operation for Europe. Before you left, you
distributed business cards showing your business and home addresses in London. You kept
ownership of your home in Toledo but rented it
to another family. You placed your car in storage. In November of last year, you moved your
spouse, children, furniture, and family pets to a
home your employer rented for you in London.
Shortly after moving, you leased a car and
you and your spouse got British driving licenses. Your entire family got library cards for the
local public library. You and your spouse
opened bank accounts with a London bank and
secured consumer credit. You joined a local
business league and both you and your spouse
became active in the neighborhood civic
Start Here
Do you have foreign
earned income?
Yes
No
Yes
No
No
Yes
No
Yes
No
Yes
Yes
No
Yes
* Foreign housing exclusion applies only to employees. Foreign housing deduction applies only to the self-employed.
association and worked with a local charity.
Your abode is in London for the time you live
there. You satisfy the tax home test in the foreign country.
Temporary or
Indefinite Assignment
The location of your tax home often depends on
whether your assignment is temporary or indefinite. If you are temporarily absent from your tax
home in the United States on business, you
may be able to deduct your away-from-home
expenses (for travel, meals, and lodging), but
you would not qualify for the foreign earned income exclusion. If your new work assignment is
for an indefinite period, your new place of employment becomes your tax home and you
would not be able to deduct any of the related
expenses that you have in the general area of
this new work assignment. If your new tax home
is in a foreign country and you meet the other
requirements, your earnings may qualify for the
foreign earned income exclusion.
Foreign Country
To meet the bona fide residence test or the
physical presence test, you must live in or be
present in a foreign country. A foreign country
includes any territory under the sovereignty of a
government other than that of the United
States.
The term foreign country includes the
country's airspace and territorial waters, but not
international waters and the airspace above
Chapter 4
American Samoa,
Guam, and the
Commonwealth of the
Northern Mariana Islands
Residence or presence in a U.S. possession
does not qualify you for the foreign earned income exclusion. You may, however, qualify for
Page 13
American Samoa. There is a possession exclusion available to individuals who are bona
fide residents of American Samoa for the entire
tax year. Gross income from sources within
American Samoa may be eligible for this exclusion. Income that is effectively connected with
the conduct of a trade or business within American Samoa also may be eligible for this exclusion. Use Form 4563, Exclusion of Income for
Bona Fide Residents of American Samoa, to
figure the exclusion.
Example 3. You are a U.S. citizen employed in Japan by a U.S. employer under contract with the U.S. Armed Forces. You are subject to the agreement of the Treaty of Mutual
Cooperation and Security between the United
States and Japan. Being subject to the agreement does not make you a bona fide resident of
Japan.
Guam and the Commonwealth of the Northern Mariana Islands. An exclusion will be
available to residents of Guam and the Commonwealth of the Northern Mariana Islands if,
and when, new implementation agreements
take effect between the United States and
those possessions.
For more information, see Publication 570.
Puerto Rico
and U.S. Virgin Islands
Residents of Puerto Rico and the U.S. Virgin Islands cannot claim the foreign earned income
exclusion or the foreign housing exclusion.
Puerto Rico. Generally, if you are a U.S. citizen who is a bona fide resident of Puerto Rico
for the entire tax year, you are not subject to
U.S. tax on income from Puerto Rican sources.
This does not include amounts paid for services
performed as an employee of the United States.
However, you are subject to U.S. tax on your income from sources outside Puerto Rico. In figuring your U.S. tax, you cannot deduct expenses allocable to income not subject to tax.
Chapter 4
Determination. Questions of bona fide residence are determined according to each individual case, taking into account factors such as
your intention, the purpose of your trip, and the
nature and length of your stay abroad.
To meet the bona fide residence test, you
must show the Internal Revenue Service (IRS)
that you have been a bona fide resident of a foreign country or countries for an uninterrupted
period that includes an entire tax year. The IRS
decides whether you are a bona fide resident of
a foreign country largely on the basis of facts
you report on Form 2555. IRS cannot make this
determination until you file Form 2555.
Statement to foreign authorities. You are
not considered a bona fide resident of a foreign
country if you make a statement to the authorities of that country that you are not a resident of
that country, and the authorities:
Hold that you are not subject to their income tax laws as a resident, or
Have not made a final decision on your
status.
Special agreements and treaties. An income
tax exemption provided in a treaty or other international agreement will not in itself prevent you
from being a bona fide resident of a foreign
country. Whether a treaty prevents you from becoming a bona fide resident of a foreign country
is determined under all provisions of the treaty,
including specific provisions relating to residence or privileges and immunities.
Example 1. You are a U.S. citizen employed in the United Kingdom by a U.S. employer under contract with the U.S. Armed
Forces. You are not subject to the North Atlantic
Treaty Status of Forces Agreement. You may
be a bona fide resident of the United Kingdom.
Example 2. You are a U.S. citizen in the
United Kingdom who qualifies as an employee
of an armed service or as a member of a civilian component under the North Atlantic Treaty
Example 4. You are a U.S. citizen employed as an official by the United Nations in
Switzerland. You are exempt from Swiss taxation on the salary or wages paid to you by the
United Nations. This does not prevent you from
being a bona fide resident of Switzerland.
Effect of voting by absentee ballot. If you
are a U.S. citizen living abroad, you can vote by
absentee ballot in any election held in the United States without risking your status as a bona
fide resident of a foreign country.
However, if you give information to the local
election officials about the nature and length of
your stay abroad that does not match the information you give for the bona fide residence test,
the information given in connection with absentee voting will be considered in determining
your status, but will not necessarily be conclusive.
Uninterrupted period including entire tax
year. To meet the bona fide residence test,
you must reside in a foreign country or countries for an uninterrupted period that includes an
entire tax year. An entire tax year is from January 1 through December 31 for taxpayers who
file their income tax returns on a calendar year
basis.
During the period of bona fide residence in a
foreign country, you can leave the country for
brief or temporary trips back to the United
States or elsewhere for vacation or business.
To keep your status as a bona fide resident of a
foreign country, you must have a clear intention
of returning from such trips, without unreasonable delay, to your foreign residence or to a new
bona fide residence in another foreign country.
Example 1. You arrived with your family in
Lisbon, Portugal, on November 1, 2012. Your
assignment is indefinite, and you intend to live
there with your family until your company sends
you to a new post. You immediately established
residence there. You spent April of 2013 at a
business conference in the United States. Your
family stayed in Lisbon. Immediately following
the conference, you returned to Lisbon and
continued living there. On January 1, 2014, you
completed an uninterrupted period of residence
for a full tax year (2013), and you meet the bona
fide residence test.
Example 2. Assume the same facts as in
Example 1, except that you transferred back to
the United States on December 13, 2013. You
would not meet the bona fide residence test because your bona fide residence in the foreign
country, although it lasted more than a year, did
not include a full tax year. You may, however,
qualify for the foreign earned income exclusion
This figure illustrates Example 2 under How to figure the 12-month period.
First Full 12-Month Period
Jan
13
Feb
13
Mar
13
Apr
13
May
13
Jun
13
Jul
13
Aug
13
Sep
13
Oct
13
Nov
13
Dec
13
Jan
14
Feb
14
Mar
14
Apr
14
May
14
Jun
14
Jul
14
Aug
14
Page 15
Waiver of Time
Requirements
law. Personal service income earned by individuals at the base is eligible for the foreign earned
income exclusion provided the other requirements are met.
Early in 2015, the IRS will publish in the Internal Revenue Bulletin a list of the only countries that qualify for the waiver for 2014 and the
effective dates. If you left one of the countries
on or after the date listed for each country, you
can meet the bona fide residence test or physical presence test for 2014 without meeting the
minimum time requirement. However, in figuring
your exclusion, the number of your qualifying
days of bona fide residence or physical presence includes only days of actual residence or
presence within the country.
Note. The countries and the respective
dates that qualified for the waiver in 2013 are
listed in Revenue Procedure 2014-25.
