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Department of the Treasury
Internal Revenue Service
Publication 54
Cat. No. 14999E
Tax Guide for
U.S. Citizens
and Resident
Aliens Abroad
For use in preparing
2023 Returns
Get forms and other information faster and easier at:
• IRS.gov (English)
• IRS.gov/Spanish (Español)
•
IRS.gov/Chinese (中文)
•
IRS.gov/Korean (한국어)
• IRS.gov/Russian (Pусский)
• IRS.gov/Vietnamese (Tiếng Việt)
Future Developments
For the latest information about developments related to
Pub. 54, such as legislation enacted after it was
published, go to IRS.gov/Pub54.
What's New
Termination of 1979 Tax Convention with Hungary.
On July 15, 2022, the U.S. Department of the Treasury
(Treasury) announced that Hungary was notified on July
8, 2022, that the United States would terminate the Con-
vention between the Government of the Hungarian Peo-
ple’s Republic for the Avoidance of Double Taxation and
the Prevention of Fiscal Evasion with Respect to Taxes on
Income, in force since 1979. In accordance with the trea-
ty’s provisions on termination, termination is effective on
January 8, 2023. However, with respect to taxes withheld
at source, the treaty ceases to have effect on January 1,
2024. In respect of other taxes, the treaty ceases to have
effect with respect to taxable periods beginning on or after
January 1, 2024.
Standard deduction amount increased. For 2023, the
standard deduction amount has been increased for all fil-
ers. The amounts are:
•
Single or Married filing separately—$13,850;
•
Married filing jointly or Qualifying surviving
spouse—$27,700; and
•
Head of household—$20,800.
Due to the increase in the standard deduction,
you may be required to file a new Form W-4. For
more information, go to IRS.gov/Payments/Tax-
Withholding.
Exclusion amount. The maximum foreign earned in-
come exclusion is adjusted annually for inflation. For
2023, the maximum exclusion has increased to $120,000.
See Limit on Excludable Amount under Foreign Earned In-
come Exclusion in chapter 4.
Housing expenses—maximum amount. Generally, the
maximum amount of housing, housing expenses is limited
to $36,000 for 2023. For such computation, you need to
determine your base housing amount (line 32 of Form
2555) which is $56.60 per day ($19,200 per year) for
2023, multiplied by the number of days in your qualifying
period that fall within your tax year. For more details, see
Housing Amount under Foreign Housing Exclusion and
Deduction in chapter 4.
Housing expenses—maximum amount continued.
The amount of qualified housing expenses eligible for the
housing exclusion and housing deduction may be higher
for your foreign geographic location. See Limit on housing
expenses under Foreign Housing Exclusion and Deduc-
tion in chapter 4.
Self-employment tax rate. For 2023, the maximum
amount of net earnings from self-employment that is
subject to the social security part of the self-employment
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tax has increased to $160,200. All net earnings are sub-
ject to the Medicare part of the tax. For more information,
see chapter 3.
IRA limitations. You may be able to take an IRA deduc-
tion if you were covered by a retirement plan and your
2023 modified adjusted gross income (MAGI) is less than
$83,000 ($136,000 if married filing jointly or a qualifying
surviving spouse). If your spouse was covered by a retire-
ment plan, but you were not, you may be able to take an
IRA deduction if your MAGI is less than $228,000. See the
Instructions for Form 1040 for details and exceptions.
Reminders
Denial or revocation of U.S. passport. The IRS is re-
quired to notify the State Department of taxpayers certified
as owing a seriously delinquent tax debt. The State De-
partment is generally prohibited from issuing or renewing
a passport to a taxpayer with seriously delinquent tax
debt.
If you currently have a valid passport, the State Depart-
ment may revoke your passport or limit your ability to
travel. Additional information on passport certification is
available at IRS.gov/Passports.
Individual taxpayer identification number (ITIN) re-
newal. An ITIN for a nonresident alien spouse or depend-
ent used on a prior-year income tax return may require re-
newal. For more information, go to IRS.gov/ITIN.
Figuring tax on income not excluded. If you claim the
foreign earned income exclusion, the housing exclusion,
or both, you must figure the tax on your nonexcluded in-
come using the tax rates that would have applied had you
not claimed the exclusions. See the Instructions for Form
1040 and complete the Foreign Earned Income Tax Work-
sheet to figure the amount of tax to enter on Form 1040 or
1040-SR, line 16. If you must attach Form 6251, Alterna-
tive Minimum Tax—Individuals, to your return, use the For-
eign Earned Income Tax Worksheet provided in the
Instructions for Form 6251.
Moving expenses suspended. The deduction for mov-
ing expenses is suspended unless you are a member of
the U.S. Armed Forces who moves pursuant to a military
order and incident to a permanent change of station.
Tax home for individuals serving in a combat zone.
New rules apply for certain individuals serving in a combat
zone in support of the U.S. Armed Forces. For more infor-
mation, see Tax Home in chapter 4.
Form 8938. If you had foreign financial assets, you may
have to file Form 8938 with your return. See Form 8938 in
chapter 1.
Photographs of missing children. The IRS is a proud
partner with the National Center for Missing & Exploited
Children® (NCMEC). Photographs of missing children se-
lected by the Center may appear in this publication on pa-
ges that would otherwise be blank. You can help bring
these children home by looking at the photographs and
calling 1-800-THE-LOST (1-800-843-5678) if you recog-
nize a child.
Introduction
This publication discusses special tax rules for U.S. citi-
zens and resident aliens who work abroad or who have in-
come earned in foreign countries.
If you are a U.S. citizen or resident alien, your world-
wide income is generally subject to U.S. income tax, re-
gardless of where you are living. Also, you are subject to
the same income tax filing requirements that apply to U.S.
citizens or resident aliens living in the United States. Ex-
patriation tax provisions apply to U.S. citizens who have
renounced their citizenship and long-term residents who
have ended their residency. These provisions are dis-
cussed in chapter 4 of Pub. 519.
Resident alien. A resident alien is an individual who is
not a citizen or national of the United States and who
meets either the green card test or the substantial pres-
ence test for the calendar year.
1. Green card test. You are a U.S. resident if you were
a lawful permanent resident of the United States at
any time during the calendar year. This is known as
the green card test because resident aliens hold im-
migrant visas (also known as green cards).
2. Substantial presence test. You are considered a
U.S. resident if you meet the substantial presence test
for the calendar year. To meet this test, you must be
physically present in the United States on at least:
a. 31 days during the current calendar year; and
b. A total of 183 days during the current year and the
2 preceding years, counting all the days of physi-
cal presence in the current year, but only
1
/3 the
number of days of presence in the first preceding
year, and only
1
/6 the number of days in the sec-
ond preceding year.
Example. You were physically present in the United
States for 120 days in each of the years 2021, 2022, and
2023. To determine if you meet the substantial presence
test for 2023, count the full 120 days of presence in 2023,
40 days in 2022 (
1
/3 of 120), and 20 days in 2021 (
1
/6 of
120). Because the total for the 3-year period is 180 days,
you are not considered a resident under the substantial
presence test for 2023.
Even if you do not meet either of these tests, you may
be able to choose to be treated as a U.S. resident for part
of the year under the first-year choice test, discussed in
Pub. 519.
For more information on resident and nonresident sta-
tus, the tests for residence, and the exceptions to them,
see Pub. 519.
Filing information. Chapter 1 contains general filing in-
formation, such as:
•
Whether you must file a U.S. tax return,
•
When and where to file your return,
•
How to report your income if it is paid in foreign cur-
rency,
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•
How to treat a nonresident alien spouse as a U.S. resi-
dent, and
•
Whether you must pay estimated tax.
Withholding tax. Chapter 2 discusses the withholding
of income, social security, and Medicare taxes from the
pay of U.S. citizens and resident aliens.
Self-employment tax. Chapter 3 discusses who must
pay self-employment tax.
Foreign earned income exclusion and housing exclu-
sion and deduction. Chapter 4 discusses income tax
benefits that apply if you meet certain requirements while
living abroad. You may qualify to treat up to $120,000 of
your income as not taxable by the United States. You may
also be able to either deduct part of your housing expen-
ses from your income or treat a limited amount of income
used for housing expenses as not taxable by the United
States. These benefits are called the foreign earned in-
come exclusion and the foreign housing deduction and ex-
clusion.
To qualify for either of the exclusions or the deduction,
you must have a tax home in a foreign country and earn
income from personal services performed in a foreign
country. These rules are explained in chapter 4.
If you are going to exclude or deduct your income as
discussed above, you must file Form 2555.
Deductions and credits. Chapter 5 discusses deduc-
tions and credits you may be able to claim on your return.
These are generally the same as if you were living in the
United States. However, if you choose to exclude foreign
earned income or housing amounts, you can’t deduct or
exclude any item or take a credit for any item that is rela-
ted to the amounts you exclude. Among the topics dis-
cussed in chapter 5 are:
•
Contributions to foreign organizations,
•
Contributions to individual retirement arrangements
(IRAs), and
•
Foreign taxes.
Tax treaty benefits. Chapter 6 discusses some benefits
that are common to most tax treaties and explains how to
get help if you think you are not receiving a treaty benefit
to which you are entitled. It also explains how to get cop-
ies of tax treaties.
How to get tax help. Chapter 7 is an explanation of how
to get information and assistance from the IRS.
Questions and answers. Frequently asked questions
and answers to those questions are presented in the back
of the publication.
Comments and suggestions. We welcome your com-
ments about this publication and suggestions for future
editions.
You can send us comments through IRS.gov/
FormComments. Or, you can write to the Internal Revenue
Service, Tax Forms and Publications, 1111 Constitution
Ave. NW, IR-6526, Washington, DC 20224.
Although we can’t respond individually to each com-
ment received, we do appreciate your feedback and will
consider your comments and suggestions as we revise
our tax forms, instructions, and publications. Don’t send
tax questions, tax returns, or payments to the above ad-
dress.
