• About Us
  • Contact Us
  • Privacy Policy
  • Terms
  • Unsubscribe
No Result
View All Result
Live and Invest Overseas
FREE REPORT
BEST PLACES TO RETIRE
*No spam: We will NEVER give your email address to anyone else.
  • HOME
  • COUNTRIES
    • Top Destinations
      • Panama
      • Portugal
      • Colombia
      • Northern Cyprus
      • Belize
      • Spain
      • Mexico
      • France
      • Indonesia
      • Vietnam
    • Browse All Countries
    • Best For
      • Retire Overseas Index
      • Health Care
      • Cost of Living
      • Investing in Real Estate
      • Editor’s Picks For Retirement
      • Establishing Residency
      • Starting an Online Business
      • Single Women
      • Playing Golf
  • BUDGETS
    • Super Cheap ($)
      • Cuenca, Ecuador
      • Chiang Mai, Thailand
      • The Philippines
      • Las Tablas, Panama
      • Granada, Nicaragua
    • Cheap ($$)
      • Algarve, Portugal
      • Medellin, Colombia
      • Boquete, Panama
      • Carcassone, France
      • Buenos Aires, Argentina
    • Affordable ($$$)
      • Abruzzo, Italy
      • Barcelona, Spain
      • Las Terrenas, Dominican Republic
      • Puerto Vallarta, Mexico
      • Costa de Oro, Uruguay
    • Luxury On A Budget ($$$$)
      • Ambergris Caye, Belize
      • Paris, France
      • Panama City Beach Area
  • Real Estate
  • ARCHIVES
    • Living & Retiring Overseas
    • Raising A Family Abroad
    • Foreign Residency & Citizenship
    • Offshore Diversification
    • Our Latest On Coronavirus ⚠️
  • Making Money
    • International Real Estate
    • Banking
    • Employment
    • Investing
  • CONFERENCES
  • BOOKSTORE
Live and Invest Overseas
  • HOME
  • COUNTRIES
    • Top Destinations
      • Panama
      • Portugal
      • Colombia
      • Northern Cyprus
      • Belize
      • Spain
      • Mexico
      • France
      • Indonesia
      • Vietnam
    • Browse All Countries
    • Best For
      • Retire Overseas Index
      • Health Care
      • Cost of Living
      • Investing in Real Estate
      • Editor’s Picks For Retirement
      • Establishing Residency
      • Starting an Online Business
      • Single Women
      • Playing Golf
  • BUDGETS
    • Super Cheap ($)
      • Cuenca, Ecuador
      • Chiang Mai, Thailand
      • The Philippines
      • Las Tablas, Panama
      • Granada, Nicaragua
    • Cheap ($$)
      • Algarve, Portugal
      • Medellin, Colombia
      • Boquete, Panama
      • Carcassone, France
      • Buenos Aires, Argentina
    • Affordable ($$$)
      • Abruzzo, Italy
      • Barcelona, Spain
      • Las Terrenas, Dominican Republic
      • Puerto Vallarta, Mexico
      • Costa de Oro, Uruguay
    • Luxury On A Budget ($$$$)
      • Ambergris Caye, Belize
      • Paris, France
      • Panama City Beach Area
  • Real Estate
  • ARCHIVES
    • Living & Retiring Overseas
    • Raising A Family Abroad
    • Foreign Residency & Citizenship
    • Offshore Diversification
    • Our Latest On Coronavirus ⚠️
  • Making Money
    • International Real Estate
    • Banking
    • Employment
    • Investing
  • CONFERENCES
  • BOOKSTORE
No Result
View All Result
Live and Invest Overseas
No Result
View All Result
Home Offshore

FEIE Basics

Foreign Earned Income Exclusion: A 101 Guide For U.S. Citizens Living Abroad

Live And Invest Overseas by Live And Invest Overseas
Dec 26, 2020
in Offshore, Taxes
0 0
0
'Tax time' memo on 1040 individual tax form

iStock/alfexe

267
SHARES
3.8k
VIEWS
Share on FacebookShare on Twitter

The Foreign Earned Income Exclusion (FEIE) is one of the only expat’s line of defense against the IRS. It’s a tax relief on your foreign earned salary, which allows expats to exclude up to a certain amount of their income to avoid making payments twice on it, both in the United States and in your country of residence.

