Foreign Earned Income Exclusion (“FEIE”)
If you are a U.S. citizen or resident who lives and works outside the United States, you may qualify to exclude some or all of your foreign earned income from U.S. taxation. The foreign earned income exclusion (“FEIE”) – often referred to as the “section 911 exclusion” in reference to its place in the Internal Revenue Code – allows an exclusion from income of up to U.S. $107,600 for 2020, $108,700 for 2021, $112,000 for 2022, and $120,000 for 2023; the amount is adjusted annually for inflation. In addition to (or in lieu of) the FEIE, you may elect to exclude from income a housing cost amount based on your foreign housing expenses (the housing cost exclusion). To claim these exclusions, you must meet certain requirements.
1) Qualifying for the exclusions
To qualify to claim the FEIE, you must have foreign earned income, your “tax home” must be in a foreign country, and you must meet one of two tests:
- The bona fide residence test, which requires that you be a bona fide resident of a foreign country or countries for an uninterrupted period that includes a full tax year; or
- The physical presence test, which requires that you be present in a foreign country or countries at least 330 full days during any period of 12 consecutive months.
2) Foreign earned income – what is included
To claim the FEIE, you must have foreign earned income. This is compensation that you receive for services that you perform in a foreign country. Earned income includes not just wages, but bonuses, commissions, employer-provided lodging, foreign incentives and cost-of-living allowances, tax reimbursements, home leave and educational reimbursements or allowances, and moving expense reimbursements. Self-Employed people as also eligible to claim FEIE for the gain on the business activities.
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