Getting answers to your tax questions. If you have
a tax question not answered by this publication or the How
To Get Tax Help section at the end of this publication, go
to the IRS Interactive Tax Assistant page at IRS.gov/
Help/ITA where you can find topics by using the search
feature or viewing the categories listed.
Getting tax forms, instructions, and publications.
Go to IRS.gov/Forms to download current and prior-year
forms, instructions, and publications.
Ordering tax forms, instructions, and publications.
Go to IRS.gov/OrderForms to order current forms, instruc-
tions, and publications; call 800-829-3676 to order
prior-year forms and instructions. The IRS will process
your order for forms and publications as soon as possible.
Don’t resubmit requests you’ve already sent us. You can
get forms and publications faster online.
1.
Filing Information
Topics
This chapter discusses:
•
Whether you have to file a return,
•
When to file your return and pay any tax due,
•
How to treat foreign currency,
•
How to file electronically,
•
Where to file your return,
•
When you can treat your nonresident alien spouse as
a resident, and
•
When you may have to make estimated tax payments.
Useful Items
You may want to see:
Publication
3 Armed Forces' Tax Guide
501 Dependents, Standard Deduction, and Filing
Information
505 Tax Withholding and Estimated Tax
3
501
505
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519 U.S. Tax Guide for Aliens
970 Tax Benefits for Education
Form (and Instructions)
1040-ES Estimated Tax for Individuals
1040-X Amended U.S. Individual Income Tax Return
2350 Application for Extension of Time To File U.S.
Income Tax Return
2555 Foreign Earned Income
4868 Application for Automatic Extension of Time To
File U.S. Individual Income Tax Return
8822 Change of Address
All of these forms, instructions, and publications can be
downloaded from IRS.gov. See chapter 7 for information
about getting these publications and forms.
Filing Requirements
If you are a U.S. citizen or resident alien, the rules for filing
income, estate, and gift tax returns and for paying estima-
ted tax are generally the same whether you are in the Uni-
ted States or abroad.
Your income, filing status, and age generally determine
whether you must file an income tax return. Generally, you
must file a return for 2023 if your gross income from world-
wide sources is at least the amount shown for your filing
status in the following table.
Filing Status* Amount
Single ............................... $13,850
65 or older ........................... $15,700
Head of household ........................ $20,800
65 or older ........................... $22,650
Qualifying surviving spouse ................... $27,700
65 or older ........................... $29,200
Married filing jointly ........................ $27,700
Not living with spouse at end of year ............ $5
One spouse 65 or older ................... $29,200
Both spouses 65 or older .................. $30,700
Married filing separately ..................... $5
* If you are the dependent of another taxpayer, see the Instructions for Form 1040
(and 1040-SR) for more information on whether you must file a return.
Note. If you are married and entitled to file jointly, use the
married filing jointly threshold unless your spouse has filed
a separate return or another taxpayer claims your spouse
as a dependent.
Gross income. This includes all income you receive in
the form of money, goods, property, and services that is
not exempt from tax.
For purposes of determining whether you must file a re-
turn, gross income includes any income that you can ex-
clude as foreign earned income or as a foreign housing
amount.
If you are self-employed, your gross income includes
the amount on Part I, line 7, of Schedule C (Form 1040).
519
970
1040-ES
1040-X
2350
2555
4868
8822
Self-employed individuals. If your net earnings from
self-employment are $400 or more, you must file a return
even if your gross income is below the amount listed for
your filing status in the table shown earlier. Net earnings
from self-employment are defined in Pub. 334.
65 or older. You are considered to be age 65 on the day
before your 65th birthday. For example, if your 65th birth-
day is on January 1, 2024, you are considered 65 for
2023.
Residents of U.S. territories. If you are (or were) a
bona fide resident of a U.S. territory, you may be required
to file Form 8898. See the instructions for the form, availa-
ble at IRS.gov/Form8898 for more information.
When To File and Pay
If you file on a calendar-year basis, the due date for filing
your return is April 15 of the following year. If you file on a
fiscal year basis (a year ending on the last day of any
month except December), the due date is 3 months and
15 days after the close of your fiscal year. In general, the
tax shown on your return should be paid by the due date
of the return, without regard to any extension of time for fil-
ing the return.
When the due date for doing any act for tax purpo-
ses—filing a return, paying taxes, etc.— falls on a Satur-
day, Sunday, or legal holiday, the due date is delayed until
the next business day.
A tax return delivered by the U.S. mail or a desig-
nated delivery service that is postmarked or dated
by the delivery service on or before the due date
is considered to have been filed on or before that date. Go
to IRS.gov/PDS for the current list of designated services.
Direct Pay option. You can pay online with a direct trans-
fer from your bank account using Direct Pay, the Electronic
Federal Tax Payment System (EFTPS), or by debit or
credit card. You can also pay by phone using EFTPS or by
debit or credit card. For more information, go to IRS.gov/
Payments.
Foreign wire transfers. If you have a U.S. bank ac-
count, you can use:
•
EFTPS, or
•
Federal Tax Collection Service (same-day wire trans-
fer).
If you do not have a U.S. bank account, ask if your finan-
cial institution has a U.S. affiliate that can help you make
same-day wire transfers.
For more information, visit EFTPS.gov. Also, see the In-
ternational Guide for Paying Federal Taxes Electronically,
available at download.EFTPS.gov/
International_Taxpayer_Fact_Sheet_1010.pdf.
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Extensions
You can get an extension of time to file your return. In
some circumstances, you can also get an extension of
time to file and pay any tax due.
However, if you pay the tax due after the regular due
date, interest will be charged from the regular due date
until the date the tax is paid.
This publication discusses four extensions: an auto-
matic 2-month extension, an automatic 6-month exten-
sion, an additional extension for taxpayers out of the coun-
try, and an extension of time to meet residency tests. If
you served in a combat zone or qualified hazardous duty
area, see Pub. 3 for a discussion of extensions of dead-
lines.
Automatic 2-month extension. You are allowed an au-
tomatic 2-month extension to file your return and pay fed-
eral income tax if you are a U.S. citizen or resident alien,
and on the regular due date of your return:
•
You are living outside the United States and Puerto
Rico and your main place of business or post of duty
is outside the United States and Puerto Rico, or
•
You are in military or naval service on duty outside the
United States and Puerto Rico.
If you use a calendar year, the regular due date of your
return is April 15. Even if you are allowed an extension,
you will have to pay interest on any tax not paid by the reg-
ular due date of your return.
Married taxpayers. If you file a joint return, either you
or your spouse can qualify for the automatic extension. If
you and your spouse file separate returns, this automatic
extension applies only to the spouse who qualifies for it.
How to get the extension. To use this automatic
2-month extension, you must attach a statement to your
return explaining which of the two situations listed earlier
qualified you for the extension.
Automatic 6-month extension. If you are not able to file
your return by the due date, you can generally get an auto-
matic 6-month extension of time to file (but not of time to
pay). To get this automatic extension, you must file a pa-
per Form 4868 or use IRS e-file (electronic filing). For
more information about filing electronically, see E-file op-
tions, later.
The form must show your properly estimated tax liability
based on the information available to you.
You may not be eligible. You cannot use the au-
tomatic 6-month extension of time to file if:
•
You want the IRS to figure your tax, or
•
You are under a court order to file by the regular due
date.
E-file options. You can use e-file to get an extension
of time to file. You can either file Form 4868 electronically
or you can pay part or all of your estimate of tax due using
CAUTION
!
a credit or debit card or direct transfer. You can do this by
phone or over the Internet. You don’t file Form 4868.
First, complete Form 4868 to use as a worksheet. If you
think you may owe tax when you file your return, use Part II
of the form to estimate your balance due.
Then, do one of the following.
1. E-file Form 4868. You can use a tax software pack-
age with your personal computer or a tax professional
to file Form 4868 electronically. You will need to pro-
vide certain information from your tax return for 2022.
If you wish to make a payment by electronic funds
withdrawal, see the instructions for Form 4868. If you
e-file Form 4868, do not also send a paper Form 4868
unless you also mail a check or money order for your
tax payment.
2. E-file and pay by credit or debit card. You can get
an extension by paying part or all of your estimate of
tax due by using a credit or debit card. You can do this
by phone or over the Internet. If you do this, you do
not file Form 4868. For more information, see the in-
structions for your tax return.
When to file. Generally, you must request the
6-month extension by the regular due date of your return.
Previous 2-month extension. If you cannot file your
return within the automatic 2-month extension period, you
can generally get an additional 4 months to file your re-
turn, for a total of 6 months. The 2-month period and the
6-month period start at the same time. You have to re-
quest the additional 4 months by the new due date al-
lowed by the 2-month extension.
The additional 4 months of time to file (unlike the origi-
nal 2-month extension) is not an extension of time to pay.
You must make an accurate estimate of your tax based on
the information available to you. If you find you cannot pay
the full amount due with Form 4868, you can still get the
extension. You will owe interest on the unpaid amount
from the original due date of the return.
You may also be charged a penalty for paying the tax
late unless you have reasonable cause for not paying your
tax when due. Penalties for paying the tax late are as-
sessed from the original due date of your return, unless
you qualify for the automatic 2-month extension. In that sit-
uation, penalties for paying late are assessed from the ex-
tended due date of the payment (June 15 for calen-
dar-year taxpayers).
Additional extension of time for taxpayers out of the
country. In addition to the 6-month extension, taxpayers
who are out of the country can request a discretionary
2-month additional extension of time to file their returns (to
December 15 for calendar year taxpayers).
To request this extension, you must send the IRS a let-
ter explaining the reasons why you need the additional 2
months. Send the letter by the extended due date (Octo-
ber 15 for calendar year taxpayers) to the following ad-
dress:
Department of the Treasury
Internal Revenue Service
Austin, TX 73301-0045
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You will not receive any notification from the IRS unless
your request is denied.
The discretionary 2-month additional extension is not
available to taxpayers who have an approved extension of
time to file on Form 2350, discussed next.
Extension of time to meet residency tests. You cannot
generally get an extension of more than 6 months. How-
ever, if you are outside the United States and meet certain
requirements, you may be able to get a longer extension.