Chapter 4
Variable
Income
Salaries and
wages
Dividends
Business
profits
Commissions
Interest
Royalties
Bonuses
Capital gains
Rents
Professional
fees
Gambling
winnings
Scholarships
and
fellowships
Tips
Alimony
To determine whether your tax home is in a foreign country, see Tax Home in Foreign Country,
earlier. To determine whether you meet either
the bona fide residence test or the physical
presence test, see Bona Fide Residence Test
and Physical Presence Test, earlier.
Foreign earned income does not include the
following amounts.
The value of meals and lodging that you
exclude from your income because the
meals and lodging were furnished for the
convenience of your employer.
Pension or annuity payments you receive,
including social security benefits (see Pen
sions and annuities, later).
Pay you receive as an employee of the
U.S. Government. (See U.S. Government
Employees, later.)
Amounts you include in your income because of your employer's contributions to a
nonexempt employee trust or to a nonqualified annuity contract.
Any unallowable moving expense deduction that you choose to recapture as explained under Moving Expense Attributa
ble to Foreign Earnings in 2 Years in
chapter 5.
Payments you receive after the end of the
tax year following the tax year in which you
performed the services that earned the income.
Earned income. This is pay for personal services performed, such as wages, salaries, or
professional fees. The list that follows classifies
many types of income into three categories.
The column headed Variable Income lists income that may fall into either the earned income category, the unearned income category,
or partly into both. For more information on
earned and unearned income, see Earned and
Unearned Income, later.
Unearned
Income
Both the bona fide residence test and the physical presence test contain minimum time requirements. The minimum time requirements
can be waived, however, if you must leave a
foreign country because of war, civil unrest, or
similar adverse conditions in that country. You
must be able to show that you reasonably could
have expected to meet the minimum time requirements if not for the adverse conditions. To
qualify for the waiver, you must actually have
your tax home in the foreign country and be a
bona fide resident of, or be physically present
in, the foreign country on or before the beginning date of the waiver.
Earned
Income
Social security
benefits
Pensions
Annuities
In addition to the types of earned income listed, certain noncash income and allowances or
reimbursements are considered earned income.
Noncash income. The fair market value of
property or facilities provided to you by your
employer in the form of lodging, meals, or use
of a car is earned income.
Allowances or reimbursements. Earned income includes allowances or reimbursements
you receive, such as the following amounts.
Cost-of-living allowances.
Overseas differential.
Family allowance.
Reimbursement for education or education
allowance.
Home leave allowance.
Quarters allowance.
Reimbursement for moving or moving allowance (unless excluded from income as
discussed later in Reimbursement of em
ployee expenses under Earned and Un
earned Income).
Total income
($88,800)
= $77,700
Earned and
Unearned Income
Earned income was defined earlier as pay for
personal services performed. Some types of income are not easily identified as earned or unearned income. Some of these types of income
are further explained here.
Income from a sole proprietorship or partnership. Income from a business in which capital investment is an important part of producing
the income may be unearned income. If you are
a sole proprietor or partner and your personal
services are also an important part of producing
the income, the part of the income that represents the value of your personal services will be
treated as earned income.
Capital a factor. If capital investment is an
important part of producing income, no more
than 30% of your share of the net profits of the
business is earned income.
If you have no net profits, the part of your
gross profit that represents a reasonable allowance for personal services actually performed is
considered earned income. Because you do
not have a net profit, the 30% limit does not apply.
Example 1. You are a U.S. citizen and
meet the bona fide residence test. You invest in
a partnership based in Cameroon that is engaged solely in selling merchandise outside the
United States. You perform no services for the
partnership. At the end of the tax year, your
share of the net profits is $80,000. The entire
$80,000 is unearned income.
Example. You and Lou Green are management consultants and operate as equal partners
in performing services outside the United
States. Because capital is not an incomeproducing factor, all the income from the partnership is considered earned income.
Income from a corporation. The salary you
receive from a corporation is earned income
only if it represents a reasonable allowance as
compensation for work you do for the corporation. Any amount over what is considered a reasonable salary is unearned income.
Example 1. You are a U.S. citizen and an
officer and stockholder of a corporation in Honduras. You perform no work or service of any
kind for the corporation. During the tax year you
receive a $10,000 salary from the corporation.
The $10,000 clearly is not for personal services
and is unearned income.
Example 2. You are a U.S. citizen and
work full time as secretary-treasurer of your corporation. During the tax year you receive
$100,000 as salary from the corporation. If
$80,000 is a reasonable allowance as pay for
the work you did, then $80,000 is earned income.
Stock options. You may have earned income
if you disposed of stock that you got by exercising a stock option granted to you under an employee stock purchase plan.
If your gain on the disposition of stock you
got by exercising an option is treated as capital
gain, your gain is unearned income.
However, if you disposed of the stock less
than 2 years after you were granted the option
or less than 1 year after you got the stock, part
of the gain on the disposition may be earned income. It is considered received in the year you
disposed of the stock and earned in the year
you performed the services for which you were
granted the option. Any part of the earned income that is due to work you did outside the
United States is foreign earned income.
See Publication 525, Taxable and Nontaxable Income, for a discussion of the treatment of
stock options.
Pensions and annuities. For purposes of the
foreign earned income exclusion, the foreign
housing exclusion, and the foreign housing deduction, amounts received as pensions or annuities are unearned income.
Capital not a factor. If capital is not an income-producing factor and personal services
produce the business income, the 30% rule
does not apply. The entire amount of business
income is earned income.
Chapter 4
TIP
Page 17
you can deduct. (See chapter 5.) If the reimbursement is more than the expenses, no expenses remain to be divided between excluded
and included income and the excess reimbursement must be included in earned income.
These rules do not apply to the following individuals.
Straight-commission salespersons.
Employees who have arrangements with
their employers under which taxes are not
withheld on a percentage of the commissions because the employers consider that
percentage to be attributable to the employees' expenses.
Accountable plan. An accountable plan is
a reimbursement or allowance arrangement
that includes all three of the following rules.
The expenses covered under the plan
must have a business connection.
The employee must adequately account to
the employer for these expenses within a
reasonable period of time.
The employee must return any excess reimbursement or allowance within a reasonable period of time.
Reimbursement of moving expenses. Reimbursement of moving expenses may be earned
income. You must include as earned income:
Any reimbursements of, or payments for,
nondeductible moving expenses,
Reimbursements that are more than your
deductible expenses and that you do not
return to your employer,
Any reimbursements made (or treated as
made) under a nonaccountable plan (any
plan that does not meet the rules listed
above for an accountable plan), even if
they are for deductible expenses, and
Any reimbursement of moving expenses
you deducted in an earlier year.
This section discusses reimbursements that
must be included in earned income. Publication
521, Moving Expenses, discusses additional
rules that apply to moving expense deductions
and reimbursements.
The rules for determining when the reimbursement is considered earned or where the
reimbursement is considered earned may differ
somewhat from the general rules previously discussed.
Although you receive the reimbursement in
one tax year, it may be considered earned for
services performed, or to be performed, in another tax year. You must report the reimbursement as income on your return in the year you
receive it, even if it is considered earned during
a different year.
Move from U.S. to foreign country. If you
move from the United States to a foreign country, your moving expense reimbursement is
generally considered pay for future services to
be performed at the new location. The reimbursement is considered earned solely in the
year of the move if you qualify for the exclusion
for a period that includes at least 120 days during that tax year.
If you are neither a bona fide resident of nor
physically present in a foreign country or countries for a period that includes 120 days during
the year of the move, a portion of the
Page 18
Chapter 4
TIP
Exclusion of
Meals and Lodging
You do not include in your income the value of
meals and lodging provided to you and your
family by your employer at no charge if the following conditions are met.
1. The meals are furnished:
a. On the business premises of your employer, and
b. For the convenience of your employer.
2. The lodging is furnished:
a. On the business premises of your employer,
b. For the convenience of your employer, and
c. As a condition of your employment.
Chapter 4
Foreign Earned
Income Exclusion
If your tax home is in a foreign country and you
meet the bona fide residence test or the physical presence test, you can choose to exclude
from your income a limited amount of your foreign earned income. Foreign earned income
was defined earlier in this chapter.