If used correctly, the FEIE can help you exclude hundreds to thousands of dollars from your taxes. As an amount that is adjusted annually for inflation, for 2020 it allows you to exclude up to US $107,600 in wages, if you’re married you could exclude up to US$215,200 from your U.S. taxable income. In turn it can provide additional benefits to those living, working, and operating a business abroad.

FEIE, a sort of relief package, as mentioned before applies to employment income in foreign countries, either from your own business, as an employee, or if you are self-employed. By earned income it includes money you obtain from exchange of goods and services. It doesn’t apply to passive earnings such as retirement, or other investment income. In other words, if you’re a pensioner retiring offshore, it’s something you don’t need to consider.

Like anything to do with the fiscal system, the FEIE is full of rules and exceptions to those rules. If you’re planning a move overseas, you should engage help from a

tax advisor to understand your own situation. But, to get started, here are some basic things a would-be expat should know:

The Exclusion Applies To Federal-Income Tax

It’s possible to qualify for the FEIE and still be considered a resident of a state in the United States… especially an aggressive cash-starved state like California. In that scenario, you may have to pay state tax on 100% of your salary. You should review your state laws with your local tax authorities before moving abroad to ensure you don’t get hit with a surprise tax bill. Some states of the United States do not honor the provisions of tax treaties.

There Are Two Tests To Qualify For The FEIE

The Physical Presence Test

A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months. When you rely on the physical presence test, it doesn’t matter where you are in the world. You can move around as much as you like, are not required to have a home base, and are not required to be in any one country for a certain period of time.

The Bona Fide Residence Test

A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. This usually means adopting the physical presence test your first year abroad, and then stepping up to the residency test.

The key to the bona fide test is your intent to move to that place for the long term, with no intent to return to the United States. Any time a tax issue is determined by something as fuzzy as “intent,” you’re asking for trouble in an audit. You must compile a great amount of evidence in case you use of the FEIE is questioned… especially if your intentions change and you return to the United States after a few years.

Tax Home In A Foreign Country

The last step to qualify for the FEIE, the foreign housing exclusion, or the foreign housing deduction is your tax home, which must be in a foreign country throughout your period of bona fide residence or physical presence.

U.S. Income Tax Treaties

The United States has bilateral Income Tax Treaties with many countries which if imposed to foreign taxes entitles you as an American citizen to certain credits, exemptions, deductions, and reductions in the rate of taxes of the country you are residing abroad.

Time Waiver For The Bona Fide And Physical Tests

The bona fide residence test and the physical presence test have minimum time requirements. The minimum time requirements can be waived if you must leave a foreign country because of war, civil unrest, or similar adverse conditions in that country.

COVID-19 Waiver Of Time Requirement

You may still be able to meet the requirements of the bona fide residence or physical presence test for 2019 and 2020 for purposes of determining the FEIE and housing cost exclusion or deduction if, due to COVID-19, you had to leave your home country of:

  • China (excluding the Special Administrative regions of Hong Kong and Macau) on or after December 1, 2019, but on or before July 15, 2020; or
  • Another foreign country on or after February 1, 2020, but on or before July 15, 2020.

Income Tax Doesn’t Include Standard Deductions And Social Taxes

Such as FICA, Social Security, Medicare, or self-employment taxes. If you’re an employee of a U.S. company while qualifying for the exclusion, you and your employer will pay these taxes. If you’re running a business and not incorporated offshore, you’ll pay about 15% in self-employment tax, which is not reduced by the FEIE. To avoid this, you or your employer can incorporate a subsidiary offshore from which you’ll draw a salary.

The Exclusion Is Based On Earnings In U.S. Dollars

If your country’s currency is appreciating against the dollar, the value of the exclusion to you is declining.