You can get an extension of more than 6 months to file
your tax return if you need the time to meet either the bona
fide residence test or the physical presence test to qualify
for either the foreign earned income exclusion or the for-
eign housing exclusion or deduction. The tests, the exclu-
sions, and the deduction are explained in chapter 4.
You should request an extension if all three of the fol-
lowing apply.
1. You are a U.S. citizen or resident alien.
2. You expect to meet either the bona fide residence test
or the physical presence test, but not until after your
tax return is due.
3. Your tax home is in a foreign country (or countries)
throughout your period of bona fide residence or
physical presence, whichever applies.
If you are granted an extension, it will generally be to 30
days beyond the date on which you can reasonably ex-
pect to qualify for an exclusion or deduction under either
the bona fide residence test or the physical presence test.
How to get an extension. To obtain an extension, file
Form 2350 either by giving it to a local IRS representative
or other IRS employee or by mailing it to:
Department of the Treasury
Internal Revenue Service
Austin, TX 73301-0045
You must file Form 2350 by the due date for filing your
return. Generally, if both your tax home and your abode
are outside the United States and Puerto Rico on the reg-
ular due date of your return and you file on a calendar year
basis, the due date for filing your return is June 15.
What if tests are not met. If you obtain an extension
and unforeseen events make it impossible for you to meet
either the bona fide residence test or the physical pres-
ence test, you should file your income tax return as soon
as possible because you must pay interest on any tax due
after the regular due date of the return (even though an ex-
tension was granted).
You should make any request for an extension
early, so that if it is denied you still can file your re-
turn on time. Otherwise, if you file late and addi-
tional tax is due, you may be subject to a penalty.
Return filed before test is met. If you file a return be-
fore you meet the bona fide residence test or the physical
presence test, you must include all income from both U.S.
and foreign sources and pay the tax on that income. If you
CAUTION
!
later meet either of the tests, you can claim the foreign
earned income exclusion, the foreign housing exclusion,
or the foreign housing deduction on Form 1040-X.
Foreign Currency
You must express the amounts you report on your U.S. tax
return in U.S. dollars. If you receive all or part of your in-
come, or pay some or all of your expenses, in foreign cur-
rency, you must translate the foreign currency into U.S.
dollars. How you do this depends on your functional cur-
rency. Your functional currency is generally the U.S. dollar
unless you are required to use the currency of a foreign
country.
You must make all federal income tax determinations in
your functional currency. The U.S. dollar is the functional
currency for all taxpayers except some qualified business
units (QBUs). A QBU is a separate and clearly identified
unit of a trade or business that maintains separate books
and records.
Even if you have a QBU, your functional currency is the
dollar if any of the following apply.
•
You conduct the business in U.S. dollars.
•
The principal place of business is located in the Uni-
ted States.
•
You choose to or are required to use the U.S. dollar as
your functional currency.
•
The business books and records are not kept in the
currency of the economic environment in which a sig-
nificant part of the business activities is conducted.
Make all income tax determinations in your functional
currency. If your functional currency is the U.S. dollar, you
must immediately translate into U.S. dollars all items of in-
come, expense, etc. (including taxes), that you receive,
pay, or accrue in a foreign currency and that will affect
computation of your income tax. Use the exchange rate
prevailing when you receive, pay, or accrue the item. You
can generally get exchange rates from banks and U.S.
Embassies. You may also need to recognize foreign cur-
rency gain or loss on certain foreign currency transac-
tions. See section 988 and the regulations thereunder.
If you have a QBU with a functional currency that is not
the U.S. dollar, make all income determinations in the
QBU's functional currency, and, where appropriate, trans-
late such income or loss at the appropriate exchange rate.
Blocked Income
You must generally report your foreign income in terms of
U.S. dollars and, with one exception (see Fulbright Grant,
later), you must pay taxes due on it in U.S. dollars.
If, because of restrictions in a foreign country, your in-
come is not readily convertible into U.S. dollars or into
other money or property that is readily convertible into
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U.S. dollars, your income is “blocked” or “deferrable” in-
come. You can report this income in one of the following
two ways.
•
Report the income and pay your federal income tax
with U.S. dollars that you have in the United States or
in some other country.
•
Postpone the reporting of the income until it becomes
unblocked.
If you choose to postpone the reporting of the income,
you must file an information return with your tax return. For
this information return, you should use another Form 1040
or 1040-SR labeled “Report of Deferrable Foreign Income,
pursuant to Rev. Rul. 74-351.” You must declare on the in-
formation return that you will include the deferrable in-
come in your taxable income for the year that it becomes
unblocked. You must also state that you waive any right to
claim that the deferrable income was includible in your in-
come for any earlier year. For detailed information see
Rev. Rul. 74-351, 1974-2 C.B. 144.
You must report your income on your information return
using the foreign currency in which you received that in-
come. If you have blocked income from more than one for-
eign country, include a separate information return for
each country.
Income becomes unblocked and reportable for tax pur-
poses when it becomes convertible, or when it is conver-
ted, into U.S. dollars or into other money or property that is
convertible into U.S. currency. Also, if you use blocked in-
come for your personal expenses or dispose of it by gift,
bequest, or devise, you must treat it as unblocked and re-
portable.
If you have received blocked income on which you have
not paid tax, you should check to see whether that income
is still blocked. If it is not, you should take immediate steps
to pay tax on it, file a declaration or amended declaration
of estimated tax, and include the income on your tax re-
turn for the year in which the income became unblocked.
If you choose to postpone reporting blocked income
and in a later tax year you wish to begin including it in
gross income although it is still blocked, you must obtain
the permission of the IRS to do so. To apply for permis-
sion, file Form 3115, Application for Change in Accounting
Method. You must also request permission from the IRS
on Form 3115 if you have not chosen to defer the report-
ing of blocked income in the past, but now wish to begin
reporting blocked income under the deferred method. See
the Instructions for Form 3115 for information on changing
your accounting method.
Fulbright Grant
All income must be reported in U.S. dollars. In most cases,
the tax must also be paid in U.S. dollars. If, however, at
least 70% of your Fulbright grant has been paid in noncon-
vertible foreign currency (blocked income), you can use
the currency of the host country to pay the part of the U.S.
tax that is based on the blocked income.
Paying U.S. tax in foreign currency. To qualify for this
method of payment, you must prepare a statement that
shows the following information.
•
You were a Fulbright grantee and were paid in noncon-
vertible foreign currency.
•
The total grant you received during the year and the
amount you received in nonconvertible foreign cur-
rency.
•
At least 70% of the grant was paid in nonconvertible
foreign currency.
The statement must be certified by the U.S. educational
foundation or commission paying the grant or other per-
son having control of grant payments to you.
You should prepare at least two copies of this state-
ment. Attach one copy to your Form 1040 or 1040-SR and
keep the other copy for identification purposes when you
make a tax deposit of nonconvertible foreign currency.
Figuring actual tax. When you prepare your income
tax return, you may owe tax or the entire liability may have
been satisfied with your estimated tax payments. If you
owe tax, figure the part due to (and payable in) the non-
convertible foreign currency by using the following for-
mula.
Adjusted gross
income that is
blocked income
× Total U.S. tax =
Tax on blocked
income
Total adjusted
gross income
You must attach all of the following to the return.
•
A copy of the certified statement discussed earlier.
•
A detailed statement showing the allocation of tax
from amounts received in foreign currency and the
rates of exchange used in determining your tax liability
in U.S. dollars.
•
The original deposit receipt for any balance of tax due
that you paid in nonconvertible foreign currency.
Figuring estimated tax on nonconvertible foreign
currency. If you are liable for estimated tax (discussed
later), figure the amount you can pay to the IRS in noncon-
vertible foreign currency using the following formula.
Adjusted gross
income that is blocked
income
× Total estimated U.S. tax =
Estimated tax on
blocked income
Total adjusted
gross income
If you must pay your host country income tax on your
grant, subtract any estimated foreign tax credit that ap-
plies to your grant from the estimated tax on the blocked
income.
Deposit of foreign currency with disbursing officer.
Once you have determined the amount of the actual tax or
estimated tax that you can pay in nonconvertible foreign
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currency, deposit that amount with the disbursing officer of
the Department of State in the foreign country in which the
foundation or commission paying the grant is located.
Estimated tax installments. You can either deposit
the full estimated tax amount before the first installment
due date or make four equal payments before the install-
ment due dates. See Estimated Tax Payments, later.
Deposit receipt. Upon accepting the foreign currency,
the disbursing officer will give you a receipt in duplicate.
The original of this receipt (showing the amount of foreign
currency deposited and its equivalent in U.S. dollars)
should be attached to your Form 1040 or 1040-SR or pay-
ment voucher from Form 1040-ES. Keep the copy for your
records.
Does My Return Have To Be on
Paper?
IRS e-file (electronic filing) is the fast-
est, easiest, and most convenient way
to file your income tax return electroni-
cally.
IRS e-file offers accurate, safe, and fast alternatives to fil-
ing on paper. IRS computers quickly and automatically
check for errors or other missing information.
Note. Returns with a foreign address can be e-filed.
How to e-file. There are three ways
you can e-file.
1. Use your personal computer.
2. Use a volunteer. Many programs offering free tax help
can e-file your return.
3. Use a tax professional. Most tax professionals can
e-file your return.
These methods are explained in detail in the instructions
for your tax return.
Where To File
If any of the following situations apply to you, do not file
your return with the service center listed for your home
state.
•
You claim the foreign earned income exclusion.
•
You claim the foreign housing exclusion or deduction.
•
You live in a foreign country.
Instead, use one of the following special addresses. If
you are not enclosing a check or money order, file your re-
turn with:
Department of the Treasury
Internal Revenue Service
Austin, TX 73301-0215 USA
If you are enclosing a check or money order, file your re-
turn with:
Internal Revenue Service
P.O. Box 1303
Charlotte, NC 28201-1303 USA
If you do not know where your legal residence is and
you do not have a principal place of business in the United
States, you can file with the appropriate address listed
above.
