The United States taxes its residents on all of their worldwide income. However, if you are a U.S. resident alien or citizen who lives and works overseas, you may be able to earn exclusions on all or part of your foreign earned income.

What Are Foreign Earnings?

During the time your tax home is in a foreign country, and you meet either the bona fide residence test or the physical presence test, foreign earned income is defined as:

  • Wages
  • Salaries
  • Professional fees
  • Other amounts received as compensation for personal services performed in a foreign country

Where you perform the services is what defines your income as foreign, not where or how you are paid. For instance, income received for personal services performed in France is foreign earned income, even if the employer is American and your pay is deposited in an American bank.

Do I Qualify for Foreign Earned Income Exclusion?

Both U.S. citizens and resident aliens may be eligible for foreign earned income exclusion:

  • United States Citizens - U.S. citizens with a tax home in a foreign country may be able to exclude up to $80,000 if they meet either one of two tests:
    • The bona fide residence test - In order to meet the bona fide residence test, you must find out if you have established such a residence in a foreign country. Your bona fide residence is not necessarily the same as your domicile.
    • The physical presence test - You meet 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. The 330 qualifying days do not have to be consecutive.
  • Resident Aliens - Resident aliens of the United States with a tax home in a foreign country may be eligible for the exclusion if they meet one of the following qualifications:
    • The physical presence test
    • If they are citizens or nationals of a country with which the United States has an income tax treaty with an applicable nondiscrimination clause, and they meet the bona fide residence test

What Can I Do If I Need Help with Taxes on My Foreign Income?

You may want to consult a tax lawyer familiar with U.S. tax laws or one who specializes in International Tax. An experienced tax attorney will be able to answer your questions and concerns regarding your foreign income.