You also can choose to exclude from your
income a foreign housing amount. This is explained later under Foreign Housing Exclusion.
If you choose to exclude a foreign housing
amount, you must figure the foreign housing exclusion before you figure the foreign earned income exclusion. Your foreign earned income
exclusion is limited to your foreign earned income minus your foreign housing exclusion.
If you choose to exclude foreign earned income, you cannot deduct, exclude, or claim a
credit for any item that can be allocated to or
charged against the excluded amounts. This includes any expenses, losses, and other normally deductible items allocable to the excluded
income. For more information about deductions
and credits, see chapter 5.
Page 19
Chapter 4
1. Beginning with June 1, 2013, count forward 330 full days. Do not count the 16
days you spent in the United States. The
330th day, May 12, 2014, is the last day of
a 12-month period.
2. Count backward 12 months from May 11,
2014, to find the first day of this 12-month
period, May 12, 2013. This 12-month period runs from May 12, 2013, through May
11, 2014.
3. Count the total days during 2013 that fall
within this 12-month period. This is 234
days (May 12, 2013 December 31,
2013).
4. Multiply $97,600 (the maximum exclusion
for 2013) by the fraction 234/365 to find
your maximum exclusion for 2013
($62,571).
You figure the maximum exclusion for 2014
in the opposite manner.
1. Beginning with your last full day, September 30, 2014, count backward 330 full
days. Do not count the 16 days you spent
in the United States. That day, October
20, 2013, is the first day of a 12-month period.
2. Count forward 12 months from October
20, 2013, to find the last day of this
12-month period, October 19, 2014. This
12-month period runs from October 20,
2013, through October 19, 2014.
3. Count the total days during 2014 that fall
within this 12-month period. This is 292
days (January 1, 2014 October 19,
2014).
4. Multiply $99,200, the maximum limit, by
the fraction 292/365 to find your maximum
exclusion for 2014 ($79,360).
must apply for IRS approval. You do this by requesting a ruling from the IRS.
Mail your request for a ruling, in duplicate, to:
Associate Chief Counsel (International)
Internal Revenue Service
Attn: CC:PA:LPD:DRU
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044
Because requesting a ruling can be complex, you may need professional help. Also, the
IRS charges a fee for issuing these rulings. For
more information, see Revenue Procedure
2014-1.
In deciding whether to give approval, the
IRS will consider any facts and circumstances
that may be relevant. These may include a period of residence in the United States, a move
from one foreign country to another foreign
country with different tax rates, a substantial
change in the tax laws of the foreign country of
residence or physical presence, and a change
of employer.
Foreign Housing
Exclusion and
Deduction
In addition to the foreign earned income exclusion, you also can claim an exclusion or a deduction from gross income for your housing
amount if your tax home is in a foreign country
and you qualify for the exclusions and deduction under either the bona fide residence test or
the physical presence test.
The housing exclusion applies only to
amounts considered paid for with employer-provided amounts. The housing deduction applies only to amounts paid for with
self-employment earnings.
If you are married and you and your spouse
each qualifies under one of the tests, see Mar
ried Couples, later.
Housing Amount
Your housing amount is the total of your housing expenses for the year minus the base housing amount.
Base housing amount. The computation of
the base housing amount (line 32 of Form
2555) 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 your qualifying period that fall within your tax year.
For 2014, the maximum foreign earned income exclusion is $99,200 per year; 16% of this
amount is $15,872, or $43.48 per day. To figure
your base housing amount if you are a calendar-year taxpayer, multiply $43.48 by the
number of your qualifying days during 2014.
Chapter 4
Page 21
Chapter 4
is excluded under the rules explained earlier at Exclusion of Meals and Lodging,
Amounts paid to you by your employer as
part of a tax equalization plan, and
Amounts paid to you or a third party by
your employer for the education of your dependents.
Choosing the exclusion. You can choose the
housing exclusion by completing the appropriate parts of Form 2555. You cannot use Form
2555-EZ to claim the housing exclusion. Otherwise, the rules about choosing the exclusion
under Foreign Earned Income Exclusion also
apply to the foreign housing exclusion.
Your housing exclusion is the lesser of:
That part of your housing amount paid for
with employer-provided amounts, or
Your foreign earned income.
If you choose the housing exclusion, you must
figure it before figuring your foreign earned income exclusion. You cannot claim less than the
full amount of the housing exclusion to which
you are entitled.
Figuring tax on income not excluded. If
you claim the housing exclusion, the foreign
earned income exclusion (discussed earlier), or
both, you must figure the tax on your nonexcluded income using the tax rates that would have
applied had you not claimed the exclusions.
See the instructions for Form 1040 and complete the Foreign Earned Income Tax Work
sheet to figure the amount of tax to enter on
Form 1040, line 44. If you must attach Form
6251 to your return, use the Foreign Earned In
come Tax Worksheet provided in the instructions for Form 6251.
Foreign tax credit or deduction. Once you
choose to exclude foreign housing amounts,
you cannot take a foreign tax credit or deduction for taxes on income you can exclude. If you
do take a credit or deduction for any of those
taxes, your choice to exclude housing amounts
may be considered revoked. See Publication
514 for more information.
Earned income credit. If you claim the foreign
housing exclusion, you will not qualify for the
earned income credit for the year.
Limit
Your housing deduction cannot be more than
your foreign earned income minus the total of:
Your foreign earned income exclusion,
plus
Your housing exclusion.
Carryover. You can carry over to the next year
any part of your housing deduction that is not allowed because of the limit. You are allowed to
carry over your excess housing deduction to the
next year only. If you cannot deduct it in the
next 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.
Married Couples
If both you and your spouse qualify for the foreign housing exclusion or the foreign housing
deduction, how you figure the benefits depends
on whether you maintain separate households.
Separate Households
If you and your spouse live apart and maintain
separate households, you both may be able to
claim the foreign housing exclusion or the foreign housing deduction. You both can claim the
exclusion or the deduction if both of the following conditions are met.
You and your spouse have different tax
homes that are not within reasonable commuting distance of each other.
Neither spouse's residence is within reasonable commuting distance of the other
spouse's tax home.
Housing exclusion. Each spouse claiming a
housing exclusion must figure separately the
One Household
If you and your spouse lived in the same foreign
household and file a joint return, you must figure
your housing amounts jointly. If you file separate returns, only one spouse can claim the
housing exclusion or deduction.
In figuring your housing amount jointly, you
can combine your housing expenses and figure
one base housing amount. Either spouse (but
not both) can claim the housing exclusion or
housing deduction. However, if you and your
spouse have different periods of residence or
presence and the one with the shorter period of
residence or presence claims the exclusion or
deduction, you can claim as housing expenses
only the expenses for that shorter period.
Example. Tom and Jane live together and
file a joint return. Tom was a bona fide resident
of and had his tax home in Ghana from August
17, 2014, through December 31, 2015. Jane
was a bona fide resident of and had her tax
home in Ghana from September 15, 2014,
through December 31, 2015.
During 2014, Tom received $75,000 of foreign earned income and Jane received $50,000
of foreign earned income. Tom paid $10,000 for
housing expenses, of which $7,500 was for expenses incurred from September 15 through
the end of the year. Jane paid $3,000 for housing expenses in 2014, all of which were incurred
during her period of residence in Ghana.
Tom and Jane figure their housing amount
jointly. If Tom claims the housing exclusion,
their housing expenses would be $13,000 and
their base housing amount, using Tom's 2014
period of residence (Aug. 17 Dec. 31, 2014),
would be $5,957 ($43.48 137 days). Tom's
housing amount would be $7,043 ($13,000
$5,957). If, instead, Jane claims the housing exclusion, their housing expenses would be limited to $10,500 ($7,500 + $3,000) and their base
housing amount, using Jane's period of residence (Sept. 15 Dec. 31, 2014), would be
$4,696 ($43.48 108 days). Jane's housing
amount would be $5,804 ($10,500 $4,696).