However, you should not file with the addresses listed
above if you are a bona fide resident of the U.S. Virgin Is-
lands, Guam, or the Commonwealth of the Northern Ma-
riana Islands during your entire tax year.
Resident of the U.S. Virgin Islands (USVI). If you are a
bona fide resident of the USVI during your entire tax year,
you are generally not required to file a U.S. return. How-
ever, you must file a return with the USVI.
Send your return to:
Virgin Islands Bureau
of Internal Revenue
6115 Estate Smith Bay
St. Thomas, Virgin Islands 00802
Non-USVI resident with USVI income. If you are a U.S.
citizen or resident alien and you have income from sour-
ces in the USVI or income effectively connected with the
conduct of a trade or business in the USVI, and you are
not a bona fide resident of the USVI during your entire tax
year, you must file identical tax returns with the United
States and the USVI. File the original return with the Uni-
ted States and file a signed copy of the U.S. return (includ-
ing all attachments, forms, and schedules) with the Virgin
Islands Bureau of Internal Revenue.
You must complete Form 8689 and attach a copy to
both your U.S. return and your USVI return. You should file
your U.S. return with the address listed under Where To
File, earlier.
See Pub. 570 for information about filing U.S. Virgin Is-
lands returns.
Resident of Guam. If you are a bona fide resident of
Guam during your entire tax year, you should file a return
with Guam.
Send your return to:
Department of Revenue and Taxation
Government of Guam
P.O. Box 23607
GMF, GU 96921
However, if you have income from sources within Guam
and you are a U.S. citizen or resident alien, but not a bona
fide resident of Guam during the entire tax year, you
should file a return with the United States. Send your re-
turn to the address listed under Where To File, earlier.
See Pub. 570 for information about filing Guam returns.
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Resident of the Commonwealth of the Northern Ma-
riana Islands (CNMI). If you are a bona fide resident of
the CNMI during your entire tax year, you should file a re-
turn with the CNMI.
Send your return to:
Division of Revenue and Taxation
Commonwealth of the Northern Mariana Islands
P.O. Box 5234, CHRB
Saipan, MP 96950
However, if you have income from sources within the
CNMI and you are a U.S. citizen or resident alien, but not
a bona fide resident of the CNMI during the entire tax year,
you should file a return with the United States. Send your
return to the address listed under Where To File, earlier.
See Pub. 570 for information about filing CNMI returns.
Note. Puerto Rico and American Samoa have their own
separate and independent tax systems. Although their tax
laws are modeled on the U.S. Internal Revenue Code,
there are certain differences in law and tax rates. See Pub.
570 for information about tax obligations in Puerto Rico
and American Samoa.
Nonresident Alien Spouse
Treated as a Resident
If, at the end of your tax year, you are married and one
spouse is a U.S. citizen or resident alien and the other is a
nonresident alien, you can choose to treat the nonresident
as a U.S. resident. This election includes situations in
which one of you is a nonresident alien at the beginning of
the tax year and a resident alien at the end of the year and
the other is a nonresident alien at the end of the year.
If you make this choice, the following two rules apply.
•
You and your spouse are treated, for income tax pur-
poses and purposes of wage withholding, as U.S. resi-
dents for the tax year in which the election is made
and all future tax years until the election is terminated
or suspended because neither spouse is a citizen or
resident of the United States at any time during a year.
•
You must file a joint income tax return for the year you
make the choice and attach a statement as described
under How To Make the Choice, later.
This means that neither of you can claim under any tax
treaty not to be a U.S. resident for a tax year for which the
choice is in effect.
Example 1. Pat Smith, a U.S. citizen, is married to
Norman, a nonresident alien. Pat and Norman make the
choice to treat Norman as a resident alien by attaching a
statement to their joint return. Pat and Norman must report
their worldwide income for the year they make the choice
and for all later years unless the choice is ended or sus-
pended. Although Pat and Norman must file a joint return
for the year they make the choice, they can file either joint
or separate returns for later years.
Example 2. When Bob and Sharon Williams got mar-
ried, both were nonresident aliens. In June of last year,
Bob became a resident alien and remained a resident for
the rest of the year. Bob and Sharon both choose to be
treated as resident aliens by attaching a statement to their
joint return for last year. Bob and Sharon must report their
worldwide income for last year and all later years unless
the choice is ended or suspended. Bob and Sharon must
file a joint return for last year, but they can file either joint
or separate returns for later years.
If you do not choose to treat your nonresident
alien spouse as a U.S. resident, you may be able
to use head of household filing status. To use this
status, you must pay more than half the cost of maintain-
ing a household for certain dependents or relatives other
than your nonresident alien spouse. For more information,
see Pub. 501.
Social Security Number (SSN)
If you choose to treat your nonresident alien spouse as a
U.S. resident, your spouse must have either an SSN or an
individual taxpayer identification number (ITIN).
To get an SSN for a nonresident alien spouse, apply at
an office of the U.S. Social Security Administration (SSA)
or U.S. consulate. For more information go to SSA.gov or
call 800-772-1213.
If the nonresident alien spouse is not eligible to get an
SSN, the spouse can file Form W-7 with the IRS to apply
for an ITIN when you timely file the joint return on which
you choose to treat your nonresident alien spouse as a
U.S. resident. Follow the Instructions for Form W-7 to sub-
mit your Form W-7 and file your return.
Individual taxpayer identification number (ITIN) re-
newal. Your spouse may need to renew the ITIN. For
more information, go to IRS.gov/ITIN.
How To Make the Choice
Attach a statement, signed by both spouses, to your joint
return for the first tax year for which the choice applies. It
should contain the following.
•
A declaration that one spouse was a nonresident alien
and the other spouse a U.S. citizen or resident alien
on the last day of your tax year and that you choose to
be treated as U.S. residents for the entire tax year.
•
The name, address, and SSN (or ITIN) of each
spouse. (If one spouse died, include the name and
address of the person making the choice for the de-
ceased spouse.)
You generally make this choice when you file your joint
return. However, you can also make the choice by filing a
joint amended return on Form 1040-X. Attach Form 1040
or 1040-SR and enter “Amended” across the top of the
TIP
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amended return. If you make the choice with an amended
return, you and your spouse must also amend any returns
that you may have filed after the year for which you made
the choice.
You must generally file the amended joint return within
3 years from the date you filed your original U.S. income
tax return or 2 years from the date you paid your income
tax for that year, whichever is later.
Suspending the Choice
The choice to be treated as a resident alien does not ap-
ply to any later tax year if neither of you is a U.S. citizen or
resident alien at any time during the later tax year.
Example. Dick Brown was a resident alien on Decem-
ber 31, 2020, and married to Judy, a nonresident alien.
They chose to treat Judy as a resident alien and filed joint
income tax returns for 2020 and 2021. On January 10,
2022, Dick became a nonresident alien. Judy had re-
mained a nonresident alien. Because Dick was a resident
alien during part of 2022, Dick and Judy can file joint or
separate returns for that year. Neither Dick nor Judy was a
resident alien at any time during 2023 and their choice is
suspended for that year. For 2023, both are treated as
nonresident aliens. If Dick becomes a resident alien again
in 2024, their choice is no longer suspended and both are
treated as resident aliens.
Ending the Choice
Once made, the choice to be treated as a resident applies
to all later years unless suspended (as explained earlier)
or ended in one of the ways shown in Table 1-1.
If the choice is ended for any of the reasons listed in Ta-
ble 1-1, neither spouse can make a choice in any later tax
year.
Estimated Tax Payments
The requirements for determining who must pay estimated
tax are the same for a U.S. citizen or resident abroad as
for a taxpayer in the United States.
In general, you don’t have to make estimated tax pay-
ments if you expect that your 2024 Form 1040 or 1040-SR
will show a tax refund or a tax balance due of less than
$1,000. For more information on whether you are required
to make estimated tax payments see Form 1040-ES and
Estimated Tax for 2023 in Pub. 505 (2024).
Foreign earned income exclusion. When figuring your
estimated gross income, subtract amounts you expect to
exclude under the foreign earned income exclusion and
the foreign housing exclusion. In addition, you can reduce
your income by your estimated foreign housing deduction.
However, you must estimate tax on your nonexcluded in-
come using the tax rates that will apply had you not exclu-
ded the income. If the actual amount of the exclusion or
deduction is less than you estimate, you may have to pay
a penalty for underpayment of estimated tax.
For more information, see the Instructions for Form
2555.
Other Forms You May Have To
File
FinCEN Form 114. You must file FinCEN Form 114, Re-
port of Foreign Bank and Financial Accounts (FBAR), if
you had any financial interest in, or signature or other au-
thority over, a bank, securities, or other financial account
in a foreign country. You do not need to file the report if the
assets are with a U.S. military banking facility operated by
a financial institution or if the combined assets in the ac-
count(s) are $10,000 or less during the entire year.
Table 1-1. Options for Ending the Choice To Treat Nonresident Alien Spouse as a Resident
Revocation Either spouse can revoke the choice for any tax year.
The revocation must be made by the due date for filing the tax return for that tax year.
The spouse who revokes the choice must attach a signed statement declaring that the choice is being revoked. The statement
revoking the choice must include the following.
•
The name, address, and SSN (or TIN) of each spouse.
•
The name and address of any person who is revoking the choice for a deceased spouse.
•
A list of any states, foreign countries, and U.S. territories that have community property laws in which either spouse is
domiciled or where real property is located from which either spouse receives income.
If the spouse revoking the choice does not have to file a return and does not file a claim for refund, send the statement to the Internal
Revenue Service Center where the last joint return was filed.
Death The death of either spouse ends the choice, beginning with the first tax year following the year in which the spouse died.
If the qualifying surviving spouse is a U.S. citizen or resident alien and is entitled to the joint tax rates as a qualifying surviving
spouse, the choice will not end until the close of the last year for which these joint rates may be used.
If both spouses die in the same tax year, the choice ends on the first day after the close of the tax year in which the spouses died.
Divorce or legal
separation
A divorce or legal separation ends the choice as of the beginning of the tax year in which the legal separation occurs.
