The Foreign Earned Income Exclusion (FEIE) is a provision in the U.S. tax code that allows eligible U.S. expats to exclude a certain amount of their foreign-earned income from their U.S. taxable income. This exclusion is designed to prevent double taxation and provide relief to Americans living and working abroad.
Here's how the FEIE works:
1. Eligibility Criteria:
To qualify, you must meet either the "Physical Presence Test" or the "Bona Fide Residence Test."
- a. Physical Presence Test:
- You must be physically present in a foreign country or countries for at least 330 full days during a consecutive 12-month period. The 330 days don't have to be in a calendar year.
b. Bona Fide Residence Test:
- You must be a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year. This involves establishing a genuine residence and intent to remain in that country.
2. Exclusion Amount:
For tax year 2023, the maximum exclusion amount is $120,000 per qualifying individual. This means you can exclude up to this amount from your taxable income.
3. Qualifying Income:
The FEIE applies to earned income, such as wages, salaries, and self-employment income. It doesn't apply to passive income like dividends, interest, or rental income.
4. Tax Filing:
Even if you qualify for the FEIE, you must still file a U.S. tax return. The exclusion is claimed by completing and submitting the appropriate forms, usually Form 2555.
Find more about FEIE here: The Foreign Earned Income Exclusion: A Complete Guide for Expats
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