Form 2555-EZ
Form 2555-EZ has fewer lines than Form 2555.
You can use this form if all seven of the following apply.
You are a U.S. citizen or a resident alien.
Your total foreign earned income for the
year is $99,200 or less.
You have earned wages/salaries in a foreign country.
You are filing a calendar year return that
covers a 12-month period.
You did not have any self-employment income for the year.
You did not have any business or moving
expenses for the year.
You are not claiming the foreign housing
exclusion or deduction.
Form 2555
If you claim exclusion under the bona fide residence test, you should fill out Parts I, II, IV, and
V of Form 2555. In filling out Part II, be sure to
give your visa type and the period of your bona
fide residence. Frequently, these items are
overlooked.
If you claim exclusion under the physical
presence test, you should fill out Parts I, III, IV,
and V of Form 2555. When filling out Part III, be
sure to insert the beginning and ending dates of
your 12-month period and the dates of your arrivals and departures, as requested in the travel
schedule.
You must fill out Part VI if you are claiming a
foreign housing exclusion or deduction.
Fill out Part IX if you are claiming the foreign
housing deduction.
If you are claiming the foreign earned income exclusion, fill out Part VII.
Finally, if you are claiming the foreign
earned income exclusion, the foreign housing
exclusion, or both, fill out Part VIII.
If you and your spouse both qualify to claim
the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing
deduction, you and your spouse must file separate Forms 2555 to claim these benefits. See
the discussion earlier under Separate House
holds.
5.
Exemptions,
Deductions, and
Credits
Topics
Useful Items
Page 23
Items Related to
Excluded Income
U.S. citizens and resident aliens living outside
the United States generally are allowed the
same deductions as citizens and residents living in the United States.
If you choose to exclude foreign earned income or housing amounts, you cannot deduct,
exclude, or claim a credit for any item that can
be allocated to or charged against the excluded
amounts. This includes any expenses, losses,
and other normally deductible items that are allocable to the excluded income. You can deduct only those expenses connected with earning includible income.
These rules apply only to items definitely related to the excluded earned income and they
do not apply to other items that are not definitely related to any particular type of gross income. These rules do not apply to items such
as:
Personal exemptions,
Qualified retirement contributions,
Alimony payments,
Charitable contributions,
Medical expenses,
Mortgage interest, or
Real estate taxes on your personal residence.
For purposes of these rules, your housing
deduction is not treated as allocable to your excluded income, but the deduction for selfemployment tax is.
If you receive foreign earned income in a tax
year after the year in which you earned it, you
may have to file an amended return for the earlier year to properly adjust the amounts of deductions, credits, or exclusions allocable to your
foreign earned income and housing exclusions.
Example. In 2013, you had $90,400 of foreign earned income and $9,500 of deductions
allocable to your foreign earned income. You
did not have a housing exclusion. Because you
excluded all of your foreign earned income, you
would not have been able to claim any of the
deductions on your 2013 return.
In 2014, you received a $13,500 bonus for
work you did abroad in 2013. You can exclude
$7,200 of the bonus because the limit on the
foreign earned income exclusion for 2013 was
$97,600 and you have already excluded
$90,400. Since you must include $6,300 of the
bonus ($13,500 $7,200) for work you did in
2013 in income, you can file an amended return
for 2013 to claim $576 of the deductions. This is
the deductions allocable to the foreign earned
income ($9,500) multiplied by the includible
portion of the foreign earned income ($6,300)
and divided by the total foreign earned income
for 2013 ($103,900).
Page 24
Chapter 5
Exemptions
You can claim an exemption for your nonresident alien spouse on your separate return, provided your spouse has no gross income for U.S.
tax purposes and is not the dependent of another U.S. taxpayer.
You also can claim exemptions for individuals who qualify as your dependents. To be your
dependent, the individual must be a U.S. citizen, U.S. national, U.S. resident alien, or a resident of Canada or Mexico for some part of the
calendar year in which your tax year begins.
Children. Children usually are citizens or residents of the same country as their parents. If
you were a U.S. citizen when your child was
born, your child generally is a U.S. citizen. This
is true even if the child's other parent is a nonresident alien, the child was born in a foreign
country, and the child lives abroad with the
other parent.
If you have a legally adopted child who is
not a U.S. citizen, U.S. resident, or U.S. national, the child meets the citizen requirement if
you are a U.S. citizen or U.S. national and the
child lived with you as a member of your household all year.
Social security number. You must include on
your return the social security number (SSN) of
each dependent for whom you claim an exemption. To get a social security number for a dependent, apply at a Social Security office or
U.S. consulate. You must provide original or
certified copies of documents to verify the dependent's age, identity, and citizenship, and
complete Form SS-5.
If you do not have an SSN for a child who
was born in 2014 and died in 2014, attach a
copy of the child's birth certificate to your tax return. Print Died in column (2) of line 6c of your
Form 1040 or Form 1040A.
If your dependent is a nonresident alien who
is not eligible to get a social security number,
you must list the dependent's individual taxpayer identification number (ITIN) instead of an
SSN. To apply for an ITIN, file Form W-7 with
the IRS. It usually takes 6 to 10 weeks to get an
ITIN. Enter your dependent's ITIN wherever an
SSN is requested on your tax return.
More information. For more information about
exemptions, see Publication 501.
Contributions to Foreign
Charitable Organizations
If you make contributions directly to a foreign
church or other foreign charitable organization,
you generally cannot deduct them. Exceptions
are explained under Canadian, Mexican, and
Israeli charities, later.
You can deduct contributions to a U.S. organization that transfers funds to a charitable
foreign organization if the U.S. organization
controls the use of the funds by the foreign organization or if the foreign organization is just
an administrative arm of the U.S. organization.
Moving Expenses
If you moved to a new home in 2013 because of
your job or business, you may be able to deduct
the expenses of your move. Generally, to be
deductible, the moving expenses must have
been paid or incurred in connection with starting
work at a new job location. See Publication 521
for a complete discussion of the deduction for
moving expenses and information about moves
within the United States.
Foreign moves. A foreign move is a move in
connection with the start of work at a new job location outside the United States and its possessions. A foreign move does not include a move
back to the United States or its possessions.
Allocation of
Moving Expenses
When your new place of work is in a foreign
country, your moving expenses are directly connected with the income earned in that foreign
country. If you exclude all or part of the income
that you earn at the new location under the foreign earned income exclusion or the foreign
housing exclusion, you cannot deduct the part
of your moving expense that is allocable to the
excluded income.
Also, you cannot deduct the part of the moving expense related to the excluded income for
a move from a foreign country to the United
States if you receive a reimbursement that you
are able to treat as compensation for services
performed in the foreign country.
Year to which expense is connected. The
moving expense is connected with earning the
income (including reimbursements, as discussed in chapter 4 under Reimbursement of
moving expenses) either entirely in the year of
the move or in 2 years. It is connected with
earning the income entirely in the year of the
move if you qualify for the foreign earned income exclusion under the bona fide residence
test or physical presence test for at least 120
days during that tax year.
If you do not qualify under either the bona
fide residence test or the physical presence test
for at least 120 days during the year of the
move, the expense is connected with earning
the income in 2 years. The moving expense is
connected with the year of the move and the
following year if the move is from the United
States to a foreign country. The moving expense is connected with the year of the move
and the preceding year if the move is from a foreign country to the United States.
which you incur the storage expenses. You cannot deduct the amount allocable to excluded income.
Forms To File
Report your moving expenses on Form 3903.
Report your moving expense deduction on
line 26 of Form 1040. If you must reduce your
moving expenses by the amount allocable to
excluded income (as explained later under How
To Report Deductions), attach a statement to
your return showing how you figured this
amount.
For more information about figuring moving
expenses, see Publication 521.
Contributions to
Individual Retirement
Arrangements
Contributions to your individual retirement arrangements (IRAs) that are traditional IRAs or
Roth IRAs are generally limited to the lesser of
$5,500 ($6,500 if 50 or older) or your compensation that is includible in your gross income for
the tax year. In determining compensation for
this purpose, do not take into account amounts
you exclude under either the foreign earned income exclusion or the foreign housing exclusion. Do not reduce your compensation by the
foreign housing deduction.