Inadequate records The IRS can end the choice for any tax year that either spouse has failed to keep adequate books, records, and other
information necessary to determine the correct income tax liability, or to provide adequate access to those records.
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FinCEN Form 114 is filed electronically with the Finan-
cial Crimes Enforcement Network (FinCEN). The due date
for FBAR filings is April 15. FinCEN will grant an automatic
extension to October 15 if you are unable to meet the
FBAR annual due date of April 15. The FBAR due date for
foreign financial accounts maintained during calendar
year 2023 is April 15, 2024, to coincide with the filing date
for the 2023 Form 1040 or 1040-SR. For more information,
go to irs.gov/businesses/small-businesses-self-employed/
report-of-foreign-bank-and-financial-accounts-fbar.l.
FinCEN Form 105. You must file FinCEN Form 105, Re-
port of International Transportation of Currency or Mone-
tary Instruments, if you physically transport, mail, ship, or
cause to be physically transported, mailed, or shipped,
into or out of the United States, currency or other mone-
tary instruments totaling more than $10,000 at one time.
Certain recipients of currency or monetary instruments
must also file FinCEN Form 105.
More information about the filing of FinCEN Form 105
can be found in the instructions on the back of the form,
available at fincen.gov/sites/default/files/shared/
fin105_cmir.pdf.
Form 8938. You must file Form 8938 to report the owner-
ship of specified foreign financial assets if the total value
of those assets exceeds an applicable threshold amount
(the “reporting threshold”). The reporting threshold varies
depending on whether you live in the United States, are
married, or file a joint income tax return with your spouse.
Specified foreign financial assets include any financial ac-
count maintained by a foreign financial institution and, to
the extent held for investment, any stock, securities, or any
other interest in a foreign entity and any financial instru-
ment or contract with an issuer or counterparty that is not
a U.S. person.
You may have to pay penalties if you are required to file
Form 8938 and fail to do so, or if you have an understate-
ment of tax due to any transaction involving an undis-
closed foreign financial asset.
More information about the filing of Form 8938 can be
found in the separate Instructions for Form 8938.
2.
Withholding Tax
Topics
This chapter discusses:
•
Withholding income tax from the pay of U.S. citizens,
•
Withholding tax at a flat rate, and
•
Social security and Medicare taxes.
Useful Items
You may want to see:
Publication
505 Tax Withholding and Estimated Tax
Form (and Instructions)
673 Statement for Claiming Exemption From
Withholding on Foreign Earned Income Eligible
for the Exclusion Provided by Section 911
W-4 Employee's Withholding Allowance Certificate
W-9 Request for Taxpayer Identification Number and
Certification
See chapter 7 for information about getting this publication
and these forms.
Income Tax Withholding
U.S. employers must generally withhold U.S. income tax
from the pay of U.S. citizens working abroad unless the
employer is required by foreign law to withhold foreign in-
come tax.
Foreign earned income exclusion. Your employer
does not have to withhold U.S. income taxes from wages
you earn abroad if it is reasonable to believe that you will
exclude them from income under the foreign earned in-
come exclusion or the foreign housing exclusion.
Your employer should withhold taxes from any wages
you earn for working in the United States.
Statement. You can give a statement to your employer
indicating that you expect to qualify for the foreign earned
income exclusion under either the bona fide residence test
or the physical presence test and indicating your estima-
ted housing cost exclusion.
Form 673 is an acceptable statement. You can use
Form 673 only if you are a U.S. citizen. You do not have to
use the form and can prepare your own statement. For
more information, go to IRS.gov/Form 673.
Generally, your employer can stop the withholding once
you submit the statement that includes a declaration that
the statement is made under penalties of perjury. How-
ever, if your employer has reason to believe that you will
not qualify for either the foreign earned income or the for-
eign housing exclusion, your employer must continue to
withhold.
Your employer must consider any information about pay
you received from any other source outside the United
States in determining whether your foreign earned income
is more than the limit on either the foreign earned income
exclusion or the foreign housing exclusion.
Foreign tax credit. If you plan to take a foreign tax credit,
you may be able to adjust your withholding on Form W-4.
You can take these additional tax credits only for foreign
tax credits attributable to taxable salary or wage income.
For more information, see the instructions for Step 3 of
Form W-4.
505
673
W-4
W-9
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Withholding from pension payments. U.S. payers of
benefits from employer-deferred compensation plans, in-
dividual retirement plans, and commercial annuities must
generally withhold income tax from payments delivered
outside of the United States. You can choose exemption
from withholding if you:
•
Provide the payer of the benefits with a residence ad-
dress in the United States or a U.S. territory, or
•
Certify to the payer that you are not a U.S. citizen or
resident alien or someone who left the United States
to avoid tax.
Check your withholding. Before you report U.S. income
tax withholding on your tax return, you should carefully re-
view all information documents, such as Form W-2 and
the Form 1099 information returns. Compare other re-
cords, such as final pay records or bank statements, with
Form W-2 or Form 1099 to verify the withholding on these
forms. Check your U.S. income tax withholding even if you
pay someone else to prepare your tax return. You may be
assessed penalties and interest if you claim more than
your correct amount of withholding allowances.
30% Flat Rate Withholding
Generally, U.S. source gross income that is not effectively
connected to a U.S. trade or business, such as U.S.
source dividends and royalties, is subject to withholding
tax at a flat 30% (or lower treaty) rate if paid to nonresident
aliens. If you are a U.S. citizen or resident alien and this
tax is withheld in error from payments to you because you
have a foreign address, you should notify the payer of the
income to stop the withholding. Use Form W-9 to notify
the payer.
You can claim the tax withheld in error as a withholding
credit on your tax return if the amount isn’t adjusted by the
payer. See the Instructions for Form 1040 for how to claim
the credit.
Social security benefits paid to residents. If you are a
lawful permanent resident (green card holder) and a flat
30% tax was withheld in error on your social security ben-
efits, you must file a Form 1040 or 1040-SR with the Inter-
nal Revenue Service Center at the address listed under
Where To File, earlier, to determine if you are entitled to a
refund. The following information must be submitted with
your Form 1040 or 1040-SR.
•
A copy of Form SSA-1042S, Social Security Benefit
Statement.
•
A copy of your “green card.”
•
A signed declaration that includes the following state-
ments.
“I am a U.S. lawful permanent resident and my green
card has been neither revoked nor administratively or
judicially determined to have been abandoned. I am
filing a U.S. income tax return for the tax year as a res-
ident alien reporting all of my worldwide income. I
have not claimed benefits for the tax year under an in-
come tax treaty as a nonresident alien.”
Social Security and Medicare
Taxes
Social security and Medicare taxes may apply to wages
paid to an employee regardless of where the services are
performed.
General Information
In general, U.S. social security and Medicare taxes do not
apply to wages for services you perform as an employee
outside the United States unless one of the following ex-
ceptions applies.
1. You perform the services on or in connection with an
American vessel or aircraft (defined later) and either:
a. You entered into your employment contract within
the United States, or
b. The vessel or aircraft touches at a U.S. port while
you are employed on it.
2. The service is designated as employment for U.S. so-
cial security and Medicare tax purposes under a bilat-
eral social security (totalization) agreement (dis-
cussed later).
3. You are working for an American employer (defined
later).
4. You are working for a foreign affiliate (defined later) of
an American employer under a voluntary agreement
entered into between the American employer and the
U.S. Department of the Treasury.
American vessel or aircraft. An American vessel is any
vessel documented or numbered under the laws of the
United States and any other vessel whose crew is em-
ployed solely by one or more U.S. citizens, residents, or
corporations. An American aircraft is an aircraft registered
under the laws of the United States.
American employer. An American employer includes
any of the following.
•
The U.S. Government or any of its instrumentalities.
•
An individual who is a resident of the United States.
•
A partnership of which at least two-thirds of the part-
ners are U.S. residents.
•
A trust of which all the trustees are U.S. residents.
•
A corporation organized under the laws of the United
States, any U.S. state, or the District of Columbia, Pu-
erto Rico, the U.S. Virgin Islands, Guam, or American
Samoa.
An American employer also includes any foreign per-
son with an employee who is performing services in con-
nection with a contract between the U.S. Government (or
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any instrumentality thereof) and a member of a domesti-
cally controlled group of entities which includes such for-
eign person.
Foreign affiliate. A foreign affiliate of an American em-
ployer is any foreign entity in which the American em-
ployer has at least a 10% interest, directly or through one
or more entities. For a corporation, the 10% interest must
be in its voting stock. For any other entity, the 10% interest
must be in its profits.
Form 2032 is used by American employers to extend
social security coverage to U.S. citizens and resident ali-
ens working abroad for foreign affiliates of American em-
ployers. Once you enter into an agreement, coverage can-
not be terminated.
Excludable meals and lodging. Social security tax
doesn’t apply to the value of meals and lodging provided
to you for the convenience of your employer if it is reason-
able to believe that you will be able to exclude the value
from your income.
Bilateral Social Security (Totalization)
Agreements
The United States has entered into agreements with some
foreign countries to coordinate social security coverage
and taxation of workers who are employed in those coun-
tries. These agreements are commonly referred to as “to-
talization agreements.” Under these agreements, dual
coverage and dual contributions (taxes) for the same work
are eliminated. The agreements generally make sure that
you pay social security taxes to only one country.
Generally, under these agreements, you will only be
subject to social security taxes in the country where you
are working. However, if you are temporarily sent to work
in a foreign country and your pay would otherwise be sub-
ject to social security taxes in both the United States and
that country, you can generally remain covered only by
U.S. social security.
You can get more information on specific agreements at
SSA.gov/International/ Agreement and IRS.gov/
TotalizationAgreements.
You can write to:
Social Security Administration
Office of Data Exchange
and International Agreements
6401 Security Blvd., 4700 Annex
Baltimore, MD 21235
You may also contact the Office of Earnings and
International Operations by phone if you speak
English. You can call the office at 410-965-0160.
You will need to pay for the call because it is not a toll-free
service for calls from outside the United States. If you call,
please do so between 9:00 a.m. and 4:00 p.m. Eastern
U.S. Time.
