U.S. citizens or resident aliens with a tax home in a foreign country may be eligible for foreign income tax exclusions of up to $80,000 designed to prevent them from having to pay income tax to the United States in addition to the country where they currently live. One way to qualify for this type of tax exclusion is to meet the qualifications for the physical presence test.
How Can I Satisfy the Physical Presence Test?
You can qualify under the physical presence test if you are physically present in a foreign country or countries 330 full days during a period of 12 consecutive months. Here is a detailed explanation of the requirements:
- 330 full days - The 330 qualifying days do not have to be consecutive, and vacation time may be included.
- Full days - Full days must begin at 12 a.m. for 24 consecutive hours. Thus, if you arrive in Paris at 9a.m. on July 4, then your first full day will begin on July 5.
- 12 Consecutive Months " 4 rules " - Here are four rules to know when figuring the 12-month period:
- Your 12-month period can begin with any day of the month, and it ends the day before the same calendar day, one year later.
- Your 12-month period must be made up of consecutive months.
- You do not have to begin your 12-month period with your first full day in a foreign country or to end it with the day you leave, as you can choose the 12-month period that gives you the most favorable result.
- In determining whether the 12-month period falls within a longer stay in the foreign country, 12-month periods can overlap one another.
Can I Move Between Foreign Countries?
Yes. However, if any part of travel is not in a foreign country and takes more than 24 hours, then you will lose full days.
How Is This Test Different from the Bona Fide Residence Test?
The physical presence test is based only on how long you stay in a foreign country or countries. Unlike the bona fide residence test, this test does not depend on the kind of residence you establish, your intentions about returning, or the nature and purpose of your stay abroad.
What If I Am Unable to be Physically Present?
You do not meet the physical presence test if illness, family problems, a vacation, or your employer's orders cause you to be present for less than the required amount of time. However, you may still qualify if you fall under one of the IRS's exceptions.
What If I Am Confused about the Test?
If you have questions about the physical presence test and how it may apply to you, it may be necessary to contact a tax attorney. Consulting with an attorney when questions and issues arise could save you a lot of money in taxes.