Chapter 5
If you are covered by an employer retirement plan at work, your deduction for your contributions to your traditional IRAs is generally
limited based on your modified adjusted gross
income. This is your adjusted gross income figured without taking into account the foreign
earned income exclusion, the foreign housing
exclusion, or the foreign housing deduction.
Other modifications are also required. For more
information on IRAs, see Publication 590.
Taxes of Foreign
Countries and
U.S. Possessions
You can take either a credit or a deduction for
income taxes paid to a foreign country or a U.S.
possession. Taken as a deduction, foreign income taxes reduce your taxable income. Taken
as a credit, foreign income taxes reduce your
tax liability. You must treat all foreign income
taxes the same way. If you take a credit for any
foreign income taxes, you cannot deduct any
foreign income taxes. However, you may be
able to deduct other foreign taxes. See Deduc
tion for Other Foreign Taxes, later.
There is no rule to determine whether it is to
your advantage to take a deduction or a credit
for foreign income taxes. In most cases, it is to
your advantage to take foreign income taxes as
a tax credit, which you subtract directly from
your U.S. tax liability, rather than as a deduction
in figuring taxable income. However, if foreign
income taxes were imposed at a high rate and
the proportion of foreign income to U.S. income
is small, a lower final tax may result from deducting the foreign income taxes. In any event,
you should figure your tax liability both ways
and then use the one that is better for you.
You can make or change your choice within
10 years from the due date for filing the tax return on which you are entitled to take either the
deduction or the credit.
Foreign income taxes. These are generally
income taxes you pay to any foreign country or
possession of the United States.
Foreign income taxes on U.S. return. Foreign income taxes can only be taken as a credit
on Form 1040, line 48, or as an itemized deduction on Schedule A. These amounts cannot be
included as withheld income taxes on Form
1040, line 64.
Foreign taxes paid on excluded income.
You cannot take a credit or deduction for foreign income taxes paid on earnings you exclude from tax under any of the following.
Foreign earned income exclusion.
Foreign housing exclusion.
Possession exclusion.
If your wages are completely excluded, you
cannot deduct or take a credit for any of the foreign taxes paid on your wages.
If only part of your wages is excluded, you
cannot deduct or take a credit for the foreign income taxes allocable to the excluded part. You
find the taxes allocable to your excluded wages
Page 25
Limit
The foreign tax credit is limited to the part of
your total U.S. tax that is in proportion to your
taxable income from sources outside the United
States compared to your total taxable income.
The allowable foreign tax credit cannot be more
than your actual foreign tax liability.
Page 26
Chapter 5
Deduction for
Foreign Income Taxes
Instead of taking the foreign tax credit, you can
deduct foreign income taxes as an itemized deduction on Schedule A (Form 1040).
You can deduct only foreign income taxes
paid on income that is subject to U.S. tax. You
cannot deduct foreign taxes paid on earnings
you exclude from tax under any of the following.
Foreign earned income exclusion.
Foreign housing exclusion.
Possession exclusion.
Example. You are a U.S. citizen and qualify
to exclude your foreign earned income. Your
excluded wages in Country X are $70,000 on
which you paid income tax of $10,000. You received dividends from Country X of $2,000 on
which you paid income tax of $600.
You can deduct the $600 tax payment because the dividends relating to it are subject to
U.S. tax. Because you exclude your wages, you
cannot deduct the income tax of $10,000.
If you exclude only a part of your wages, see
the earlier discussion under Foreign taxes paid
on excluded income.
Deduction for
Other Foreign Taxes
You can deduct real property taxes you pay that
are imposed on you by a foreign country. You
take this deduction on Schedule A (Form 1040).
You cannot deduct other foreign taxes, such as
personal property taxes, unless you incurred
the expenses in a trade or business or in the
production of income.
On the other hand, you generally can deduct
personal property taxes when you pay them to
U.S. possessions. But if you claim the possession exclusion, see Publication 570.
The deduction for foreign taxes other than
foreign income taxes is not related to the foreign tax credit. You can take deductions for
these miscellaneous foreign taxes and also
claim the foreign tax credit for income taxes imposed by a foreign country.
How To Report
Deductions
If you exclude foreign earned income or housing amounts, how you show your deductions on
your tax return and how you figure the amount
allocable to your excluded income depends on
whether the expenses are used in figuring adjusted gross income (Form 1040, line 38) or are
itemized deductions.
If you have deductions used in figuring adjusted gross income, enter the total amount for
each of these items on the appropriate lines
and schedules of Form 1040. Generally, you
figure the amount of a deduction related to the
excluded income by multiplying the deduction
by a fraction, the numerator of which is your foreign earned income exclusion and the denominator of which is your foreign earned income.
Enter the amount of the deduction(s) related to
excluded income on line 44 of Form 2555.
If you have itemized deductions related to
excluded income, enter on Schedule A (Form
1040) only the part not related to excluded income. You figure that amount by subtracting
from the total deduction the amount related to
excluded income. Generally, you figure the
amount that is related to the excluded income
by multiplying the total deduction by a fraction,
the numerator of which is your foreign earned
income exclusion and the denominator of which
is your foreign earned income. Attach a statement to your return showing how you figured
the deductible amount.
Example 1. You are a U.S. citizen employed as an accountant. Your tax home is in
Germany for the entire tax year. You meet the
physical presence test. Your foreign earned income for the year was $124,000 and your investment income was $8,890. After excluding
$99,200, your AGI is $33,690.
You had unreimbursed business expenses
of $2,500 for travel and entertainment in earning your foreign income, of which $500 was for
meals and entertainment. These expenses are
deductible only as miscellaneous deductions on
Schedule A (Form 1040). You also have $500
of miscellaneous expenses that are not related
to your foreign income that you enter on line 23
of Schedule A.
You must fill out Form 2106. On that form,
reduce your deductible meal and entertainment
expenses by 50% ($250). You must reduce the
remaining $2,250 of travel and entertainment
expenses by 80% ($1,800) because you excluded 80% ($99,200/$124,000) of your foreign
earned income. You carry the remaining total of
$450 to line 21 of Schedule A. Add the $450 to
the $500 that you have on line 23 and enter the
total ($950) on line 24.
On line 26 of Schedule A, enter $674, which
is 2% of your adjusted gross income of $33,690
(line 38, Form 1040) and subtract it from the
amount on line 24.
Enter $276 on line 27 of Schedule A.
Example 2. You are a U.S. citizen, have a
tax home in Spain, and meet the physical presence test. You are self-employed and personal
services produce the business income. Your
gross income was $118,531, business expenses $67,695, and net income (profit) $50,836.
You choose the foreign earned income exclusion and exclude $99,200 of your gross income.
Since your excluded income is 83.69% of your
total income, 83.69% of your business expenses are not deductible. Report your total income
TIP
TIP
6.
Tax Treaty
Benefits
Topics
Useful Items
Purpose of
Tax Treaties
The United States has tax treaties or conventions with many countries. See Table 6-1 at the
end of this chapter for a list of these countries.
Under these treaties and conventions, citizens and residents of the United States who are
subject to taxes imposed by the foreign countries are entitled to certain credits, deductions,
exemptions, and reductions in the rate of taxes
of those foreign countries. If a foreign country
Chapter 6
Page 27
with which the United States has a treaty imposes a tax on you, you may be entitled to
benefits under the treaty.
Treaty benefits generally are available to
residents of the United States. They generally
are not available to U.S. citizens who do not reside in the United States. However, certain
treaty benefits and safeguards, such as the
nondiscrimination provisions, are available to
U.S. citizens residing in the treaty countries.
U.S. citizens residing in a foreign country also
may be entitled to benefits under that country's
tax treaties with third countries.
Certification of U.S. residency. Use Form
8802, Application for United States Residency
Certification, to request certification of U.S. residency for purposes of claiming benefits under a
tax treaty. Certification can be requested for the
current and any prior calendar years.