Covered by United States only. If your pay in a foreign
country is subject only to U.S. social security tax and is ex-
empt from foreign social security tax, your employer
should get a certificate of coverage from the SSA’s Office
of Earnings and International Operations. Employers can
request a certificate of coverage online at SSA.gov/
international/CoC_link.html.
Covered by foreign country only. If you are perma-
nently working in a foreign country with which the United
States has a social security agreement and, under the
agreement, your pay is exempt from U.S. social security
tax, you or your employer should get a statement from the
authorized official or agency of the foreign country verify-
ing that your pay is subject to social security coverage in
that country.
If the authorities of the foreign country will not issue
such a statement, either you or your employer should get
a statement from the U.S. SSA’s Office of Earnings and In-
ternational Operations at the website listed earlier. The
statement should indicate that your wages aren’t covered
by the U.S. social security system.
This statement should be kept by your employer be-
cause it establishes that your pay is exempt from U.S. so-
cial security tax.
Only wages paid on or after the effective date of the to-
talization agreement can be exempt from U.S. social se-
curity tax.
3.
Self-Employment Tax
Topics
This chapter discusses:
•
Who must pay self-employment tax,
•
Who is exempt from self-employment tax,
•
Who can defer self-employment tax payments, and
•
Which self-employed individuals can take the
refundable income tax credits for sick and family
leave.
Useful Items
You may want to see:
Publication
334 Tax Guide for Small Business
517 Social Security and Other Information for
Members of the Clergy and Religious Workers
334
517
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Form (and Instructions)
Formulario 1040-PR Planilla para la Declaración de
la Contribución Federal sobre el Trabajo por
Cuenta Propia
Form 1040-SS U.S. Self-Employment Tax Return
Form 4361 Application for Exemption From
Self-Employment Tax for Use by Ministers,
Members of Religious Orders and Christian
Science Practitioners
Schedule SE (Form 1040) Self-Employment Tax
See chapter 7 for information about getting these publica-
tions and forms.
Who Must Pay
Self-Employment Tax?
If you are a self-employed U.S. citizen or resident, the
rules for paying self-employment tax are generally the
same whether you are living in the United States or
abroad.
The self-employment tax is a social security and Medi-
care tax on net earnings from self-employment. You must
pay self-employment tax if your net earnings from self-em-
ployment are at least $400.
For 2023, the maximum amount of net earnings from
self-employment that is subject to the social security por-
tion of the tax is $160,200. All net earnings are subject to
the Medicare portion of the tax. Additional Medicare Tax
may apply to you if your net earnings from self-employ-
ment exceed a threshold amount (based on your filing sta-
tus).
Employed by a U.S. Church
If you were employed by a U.S. church or a qualified
church-controlled organization that chose exemption from
social security and Medicare taxes and you received wa-
ges of $108.28 or more from the organization, the
amounts paid to you are subject to self-employment tax.
However, you can choose to be exempt from social secur-
ity and Medicare taxes if you are a member of a recog-
nized religious sect. See Pub. 517 for more information
about church employees and self-employment tax.
Effect of Exclusion
You must take all of your self-employment income into ac-
count in figuring your net earnings from self-employment,
even income that is exempt from income tax because of
the foreign earned income exclusion.
Example. You are in business abroad as a consultant
and qualify for the foreign earned income exclusion. Your
foreign earned income is $95,000, your business deduc-
tions total $27,000, and your net profit is $68,000. You
must pay self-employment tax on your net profit of
Formulario 1040-PR
Form 1040-SS
Form 4361
Schedule SE (Form 1040)
$68,000, even though you are qualified for the foreign
earned income exclusion.
Members of the Clergy
If you are a member of the clergy, you are treated as
self-employed for self-employment tax purposes. Your
U.S. self-employment tax is based upon net earnings from
self-employment figured without regard to the foreign
earned income exclusion or the foreign housing exclusion.
You can receive exemption from coverage for your min-
isterial duties if you conscientiously oppose public insur-
ance due to religious reasons or if you oppose it due to the
religious principles of your denomination. You must file
Form 4361 to apply for this exemption.
This subject is discussed in further detail in Pub. 517.
Income From U.S. Territories
If you are a U.S. citizen or resident alien and you own and
operate a business in a U.S. territory (Puerto Rico, Guam,
the Commonwealth of the Northern Mariana Islands,
American Samoa, or the U.S. Virgin Islands), you must
pay tax on your net earnings from self-employment (if they
are $400 or more) from those sources. You must pay the
self-employment tax whether or not the income is exempt
from U.S. income taxes (or whether or not you must other-
wise file a U.S. income tax return). Unless your situation is
described below, attach Schedule SE (Form 1040) to your
U.S. income tax return.
If you do not have to file Form 1040 or 1040-SR with the
United States and you are a resident of any of the U.S. ter-
ritories listed in the preceding paragraph, figure your
self-employment tax on Form 1040-SS. Residents of Pu-
erto Rico may file the Spanish-language Formulario
1040-PR.
If you are not enclosing a check or money order, file
your return with:
Department of the Treasury
Internal Revenue Service
Austin, TX 73301-0215
If you are enclosing a check or money order, file your
return with:
Internal Revenue Service
P.O. Box 1303
Charlotte, NC 28201-1303
Exemption From Dual-Country
Social Security and Medicare
Taxes
The United States may reach agreements with foreign
countries to eliminate dual coverage and dual
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contributions (taxes) to social security systems for the
same work. See Bilateral Social Security (Totalization)
Agreements in chapter 2 under Social Security and Medi-
care Taxes. As a general rule, self-employed persons who
are subject to dual taxation will only be covered by the so-
cial security system of the country where they reside. For
more information on how a specific agreement affects
self-employed persons, see Bilateral Social Security (To-
talization) Agreements in chapter 2.
If your self-employment earnings should be exempt
from foreign social security tax and subject only to U.S.
self-employment tax, you should request a certificate of
coverage from the U.S. SSA’s Office of Earnings and Inter-
national Operations. The certificate will establish your ex-
emption from the foreign social security tax.
You can request a certificate of coverage online at
SSA.gov/international/CoC_link.html.
4.
Foreign Earned Income
and Housing: Exclusion –
Deduction
Topics
This chapter discusses:
•
Who qualifies for the foreign earned income exclusion
and the foreign housing exclusion or the foreign
housing deduction;
•
The requirements that must be met to claim either of
the exclusions or the deduction;
•
How to determine the amount of the foreign earned
income exclusion; and
•
How to determine the amount of foreign housing
exclusion and the foreign housing deduction.
Useful Items
You may want to see:
Publication
519 U.S. Tax Guide for Aliens
570 Tax Guide for Individuals With Income From
U.S. Possessions
596 Earned Income Credit (EIC)
Form (and Instructions)
1040-X Amended U.S. Individual Income Tax Return
519
570
596
1040-X
2555 Foreign Earned Income
See chapter 7 for information about getting these publica-
tions and forms.
Who Qualifies for the
Exclusions and the Deduction?
If you meet certain requirements, you may qualify for the
foreign earned income exclusion and foreign housing ex-
clusion or the foreign housing deduction.
If you are a U.S. citizen or resident alien and you live
abroad, you are taxed on your worldwide income. How-
ever, you may qualify to exclude from income up to
$120,000 of your foreign earnings. In addition, you can ex-
clude or deduct certain foreign housing amounts. See For-
eign Earned Income Exclusion and Foreign Housing Ex-
clusion and Deduction, later.
You may also be entitled to exclude from income the
value of meals and lodging provided to you by your em-
ployer. See Exclusion of Meals and Lodging, later.
Requirements
To claim the foreign earned income exclusion and the for-
eign housing exclusion, or the foreign housing deduction,
you must meet all three of the following requirements:
1. Your tax home must be in a foreign country.
2. You must have foreign earned income.
3. You must be one of the following.
a. A U.S. citizen who is a bona fide resident of a for-
eign country or countries for an uninterrupted pe-
riod that includes an entire tax year.
b. A U.S. resident alien who is a citizen or national of
a country with which the United States has an in-
come tax treaty in effect and who is a bona fide
resident of a foreign country or countries for an un-
interrupted period that includes an entire tax year.
c. A U.S. citizen or a resident alien who is physically
present in a foreign country or countries for at
least 330 full days during any period of 12 consec-
utive months.
See Pub. 519 to find out if you are a U.S. resident alien
for tax purposes and whether you keep that alien status
when you temporarily work abroad.
If you are a nonresident alien married to a U.S. citizen
or resident alien, and both you and your spouse choose to
treat you as a resident alien, you are a resident alien for
tax purposes. For information on making the choice, see
the discussion in chapter 1 under Nonresident Alien
Spouse Treated as a Resident.
Waiver of minimum time requirements. The minimum
time requirements for bona fide residence and physical
2555
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presence can be waived if you must leave a foreign coun-
try because of war, civil unrest, or similar adverse condi-
tions in that country. This is fully explained under Waiver of
Time Requirements, later.
See Figure 4-A and information in this chapter to deter-
mine if you are eligible to claim either one of the exclu-
sions or the deduction.
Tax Home in Foreign Country
To qualify for the foreign earned income exclusion and the
foreign housing exclusion, or the foreign housing deduc-
tion, your tax home must be in a foreign country through-
out your period of bona fide residence or physical pres-
ence abroad. See Bona Fide Residence Test and Physical
Presence Test, later.
Tax Home
Your tax home is the general area of your main place of
business, employment, or post of duty, regardless of
where you maintain your family home. Your tax home is
the place where you are permanently or indefinitely en-
gaged to work as an employee or self-employed individ-
ual. Having a “tax home” in a given location doesn’t nec-
essarily mean that the given location is your residence or
domicile for tax purposes.
If you do not have a regular or main place of business
because of the nature of your work, your tax home may be
the place where you regularly live. If you have neither a
regular or main place of business nor a place where you
regularly live, you are considered an itinerant and your tax
home is wherever you work.
You aren’t considered to have a tax home in a foreign
country for any period in which your abode is in the United
States, unless you are serving in support of the U.S.
