Tuesday, March 23, 2010

Income Earned Working in a Foreign Country

Q I worked overseas part of the year last year for a foreign company. Do I have to report that income on my US income tax return?

A Citizens and resident aliens who live and work abroad may be able to exclude all or part of their foreign salary or wages from their income when filing their U.S. federal tax return. They may also qualify to exclude compensation for their personal services or certain foreign housing costs.

To qualify for the foreign earned income exclusion, a U.S. citizen or resident alien must have a tax home in a foreign country and income received for working in a foreign country, otherwise known as foreign earned income. The taxpayer must also meet one of two tests: the bona fide residence test or the physical presence test.

The foreign earned income exclusion is adjusted annually for inflation. For 2009, the maximum exclusion is up to $91,400 per qualifying person.

The foreign earned income exclusion and the foreign housing exclusion or deductions are claimed using Form 2555, Foreign Earned Income, which should be attached to the taxpayer’s Form 1040.

For more information about the Foreign Earned Income Exclusion, see Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad. This and other IRS publications are available at or by emailing me.

Please contact me directly to see how these rules apply to you individually.