You should examine the specific treaty
articles to find if you are entitled to a
tax credit, tax exemption, reduced rate
of tax, or other treaty benefit or safeguard.
TIP
Common Benefits
Some common tax treaty benefits are explained
below. The credits, deductions, exemptions, reductions in rate, and other benefits provided by
tax treaties are subject to conditions and various restrictions. Benefits provided by certain
treaties are not provided by others.
Personal service income. If you are a U.S.
resident who is in a treaty country for a limited
number of days in the tax year and you meet
certain other requirements, the payment you receive for personal services performed in that
country may be exempt from that country's income tax.
Professors and teachers. If you are a U.S.
resident, the payment you receive for the first 2
or 3 years that you are teaching or doing research in a treaty country may be exempt from
that country's income tax.
Students, trainees, and apprentices. If
you are a U.S. resident, amounts you receive
from the United States for study, research, or
business, professional and technical training
may be exempt from a treaty country's income
tax.
Some treaties exempt grants, allowances,
and awards received from governmental and
certain nonprofit organizations. Also, under certain circumstances, a limited amount of pay received by students, trainees, and apprentices
may be exempt from the income tax of many
treaty countries.
Pensions and annuities. If you are a U.S.
resident, nongovernment pensions and annuities you receive may be exempt from the income tax of treaty countries.
Most treaties contain separate provisions for
exempting government pensions and annuities
from treaty country income tax, and some treaties provide exemption from the treaty country's
income tax for social security payments.
Page 28
Chapter 6
Investment income. If you are a U.S. resident, investment income, such as interest and
dividends, that you receive from sources in a
treaty country may be exempt from that country's income tax or taxed at a reduced rate.
Several treaties provide exemption for capital gains (other than from sales of real property
in most cases) if specified requirements are
met.
Tax credit provisions. If you are a U.S.
resident who receives income from or owns
capital in a foreign country, you may be taxed
on that income or capital by both the United
States and the treaty country.
Most treaties allow you to take a credit
against or deduction from the treaty country's
taxes based on the U.S. tax on the income.
Nondiscrimination provisions. Most U.S.
tax treaties provide that the treaty country cannot discriminate by imposing more burdensome
taxes on U.S. citizens who are residents of the
treaty country than it imposes on its own citizens in the same circumstances.
Saving clauses. U.S. treaties contain saving clauses that provide that the treaties do not
affect the U.S. taxation of its own citizens and
residents. As a result, U.S. citizens and residents generally cannot use the treaty to reduce
their U.S. tax liability.
However, most treaties provide exceptions
to saving clauses that allow certain provisions
of the treaty to be claimed by U.S. citizens or
residents. It is important that you examine the
applicable saving clause to determine if an exception applies.
More information on treaties. Publication
901 contains an explanation of treaty provisions
that apply to amounts received by teachers,
students, workers, and government employees
and pensioners who are alien nonresidents or
residents of the United States. Since treaty provisions generally are reciprocal, you usually can
substitute United States for the name of the
treaty country whenever it appears, and vice
versa when U.S. appears in the treaty exemption discussions in Publication 901.
Publication 597 contains an explanation of a
number of frequently-used provisions of the
United StatesCanada income tax treaty.
Competent
Authority Assistance
If you are a U.S. citizen or resident alien, you
can request assistance from the U.S. competent authority if you think that the actions of the
United States, a treaty country, or both, cause
or will cause a tax situation not intended by the
treaty between the two countries. You should
read any treaty articles, including the mutual
agreement procedure article, that apply in your
situation.
The U.S. competent authority cannot consider requests involving countries with which
the United States does not have a tax treaty.
Effect of request for assistance. If your request provides a basis for competent authority
assistance, the U.S. competent authority generally will consult with the treaty country competent authority on how to resolve the situation.
How to make your request. It is important
that you make your request for competent authority consideration as soon as either of the following occurs.
You are denied treaty benefits.
Actions taken by the United States or the
foreign country result in double taxation or
will result in taxation not intended by the
treaty.
In addition to making a request for assistance, you should take steps so that any agreement reached by the competent authorities is
not barred by administrative, legal, or procedural barriers. Some of the steps you should
consider taking include the following.
Filing a protective claim for credit or refund
of U.S. taxes.
Delaying the expiration of any period of
limitations on the making of a refund or
other tax adjustment.
Avoiding the lapse or termination of your
right to appeal any tax determination.
Complying with all applicable procedures
for invoking competent authority consideration.
Contesting an adjustment or seeking an
appropriate correlative adjustment with respect to the U.S. or treaty country tax.
Taxpayers can consult with the U.S. competent
authority to determine whether they need to
take protective steps and when any required
steps need to be taken.
The request should contain all essential
items of information, including the following
items.
A reference to the treaty and the treaty provisions on which the request is based.
The years and amounts involved in both
U.S. dollars and foreign currency.
A brief description of the issues for which
competent authority assistance is requested.
A complete listing of the information that
must be included with the request can be found
in Revenue Procedure 2006-54, or its successor. Revenue Procedure 2006-54 is available at
www.irs.gov/irb/200649_IRB/ar13.html.
Also, see Notice 2013-78, which provides
proposed updates to the procedures for requesting U.S. competent authority assistance
under tax treaties. As noted, Revenue Procedure 2006-54 will be superseded by a revenue
procedure to be published in the future.
Your request for competent authority
consideration should be addressed to:
Deputy Commissioner (International)
Large Business and International Division
Internal Revenue Service
1111 Constitution Avenue, NW
Routing M4-365
Washington, DC 20224
Attn: TAIT
Additional filing. In the case of U.S.- initiated adjustments, you also must file a copy of
the request with the IRS office where your case
is pending. If the request is filed after the matter
has been designated for litigation or while a suit
contesting your relevant tax liability is pending
in a United States court, a copy of the request,
with a separate statement attached identifying
the court where the suit is pending and the
docket number of the action, also must be filed
with the:
Office of Associate Chief Counsel
(International)
Internal Revenue Service
1111 Constitution Avenue, NW
Washington, DC 20224
Additional details on the procedures for requesting competent authority assistance are included in Revenue Procedure 2006-54, or its
successor.
Obtaining Copies
of Tax Treaties
Table 61. List of Tax Treaties (Updated through October 31, 2014)
Country
Australia
Protocol
Austria
Bangladesh
Barbados
Protocol
Protocol
Belgium
Bulgaria
Canada1
Protocol
Protocol
Protocol
China, People's Republic of
Commonwealth of Independent States2
Cyprus
Czech Republic
Denmark
Protocol
Egypt
Estonia
Finland
Protocol
France
Protocol
Protocol
Germany
Protocol
Greece
Hungary
Iceland
India
Indonesia
Ireland
Israel
Italy
Jamaica
Japan
1
2
General
Effective Date
Dec. 1, 1983
Jan. 1, 2004
Jan. 1, 1999
Jan. 1, 2007
Jan. 1, 1984
Jan. 1, 1994
Jan. 1, 2005
Jan. 1, 2008
Jan. 1, 2009
Jan. 1, 1985
Jan. 1, 1996
Dec.16, 1997
Jan. 1, 2009
Jan. 1, 1987
Jan. 1, 1976
Jan. 1, 1986
Jan. 1, 1993
Jan. 1, 2001
Jan. 1, 2008
Jan. 1, 1982
Jan. 1, 2000
Jan. 1, 1991
Jan. 1, 2008
Jan. 1, 1996
Jan. 1, 2007
Jan. 1, 2009
Jan. 1, 1990
Jan. 1, 2008
Jan. 1, 1953
Jan. 1, 1980
Jan. 1, 2009
Jan. 1, 1991
Jan. 1, 1990
Jan. 1, 1998
Jan. 1, 1995
Jan. 1, 2010
Jan. 1, 1982
Jan. 1, 2005
General
Effective Date
Country
Kazakhstan
Korea, South
Latvia
Lithuania
Luxembourg
Malta
Mexico
Protocol
Protocol
Morocco
Netherlands
Protocol
New Zealand
Protocol
Norway
Protocol
Pakistan
Philippines
Poland
Portugal
Romania
Russia
Slovak Republic
Slovenia
South Africa
Spain
Sri Lanka
Sweden
Protocol
Switzerland
Thailand
Trinidad and Tobago
Tunisia
Turkey
Ukraine
United Kingdom
Venezuela
Jan. 1, 1996
Jan. 1, 1980
Jan. 1, 2000
Jan. 1, 2000
Jan. 1, 2001
Jan. 1, 2011
Jan. 1, 1994
Oct. 26,1995
Jan. 1, 2004
Jan. 1, 1981
Jan. 1, 1994
Jan. 1, 2005
Nov. 2, 1983
Jan. 1, 2011
Jan. 1, 1971
Jan. 1, 1982
Jan. 1, 1959
Jan. 1, 1983
Jan. 1, 1974
Jan. 1, 1996
Jan. 1, 1974
Jan. 1, 1994
Jan. 1, 1993
Jan. 1, 2002
Jan. 1, 1998
Jan. 1, 1991
Jan. 1, 2004
Jan. 1, 1996
Jan. 1, 2007
Jan. 1, 1998
Jan. 1, 1998
Jan. 1, 1970
Jan. 1, 1990
Jan. 1, 1998
Jan. 1, 2001
Jan. 1, 2004
Jan. 1, 2000
Information on the treaty can be found in Publication 597, Information on the United StatesCanada Income Tax Treaty.