Armed Forces in an area designated as a combat zone.
See Service in a combat zone, later. Otherwise, if your
abode is in the United States, you will not meet the tax
home test and cannot claim the foreign earned income ex-
clusion.
The location of your abode is based on where you
maintain your family, economic, and personal ties. Your
abode is not necessarily in the United States merely be-
cause you maintain a dwelling in the United States,
whether or not your spouse or dependents use the dwell-
ing. Your abode is also not necessarily in the United
States while you are temporarily in the United States; how-
ever, these factors can contribute to your having an abode
in the United States.
Example 1. You are employed on an offshore oil rig in
the territorial waters of a foreign country and work a
28-day on/28-day off schedule. You return to your family
residence in the United States during your off periods. You
are considered to have an abode in the United States and
don’t satisfy the tax home test in the foreign country. You
can’t claim either of the exclusions or the housing deduc-
tion.
Example 2. For several years, you were a marketing
executive with a producer of machine tools in Toledo,
Ohio. In November of last year, your employer transferred
you to London, England, for a minimum of 18 months to
set up a sales operation for Europe. Before you left, you
distributed business cards showing your business and
home addresses in London. You kept ownership of your
home in Toledo but rented it to another family. You placed
your car in storage. In November of last year, you moved
your spouse, children, furniture, and family pets to a home
your employer rented for you in London.
Shortly after moving, you leased a car and you and
your spouse got British driver’s licenses. Your entire family
got library cards for the local public library. You and your
spouse opened bank accounts with a London bank and
secured consumer credit. You joined a local business lea-
gue and both you and your spouse became active in the
neighborhood civic association and worked with a local
charity. Your abode is in London for the time you live there.
You satisfy the tax home test in the foreign country.
Service in a combat zone. U.S. citizens or residents
serving in an area designated by the President of the Uni-
ted States by Executive Order as a combat zone for pur-
poses of section 112 in support of the U.S. Armed Forces
can qualify as having a tax home in a foreign country, even
if they have an abode within the United States. For a list of
IRS-recognized combat zones, go to IRS.gov/Newsroom/
Combat-Zones.
Temporary or Indefinite Assignment
The location of your tax home often depends on whether
your assignment is temporary or indefinite. If you are tem-
porarily absent from your tax home in the United States on
business, you may be able to deduct your
away-from-home expenses (for travel, meals, and lodg-
ing), but you wouldn’t qualify for the foreign earned in-
come exclusion. If your new work assignment is for an in-
definite period, your new place of employment becomes
your tax home and you wouldn’t be able to deduct any of
the related expenses that you have in the general area of
this new work assignment. If your new tax home is in a for-
eign country and you meet the other requirements, your
earnings may qualify for the foreign earned income exclu-
sion.
If you expect your employment away from home in a
single location to last, and it does last, for 1 year or less, it
is temporary unless facts and circumstances indicate oth-
erwise.
If you expect it to last for more than 1 year, it is indefi-
nite.
If you expect it to last for 1 year or less, but at some
later date you expect it to last longer than 1 year, it is tem-
porary (in the absence of facts and circumstances indicat-
ing otherwise) until your expectation changes. Once your
expectation changes, it is indefinite.
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Foreign Country
To meet the bona fide residence test or the physical pres-
ence test, you must live in or be present in a foreign coun-
try. A foreign country includes any territory under the sov-
ereignty of a government other than that of the United
States.
The term “foreign country” includes the country's air-
space and territorial waters, but not international waters
and the airspace above them. It also includes the seabed
and subsoil of those submarine areas adjacent to the
country's territorial waters over which it has exclusive
rights under international law to explore and exploit the
natural resources.
The term “foreign country” doesn’t include Antarctica or
U.S. territories such as Puerto Rico, Guam, the Common-
wealth of the Northern Mariana Islands, the U.S. Virgin Is-
lands, and American Samoa. For purposes of the foreign
earned income exclusion, the foreign housing exclusion,
and the foreign housing deduction, the terms “foreign,”
“abroad,” and “overseas” refer to areas outside the United
States and those areas listed or described in the previous
sentence.
American Samoa, Guam, and the
Commonwealth of the Northern Mariana
Islands
Residence or presence in a U.S. territory doesn’t qualify
you for the foreign earned income exclusion. You may,
however, qualify for an exclusion of your territory income
on your U.S. return.
American Samoa. There is a territory exclusion available
to individuals who are bona fide residents of American Sa-
moa for the entire tax year. Gross income from sources
within American Samoa may be eligible for this exclusion.
Income that is effectively connected with the conduct of a
trade or business within American Samoa may also be eli-
gible for this exclusion. Use Form 4563 to figure the exclu-
sion.
Guam and the Commonwealth of the Northern Ma-
riana Islands. An exclusion will be available to residents
Yes No
YesNo Yes
No
Yes
No
Yes
Yes
No
Yes
No
No
Start Here
Figure 4-A. Can I Claim Either Exclusion or the Deduction?
Do you have foreign
earned income?
Is your tax home in a
foreign country?
Are you a U.S. citizen?
Are you a U.S. resident
alien?
Were you a bona de
resident of a foreign
country or countries
for an uninterrupted
period that includes an
entire tax year?
Are you a citizen or
national of a country
with which the United
States has an income
tax treaty in effect?
You CAN claim the
foreign earned income
exclusion and the
foreign housing
exclusion or the foreign
housing deduction.
*
Were you physically
present in a foreign
country or countries for
at least 330 full days
during any period of 12
consecutive months?
You CANNOT claim the foreign earned income exclusion, the
foreign housing exclusion, or the foreign housing deduction.
* Foreign housing exclusion applies only to employees. Foreign housing deduction applies only to the self-employed.
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of Guam and the Commonwealth of the Northern Mariana
Islands if, and when, new implementation agreements
take effect between the United States and those territo-
ries.
For more information, see Pub. 570.
Puerto Rico and the U.S. Virgin Islands
Residents of Puerto Rico and the U.S. Virgin Islands can’t
claim the foreign earned income exclusion or the foreign
housing exclusion.
Puerto Rico. Generally, if you are a U.S. citizen who is a
bona fide resident of Puerto Rico for the entire tax year,
you aren’t subject to U.S. tax on income from Puerto Rican
sources. This doesn’t include amounts paid for services
performed as an employee of the United States. However,
you are subject to U.S. tax on your income from sources
outside Puerto Rico. In figuring your U.S. tax, you can’t de-
duct expenses allocable to income not subject to tax.
Bona Fide Residence Test
You meet the bona fide residence test if you are a bona
fide resident of a foreign country or countries for an unin-
terrupted period that includes an entire tax year. You can
use the bona fide residence test to qualify for the exclu-
sions and the deduction only if you are either:
•
A U.S. citizen, or
•
A U.S. resident alien who is a citizen or national of a
country with which the United States has an income
tax treaty in effect.
You do not automatically acquire bona fide resident sta-
tus merely by living in a foreign country or countries for 1
year. If you go to a foreign country to work on a particular
job for a specified period of time, you won’t ordinarily be
regarded as a bona fide resident of that country even
though you work there for 1 tax year or longer. The length
of your stay and the nature of your job are only two of the
factors to be considered in determining whether you meet
the bona fide residence test.
Bona fide residence. To meet the bona fide residence
test, you must have established a bona fide residence in a
foreign country.
Your bona fide residence isn’t necessarily the same as
your domicile. Your domicile is your permanent home, the
place to which you always return or intend to return.
Example. You could have your domicile in Cleveland,
Ohio, and a bona fide residence in Edinburgh, Scotland, if
you intend to return eventually to Cleveland.
The fact that you go to Scotland does not automatically
make Scotland your bona fide residence. If you go there
as a tourist, or on a short business trip, and return to the
United States, you haven’t established bona fide resi-
dence in Scotland. But if you go to Scotland to work for an
indefinite or extended period and you set up permanent
quarters there for yourself and your family, you have prob-
ably established a bona fide residence in a foreign
country, even though you intend to return eventually to the
United States.
You are clearly not a resident of Scotland in the first in-
stance. However, in the second, you are a resident be-
cause your stay in Scotland appears to be permanent. If
your residency is not as clearly defined as either of these
illustrations, it may be more difficult to decide whether you
have established a bona fide residence.
Determination. Questions of bona fide residence are
determined according to each individual case, taking into
account factors such as your intention, the purpose of
your trip, and the nature and length of your stay abroad.
To meet the bona fide residence test, you must show
the IRS that you have been a bona fide resident of a for-
eign country or countries for an uninterrupted period that
includes an entire tax year. The IRS decides whether you
are a bona fide resident of a foreign country largely on the
basis of facts you report on Form 2555. The IRS cannot
make this determination until you file Form 2555.
Statement to foreign authorities. You aren’t considered
a bona fide resident of a foreign country if you make a
statement to the authorities of that country that you aren’t
a resident of that country, and the authorities:
•
Hold that you aren’t subject to their income tax laws as
a resident, or
•
Haven’t made a final decision on your status.
Special agreements and treaties. An income tax ex-
emption provided in a treaty or other international agree-
ment won’t in itself prevent you from being a bona fide res-
ident of a foreign country. Whether a treaty prevents you
from becoming a bona fide resident of a foreign country is
determined under all provisions of the treaty, including
specific provisions relating to residence or privileges and
immunities.
Example 1. You are a U.S. citizen employed in the Uni-
ted Kingdom by a U.S. employer under contract with the
U.S. Armed Forces. You aren’t subject to the North Atlan-
tic Treaty Status of Forces Agreement. You may be a bona
fide resident of the United Kingdom.
Example 2. You are a U.S. citizen in the United King-
dom who qualifies as an “employee” of an armed service
or as a member of a “civilian component” under the North
Atlantic Treaty Status of Forces Agreement. You aren’t a
bona fide resident of the United Kingdom.
Example 3. You are a U.S. citizen employed in Japan
by a U.S. employer under contract with the U.S. Armed
Forces. You are subject to the agreement of the Treaty of
Mutual Cooperation and Security between the United
States and Japan. Being subject to the agreement doesn’t
make you a bona fide resident of Japan.
