If you are living outside the U.S. for more than two years, then there is good news for you.
I’m referring to the “Foreign Earned Income Exclusion” (FEIE) program. Through the program, U.S. citizens living abroad are exempted up to $91,400 in earned income each year from their taxable income. For married couple it is $182,800 per year..
Please note that this is not a deduction from the taxable income but the amount of $91,400 or $182,800 as the case might be would not be considered to be income at all.
It’s not a credit or a deferral either. It is an exclusion of that income from your taxable income. There are no taxes at all payable on this amount…
If you have ever planned about living outside US, but had dropped your plans thinking you could afford to pay U.S. taxes on your earnings then this exclusion would be good news for you. One important point you should remember here is that the exemption applies only to earned income & not to income earned on investments. Nonetheless, this exclusion would reduce your tax slab & you would enjoy lesser tax on your unearned income.
Following are the criterions before you could claim the benefit under FEIE:
I’m referring to the “Foreign Earned Income Exclusion” (FEIE) program. Through the program, U.S. citizens living abroad are exempted up to $91,400 in earned income each year from their taxable income. For married couple it is $182,800 per year..
Please note that this is not a deduction from the taxable income but the amount of $91,400 or $182,800 as the case might be would not be considered to be income at all.
It’s not a credit or a deferral either. It is an exclusion of that income from your taxable income. There are no taxes at all payable on this amount…
If you have ever planned about living outside US, but had dropped your plans thinking you could afford to pay U.S. taxes on your earnings then this exclusion would be good news for you. One important point you should remember here is that the exemption applies only to earned income & not to income earned on investments. Nonetheless, this exclusion would reduce your tax slab & you would enjoy lesser tax on your unearned income.
Following are the criterions before you could claim the benefit under FEIE:
- You should establish a “tax home” in a foreign country
- You should pass either the “foreign residence test” or the “physical- presence test”
- You must have a source & actually have earned income offshore
- Your stay in U.S. should not be more than one month a year, and
- You should file a U.S income tax return for each year you live outside U.S.
Please note that you may claim exclusion only for earned income & you still have to pay taxes on unearned incomes like rents, royalties, interest, dividends, etc. Also there is no exclusion for capital gains taxes and estate tax.
In general the taxing Authorities worldwide do not charge citizens taxes on income when their stay outside home country exceeds a year or more.
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