The U.S.-U.S.S.R. income tax treaty applies to the countries of Armenia, Azerbaijan, Belarus, Georgia, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, and Uzbekistan.
Chapter 6
Page 29
7.
How To Get Tax
Help
Assistance for overseas taxpayers is available
in the U.S and certain foreign locations.
Taxpayer Assistance
Inside the United States
Do you need help with a tax issue or preparing
your tax return, or do you need a free publication or form?
Preparing and filing your tax return. Find
free options to prepare and file your return on
IRS.gov or in your local community if you qualify.
Go to IRS.gov and click on the Filing tab to
see your options.
Enter Free File in the search box to use
brand name software to prepare and efile
your federal tax return for free.
Enter VITA in the search box, download
the free IRS2Go app, or call
1-800-906-9887 to find the nearest Volunteer Income Tax Assistance or Tax Counseling for the Elderly (TCE) location for free
tax preparation.
Enter TCE in the search box, download
the free IRS2Go app, or call
1-888-227-7669 to find the nearest Tax
Counseling for the Elderly location for free
tax preparation.
The Volunteer Income Tax Assistance
(VITA) program offers free tax help to people
who generally make $53,000 or less, persons
with disabilities, the elderly, and limited-English-speaking taxpayers who need help preparing their own tax returns. The Tax Counseling
for the Elderly (TCE) program offers free tax
help for all taxpayers, particularly those who are
60 years of age and older. TCE volunteers specialize in answering questions about pensions
and retirement-related issues unique to seniors.
Getting answers to your tax law questions.
IRS.gov and IRS2Go are ready when you
are24 hours a day, 7 days a week.
Enter ITA in the search box on IRS.gov
for the Interactive Tax Assistant, a tool that
will ask you questions on a number of tax
law topics and provide answers. You can
print the entire interview and the final response.
Enter Tax Map or Tax Trails in the
search box for detailed information by tax
topic.
Enter Pub 17 in the search box to get
Pub. 17, Your Federal Income Tax for Individuals, which features details on tax-saving opportunities, 2014 tax changes, and
thousands of interactive links to help you
find answers to your questions.
Page 30
Chapter 7
d. Korean.
e. Russian.
2. The IRS Taxpayer Assistance Centers
provide over-the-phone interpreter service
in over 170 languages, and the service is
available free to taxpayers.
The Taxpayer Advocate Service (TAS) is an independent organization within the Internal
Revenue Service that helps taxpayers and protects taxpayer rights. Our job is to ensure that
every taxpayer is treated fairly and that you
know and understand your rights under the
Taxpayer Bill of Rights.
the
IRS.
Our
Tax
Toolkit
at
taxpayeradvocate.irs.gov can help you understand what these rights mean to you and how
they apply. These are your rights. Know them.
Use them.
Taxpayer Assistance
Outside the United
States
toll free.
Chapter 7
Page 31
Page 32
File the late returns as soon as possible, stating your reason for filing
late. For advice on filing the returns,
you should contact an
Internal Revenue Service representative in one of the four overseas offices listed in chapter 7.
Publication 54 (2014)
Because you did not break your period of foreign residence, you would
continue to be a bona fide resident 1) I am an employee of the U.S.
Government working abroad.
of a foreign country for 2014.
Can all or part of my government
5) Due to illness, I returned to income earned abroad qualify for
the United States before I com- the foreign earned income exclupleted my qualifying period to sion?
claim the foreign earned income
exclusion. Can I figure the exclu- No. The foreign earned income exsion for the period I resided clusion applies to your foreign
earned income. Amounts paid by
abroad?
the United States or its agencies to
No. You are not entitled to any ex- their employees are not treated, for
clusion of foreign earned income this purpose, as foreign earned insince you did not complete your come.
Page 33
Not necessarily. Although you qualify for the foreign earned income exclusion, you may not have met either the bona fide residence test or
the physical presence test for your
entire tax year. If you did not meet
either of these tests for your entire
tax year, you must prorate the maximum exclusion based on the numYou must include in income the fair ber of days that you did meet either
market value (FMV) of the facility test during the year.
provided, where it is provided. This
will usually be the rent your em- 2) How do I qualify for the forployer pays. Situations when the eign earned income exclusion?
FMV is not included in income are
discussed in chapter 4 under Exclu To be eligible, you must have a tax
home in a foreign country and be a
sion of Meals and Lodging.
U.S. citizen or resident alien. You
5) My U.S. employer pays my sal- must be either a bona fide resident
ary into my U.S. bank account. Is of a foreign country or countries for
this income considered earned an uninterrupted period that inin the United States or is it con- cludes an entire tax year, or you
sidered foreign earned income? must be physically present in a foreign country or countries for at least
If you performed the services to 330 full days during any period of 12
earn this salary outside the United consecutive months. U.S. citizens
States, your salary is considered may qualify under either test. The
earned abroad. It does not matter physical presence test applies to all
that you are paid by a U.S. em- resident aliens, while the bona fide
ployer or that your salary is depos- residence test applies to resident
ited in a U.S. bank account in the aliens who are citizens or nationals
United States. The source of salary, of a country with which the United
wages, commissions, and other per- States has an income tax treaty in
sonal service income is the place effect.
where you perform the services.
Your tax home must be in the
foreign country or countries through6) What is considered a foreign out your period of residence or prescountry?
ence. For this purpose, your period
of physical presence is the 330 full
For the purposes of the foreign days during which you are present
earned income exclusion and the in a foreign country, not the 12 conforeign housing exclusion or deduc- secutive months during which those
tion, any territory under the sover- days occur.
eignty of a country other than the
United States is a foreign country. 3) Is it true that my foreign
Possessions of the United States earned income exclusion cannot
are not treated as foreign countries. exceed my foreign earned income?
7) What is the source of earned
income?
Yes. The amount of the exclusion is
limited each year to the amount of
The source of earned income is the your foreign earned income after replace where the work or personal ducing that income by the foreign
services that produce the income housing exclusion. The foreign
are performed. In other words, in- earned income must be earned durcome received for work in a foreign ing the part of the tax year that you
country has its source in that coun- have your tax home abroad and
try. The foreign earned income ex- meet either the bona fide residence
clusion and the foreign housing ex- test or the physical presence test.
clusion or deduction are limited to
earned income from sources within 4) My wife and I are both employed, reside together, and file
foreign countries.
a joint return. We meet the qualifications for claiming the foreign
Foreign Earned
earned income exclusion. Do we
Income Exclusion
each figure a separate foreign
earned income exclusion and
1) I qualify for the foreign earned foreign housing exclusion?
income exclusion and earned
more than $99,200 during 2014.
