Do I have to claim foreign income exclusion?

The foreign earned income exclusion is voluntary. You can choose the foreign earned income exclusion and/or the foreign housing exclusion by completing the appropriate parts of Form 2555.

Should I take foreign earned income exclusion or foreign tax credit?

The Foreign Earned Income Exclusion is generally best for taxpayers whose income is earned in a low- or no-income tax country. It will allow them to shield up to $107,600 (2020 figure) from U.S. taxation, while the Foreign Tax Credit would have little or no benefit since they are in a low- or no-income tax country.

Is foreign income considered earned income?

Generally, the IRS classifies income by where it is earned. So if you are living and working abroad, then your income is considered to be foreign earned income, even if you are being paid by a US company. If you are working in the US, your earnings are considered to be US earned income.

What is the purpose of the foreign earned income exclusion?

The foreign earned income exclusion is intended to prevent double taxation by excluding income taxed in another country from U.S. taxation.

How do I claim foreign income exclusion?

To claim the Foreign Earned Income Exclusion, expats must file IRS Form 2555 along with their Form 1040. Form 2555 asks for confirmation that your tax home is in a foreign country. This means that the place where you work from is abroad, regardless where (or in what currency) you are paid.

What qualifies for foreign tax credit?

Generally, only income, war profits, and excess profits taxes (collectively referred to as income taxes) qualify for the foreign tax credit. Foreign taxes on wages, dividends, interest, and royalties generally qualify for the credit.

How do I report foreign income exclusion?

If you earned foreign income abroad, you report it to the U.S. on Form 1040. In addition, you may also have to file a few other forms relating to foreign income, like your FBAR (FinCEN Form 114) and FATCA Form 8938.

Who can claim a foreign tax credit?

Do you have to claim foreign earned income?

To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must have foreign earned income.

Can you flip the foreign earned income exclusion?

There’s the “flip” part of the flip-flop, Darlene. You can toggle the foreign earned income exclusion off anytime you want, either on the current year tax return or a timely-filed amended tax return. You can accidentally revoke your election to use the foreign earned income exclusion.

Do you get a foreign tax credit if you exclude foreign income?

Once you choose to exclude your foreign earned income or housing amount, that choice remains in effect for that year and all later years unless you revoke it. Once you choose to exclude either foreign earned income or foreign housing costs, you cannot take a foreign tax credit for taxes on income you exclude.

Is there a foreign earned income exclusion on Form 2555?

The foreign earned income exclusion is voluntary. You can choose the foreign earned income exclusion and the foreign housing exclusion by completing the appropriate parts of Form 2555. Your initial choice of the exclusions on Form 2555, Foreign Earned Income or Form 2555-EZ, Foreign Earned Income Exclusion generally must be made with:

To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must have foreign earned income.

How does the foreign earned income exclusion act work?

According to the Foreign Earned Income Exclusion Act, you can omit the money you earn overseas from your taxable income if you satisfy three conditions. First, you must have earned income in a country other than the U.S. and your tax home — or the area of your primary business, employment or post — is outside the U.S.