To Get The Benefit Of The FEIE, You Must File Your U.S. Tax Returns

As a U.S. citizen, you are taxed on your worldwide income. Your citizenship comes hand in hand with paying U.S. taxes.

If you don’t file your tax return while abroad the IRS will chase you down and you’ll lose the right of the exclusion. Even if you spent every day for five years outside of the United States, and there would be no question of your qualifying, the IRS has the right to take away the exclusion for your failure to file.

If you qualify, you can use Form 2555 to figure out your foreign earned income exclusion and your housing exclusion or deduction.

As mentioned above, the FEIE is loaded with complexities and nuances. Before you start an offshore business or work overseas, be sure to consult with a tax expert in this specific area. Even if you’ve been living abroad for years, it’s in your best interest to have an experienced professional review your prior filings, plan out your next few years, and make sure you are in compliance.

Tags: 'Social Security'earn moneyFEIEForeign Earned Income Exclusionincomemove overseasPaying Taxes OverseasTax exclusionTaxation
Share107Tweet67
Live And Invest Overseas

Live And Invest Overseas

Live and Invest Overseas is the world's savviest source for top opportunities to live better, retire in style, invest for profit, do business, and own real estate overseas. Established in 2008, the Live and Invest Overseas' editors and correspondents have more experience researching and reporting on top opportunities for living well, investing for profit, doing business, and owning real estate around the world than anyone else you'll find.

Related Posts

Panoramic view of Panama City Skyline
Panama

Is Panama Still A Tax Haven? Analyzing The Country’s Diversification Flags

by Lief Simon
October 18, 2022
0

The Panama Papers incident from 2016 brought to light a part of the offshore industry that generally wants to stay...

Read more
Old Town architecture of Lucerne, Switzerland

Things To Consider When Investing In Properties Overseas

September 18, 2022
Plaza De Botero, Medellin, Antioquia, Colombia

Assessing Your Best Overseas Residency Options

September 16, 2022
Famous old Nyhavn port in the center of Copenhagen, Denmark during summer sunny day

The Best Way To Protect Your Assets And Grow Your Wealth

September 14, 2022
Senior couple sitting together on lake bank

The 2 Biggest Concerns Retirees Have Before Living Overseas

September 11, 2022
Christopher Columbus Palace on Plaza de España in the historic center of Santo Domingo, Dominican Republic

Santo Domingo: Dominican Republic’s Colonial Capital

July 3, 2022
Adobe Stock/dudlajzov

My Biggest Regret After Living In Bellapais, Northern Cyprus

June 21, 2022

Start Your New Life Today, Overseas

A world full of fun, adventure, and profit awaits! Sign up for our free daily e-letter, Overseas Opportunity Letter, and we’ll send you a FREE report on the 10 Best Places To Retire In Style Overseas Today.







LIOS Resources


  • New To LIOS
  • Ask An Expert
  • Media Center
  • Contact Us
  • FAQs

Quick Links


  • Best Places To Live
  • Best Places To Retire
  • Finding A Job Overseas
  • Real Estate

Sign up for our free daily e-letter, Overseas Opportunity Letter, and get your FREE report: The 10 Best Places To Retire Overseas In 2023

  • About Us
  • Contact Us
  • Privacy Policy
  • Terms
  • Unsubscribe

© 2008-2023 - Live and Invest Overseas - All Rights Reserved.

No Result
View All Result
  • Home
  • Countries
  • Budgets
  • Archives
  • News
  • Events
  • Bookstore
  • Newsletters
  • About Us
  • Members Area
  • Contact Us

© 2008-2023 - Live and Invest Overseas - All Rights Reserved.

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In

The World’s Best Places To Be In 2023?

Discover Them Here…

Sign up for FREE and learn how to live the good life on a modest budget, find bargain property, and more. Plus, check out our free report on the 10 BEST PLACES TO RETIRE.

RETIRE OVERSEAS AND LIVE LIKE ROYALTY