Am I entitled to the maximum You figure your foreign earned income exclusion separately since
$99,200 exclusion?
you both have foreign earned income. The amount of the exclusion
Page 34
You must figure your housing exclusion jointly. See Married Couples
1) Are U.S. social security benein chapter 4 for further details.
fits taxable?
Exemptions and
Dependency Allowances
1) I am a U.S. citizen married to a
nonresident alien who has no income from U.S. sources. Can I
claim an exemption for my
spouse on my U.S. tax return?
Yes. If you file a joint return, you can
claim an exemption for your nonresident alien spouse. If you do not file
a joint return, you can claim an exemption for your nonresident alien
spouse only if your spouse has no
income from sources within the United States and is not the dependent
of another U.S. taxpayer.
Publication 54 (2014)
Fellowship Grantees
Yes. You can claim the foreign tax You may be able to deduct your
credit even though you do not item- travel, meals, and lodging expenses
ize deductions.
if you are temporarily absent from
your regular place of employment.
2) I had to pay customs duty on For more information about deducta few things I brought back with ing travel, meals, and lodging exme from Europe last summer. penses, get Publication 463, Travel,
File a statement in duplicate with Can I include customs fees with Entertainment, Gift, and Car Expen- 6) I am a U.S. citizen and, because I expect to qualify for the
your employer stating that withhold- my other deductible taxes?
ses.
foreign earned income excluing should be reduced because you
General Tax Questions
sion, all my foreign income
meet the bona fide residence test or
(which consists solely of salary)
physical presence test. See also the No. Customs duties, like federal excise taxes, are not deductible.
1) Will the Internal Revenue will be exempt from U.S. tax. Do I
following question.
Service representatives at the get any tax benefit from income
2) Does the Internal Revenue 3) What types of foreign taxes Embassies answer questions tax I paid on this salary to a forService provide forms to be used are deductible?
about tax laws of our home state eign country during the tax year?
by employees requesting emand the laws of the foreign counployers to stop withholding in- Generally, real estate and foreign in- try where we reside as well as No. You cannot take either a tax
come tax from wages they ex- come taxes are deductible as item- U.S. federal income tax laws?
credit or a tax deduction for foreign
pect to be excluded as income ized deductions. Foreign income
income taxes paid on income that is
taxes are deductible only if you do No. The IRS representatives are au- exempt from U.S. tax because of
earned abroad?
not claim the foreign tax credit. For- thorized only to answer tax ques- the foreign earned income excluYes. Form 673 is a sample state- eign income taxes paid on excluded tions on U.S. federal income tax. sion.
ment that can be used by individu- income are not deductible as an You should write your home state's
als who expect to qualify for the for- itemized deduction.
tax office for state tax information
eign earned income exclusion under
and contact the tax officials of the
the bona fide residence test or the
country where you reside for information regarding their taxes.
1) How can I get my employer to
stop withholding federal income
taxes from wages while I am
overseas and eligible for the foreign earned income exclusion?
Publication 54 (2014)
Page 35
Page 36
Publication 54 (2014)
Index
To help us develop a more useful index, please let us know if you have ideas for index entries.
See Comments and Suggestions in the Introduction for the ways you can reach us.
Alien:
Resident 2
American Institute in Taiwan,
U.S. employees of 19
American Samoa, possession
exclusion 13
Apprentices, treaty benefits
for 28
Camps, foreign 19
Carryover of housing
deduction 22
Change of address 2
Choosing the exclusion 20
Clergy, self-employment tax
on 11
Community income 20
Competent authority
assistance 28
Contributions:
To foreign charitable
organizations 24
To IRAs 25
Conventions, income tax 27
Credit:
Earned income 21, 22
Foreign tax 8, 25, 26, 28
Related to excluded income 24
Currency:
Foreign 5
Deductions:
Contributions to foreign
charitable organizations 24
Foreign taxes 25, 26, 28, 35
Housing, foreign 22
IRA contributions 25
Moving expenses 24, 25
Related to excluded income 24
Reporting 26, 27
Dependents:
Exemption for 24, 34
Individual taxpayer identification
number (ITIN) 24
Social security number 24
Deposit of foreign currency with
disbursing officer 6
Publication 54 (2014)
Earned income:
Foreign 16, 19, 33
Source of 16
Types of 17, 18
Earned income credit 21, 22
Employer-provided amounts 22
Estimated tax 7
Exclusion:
Foreign earned income 19, 20
Housing 22
Meals and lodging 19
U.S. possessions 13
Exemptions:
Dependents 24, 34
Spouse 24, 34
Extensions:
Filing income tax return 4, 5
Meeting bona fide residence or
physical presence test 4
Fellowships 17
Figuring estimated tax on
nonconvertible foreign
income 5
Figuring U.S. income tax 5
Filing information:
Estimated tax 7
Filing requirements 3
Nonresident spouse treated as
resident 68
Filing requirements:
By filing status 3
Foreign currency 5
When to file and pay 35, 32
Where to file 6, 32
Foreign:
Camps 19
Country, defined 13
Currency 5
Earned income 1619, 33
Household, second 22
Foreign currency, deposit with
disbursing officer 6
Foreign earned income:
Defined 1619
U.S. Government
employees 18, 19
Foreign earned income
exclusion:
Choosing 20
Defined 19
Earned income credit 21
Foreign tax credit 21
Income received after year
earned 19, 20
Limit 19, 20, 34
Maximum exclusion 19, 20
Part-year exclusion 20
Physical presence test,
maximum exclusion 20
Requirements 1219
Revoking choice 21
Foreign housing exclusion:
Earned income credit 22
Foreign tax credit 22
Housing:
Amount 21, 22
Deduction 21, 22
Exclusion 21, 22
Expenses 21
Income:
Apprentices, treaty benefits
for 28
Artist 17
Blocked 5
Community 20
Corporation 17
Earned 1619, 33
Employer's property or facilities,
use of 17
Investment, treaty benefits
for 28
Partnership 17
Pensions and annuities 17, 28
Limit on:
Foreign housing deduction 22
Housing expenses 21
Income exclusion 19, 20
Lodging, exclusion of 19
Married couples 22
Meals and lodging, exclusion
of 19
Moving:
Allocating expenses 24
Deducting expenses 24, 25
Reimbursement of expenses 18
Nonresident spouse:
Social security number 7
Treated as resident 68
Northern Mariana Islands:
Possession exclusion 13
Residents of 6
Where to file 6
Part-year exclusion 20
Pay for personal services 16, 28
Paying U.S. tax in foreign
currency 5
Payment of tax 3
Penalties and interest 36
Pensions and annuities:
Income from 17, 28
Withholding from 8
Physical presence test:
12-month period 15
Page 37
Defined 15
Maximum exclusion 20
Meeting the requirements 33
Waiver of time requirements 16
Professors, treaty benefits
for 28
Puerto Rico:
Possession exclusion 14
Residents of 14
Page 38
Scholarships 17
Second foreign household 22
Self-employment tax:
Clergy 11
Exemption from 11
How to pay 35
Who must pay 11
Social security and Medicare
taxes 10
Social security benefits 34
Social security number:
Dependents 24
Nonresident spouse 7
Source of earned income 16
Spouse, exemption for 24, 34
Students, treaty benefits for 28
Substantial presence test 2
Purpose of 27
Table of 29
Teachers, treaty benefits for 28
Temporary assignment,
expenses 13
Totalization agreements 10
Trainees, treaty benefits for 28
Travel restrictions 16
Treaties (See Tax treaties)
Where to file:
Claiming exclusion/deduction 6
Commonwealth of the Northern
Mariana Islands residents 6
Guam residents 6
No legal residence in U.S. 6
Virgin Islands residents,
nonresidents 6
Withholding:
Income tax 8, 35
Pension payments 8
Virgin Islands:
Nonresidents of 6
Residents of 6
Where to file 6
Publication 54 (2014)