Example 4. You are a U.S. citizen employed as an “of-
ficial” by the United Nations in Switzerland. You are ex-
empt from Swiss taxation on the salary or wages paid to
you by the United Nations. This doesn’t prevent you from
being a bona fide resident of Switzerland.
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Effect of voting by absentee ballot. If you are a U.S.
citizen living abroad, you can vote by absentee ballot in
any election held in the United States without risking your
status as a bona fide resident of a foreign country.
However, if you give information to the local election of-
ficials about the nature and length of your stay abroad that
does not match the information you give for the bona fide
residence test, the information given in connection with
absentee voting will be considered in determining your
status, but won’t necessarily be conclusive.
Uninterrupted period including entire tax year. To
meet the bona fide residence test, you must reside in a
foreign country or countries for an uninterrupted period
that includes an entire tax year. An entire tax year is from
January 1 through December 31 for taxpayers who file
their income tax returns on a calendar-year basis.
During the period of bona fide residence in a foreign
country, you can leave the country for brief or temporary
trips back to the United States or elsewhere for vacation or
business. To keep your status as a bona fide resident of a
foreign country, you must have a clear intention of return-
ing from such trips, without unreasonable delay, to your
foreign residence or to a new bona fide residence in an-
other foreign country.
Example 1. You arrived with your family in Lisbon, Por-
tugal, on November 1, 2022. Your assignment is indefinite,
and you intend to live there with your family until your com-
pany sends you to a new post. You immediately estab-
lished residence there. You spent April of 2023 at a busi-
ness conference in the United States. Your family stayed
in Lisbon. Immediately following the conference, you re-
turned to Lisbon and continued living there. On January 1,
2024, you completed an uninterrupted period of residence
for a full tax year (2023), and you meet the bona fide resi-
dence test.
Example 2. Assume the same facts as in Example 1,
except that you transferred back to the United States on
December 13, 2023. You would not meet the bona fide
residence test because your bona fide residence in the
foreign country, although it lasted more than a year, didn’t
include a full tax year. You may, however, qualify for the
foreign earned income exclusion or the housing exclusion
or deduction under the physical presence test (discussed
later).
Bona fide resident for part of a year. Once you have
established bona fide residence in a foreign country for an
uninterrupted period that includes an entire tax year, you
are a bona fide resident of that country for the period start-
ing with the date you actually began the residence and
ending with the date you abandon the foreign residence.
Your period of bona fide residence can include an entire
tax year plus parts of 2 other tax years.
Example. You were a bona fide resident of Singapore
from March 1, 2021, through September 14, 2023. On
September 15, 2023, you returned to the United States.
Since you were a bona fide resident of a foreign country
for all of 2022, you were also a bona fide resident of a
foreign country from March 1, 2021, through the end of
2021 and from January 1, 2023, through September 14,
2023.
Reassignment. If you are assigned from one foreign
post to another, you may or may not have a break in for-
eign residence between your assignments, depending on
the circumstances.
Example 1. You were a resident of Pakistan from Oc-
tober 1, 2022, through November 30, 2023. On December
1, 2023, you and your family returned to the United States
to wait for an assignment to another foreign country. Your
household goods were also returned to the United States.
Your foreign residence ended on November 30, 2023,
and did not begin again until after you were assigned to
another foreign country and physically entered that coun-
try. Since you weren’t a bona fide resident of a foreign
country for the entire tax year of 2022 or 2023, you don’t
meet the bona fide residence test in either year. You may,
however, qualify for the foreign earned income exclusion
or the housing exclusion or deduction discussed under
Physical Presence Test, later.
Example 2. Assume the same facts as in Example 1,
except that upon completion of your assignment in Paki-
stan you were given a new assignment to Turkey. On De-
cember 1, 2023, you and your family returned to the Uni-
ted States for a month's vacation. On January 2, 2024,
you arrived in Turkey for your new assignment. Because
you didn’t interrupt your bona fide residence abroad, you
meet the bona fide residence test.
Physical Presence Test
You meet the physical presence test if you are physically
present in a foreign country or countries for 330 full days
during a period of 12 consecutive months. The 330 days
don’t have to be consecutive. Any U.S. citizen or resident
alien can use the physical presence test to qualify for the
exclusions and the deduction.
The physical presence test is based only on how long
you stay in a foreign country or countries. This test doesn’t
depend on the kind of residence you establish, your inten-
tions about returning, or the nature and purpose of your
stay abroad.
330 full days. Generally, to meet the physical presence
test, you must be physically present in a foreign country or
countries for at least 330 full days during a 12-month pe-
riod. You can count days you spent abroad for any reason.
You don’t have to be in a foreign country only for employ-
ment purposes. You can be on vacation.
You don’t meet the physical presence test if illness,
family problems, a vacation, or your employer's orders
cause you to be present for less than the required amount
of time.
Exception. You can be physically present in a foreign
country or countries for less than 330 full days and still
meet the physical presence test if you are required to
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leave a country because of war or civil unrest. See Waiver
of Time Requirements, later.
Full day. A full day is a period of 24 consecutive hours,
beginning at midnight.
Travel. When you leave the United States to go directly to
a foreign country or when you return directly to the United
States from a foreign country, the time you spend on or
over international waters doesn’t count toward the
330-day total.
Example. You leave the United States for France by air
on June 10. You arrive in France at 9:00 a.m. on June 11.
Your first full day of physical presence in France is June
12.
Passing over foreign country. If, in traveling from the
United States to a foreign country, you pass over a foreign
country before midnight of the day you leave, the first day
you can count toward the 330-day total is the day following
the day you leave the United States.
Example. You leave the United States by air at 9:30
a.m. on June 10 to travel to Kenya. You pass over western
Africa at 11:00 p.m. on June 10 and arrive in Kenya at
12:30 a.m. on June 11. Your first full day in a foreign coun-
try is June 11.
Change of location. You can move about from one
place to another in a foreign country or to another foreign
country without losing full days. If any part of your travel is
not within any foreign country and takes less than 24
hours, you are considered to be in a foreign country during
that part of travel.
Example 1. You leave Ireland by air at 11:00 p.m. on
July 6 and arrive in Sweden at 3:00 a.m. on July 7. Your
trip takes less than 24 hours and you lose no full days.
Example 2. You leave Norway by ship at 10:00 p.m. on
July 6 and arrive in Portugal at 6:00 a.m. on July 8. Since
your travel isn’t within a foreign country or countries and
the trip takes more than 24 hours, you lose as full days
July 6, 7, and 8. If you remain in Portugal, your next full
day in a foreign country is July 9.
In United States while in transit. If you are in transit
between two points outside the United States and are
physically present in the United States for less than 24
hours, you aren’t treated as present in the United States
during the transit. You are treated as traveling over areas
not within any foreign country.
How to figure the 12-month period. There are four
rules you should know when figuring the 12-month period.
•
Your 12-month period can begin with any day of the
month. It ends the day before the same calendar day,
12 months later.
•
Your 12-month period must be made up of consecu-
tive months. Any 12-month period can be used if the
330 days in a foreign country fall within that period.
•
You don’t have to begin your 12-month period with
your first full day in a foreign country or end it with the
day you leave. You can choose the 12-month period
that gives you the greatest exclusion.
•
In determining whether the 12-month period falls
within a longer stay in the foreign country, 12-month
periods can overlap one another.
Example 1. You are a construction worker who works
on and off in a foreign country over a 20-month period.
You might pick up the 330 full days in a 12-month period
only during the middle months of the time you work in the
foreign country because the first few and last few months
of the 20-month period are broken up by long visits to the
United States.
Example 2. You work in New Zealand for a 20-month
period from January 1, 2022, through August 31, 2023,
except that you spend 28 days in February 2022 and 28
days in February 2023 on vacation in the United States.
You are present in New Zealand for at least 330 full days
during each of the following two 12-month periods: Janu-
ary 1, 2022–December 31, 2022, and September 1,
2022–August 31, 2023. By overlapping the 12-month peri-
ods in this way, you meet the physical presence test for
the whole 20-month period. See Figure 4-B.
Waiver of Time Requirements
Both the bona fide residence test and the physical pres-
ence test contain minimum time requirements. The mini-
mum time requirements can be waived, however, if you
must leave a foreign country because of war, civil unrest,
or similar adverse conditions in that country. You must be
able to show that you could have reasonably expected to
meet the minimum time requirements if not for the adverse
conditions. To qualify for the waiver, you must actually
have your tax home in the foreign country and be a bona
Figure 4-B. How To Figure Overlapping 12-Month Periods
First Full 12-Month Period
Second Full 12-Month Period
*
28-day vacation in the United States
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
’23
*
This gure illustrates Example 2 under How to figure the 12-month period.
*
’22 ’22 ’22 ’22 ’22 ’22 ’22 ’22 ’22 ’22 ’22 ’22 ’23 ’23 ’23 ’23 ’23 ’23 ’23
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fide resident of, or be physically present in, the foreign
country on or before the beginning date of the waiver.
Early in 2024, the IRS will publish in the Internal Reve-
nue Bulletin a list of the only countries that qualify for the
waiver for 2023 and the effective dates. If you left one of
the countries on or after the date listed for each country,
you can meet the bona fide residence test or physical
presence test for 2023 without meeting the minimum time
requirement. However, in figuring your exclusion, the num-
ber of your qualifying days of bona fide residence or physi-
cal presence includes only days of actual residence or
presence within the country.
U.S. Travel Restrictions
If you are present in a foreign country in violation of U.S.
law, you will not be treated as a bona fide resident of a for-
eign country or as physically present in a foreign country
while you are in violation of the law. Income that you earn
from sources within such a country for services performed
during a period of violation does not qualify as foreign
earned income. Your housing expenses within that country
(or outside that country for housing your spouse or de-
pendents) while you are in violation of the law cannot be
included in figuring your foreign housing amount.
At the time this publication was released, the only coun-
try to which travel restrictions applied during 2023 was
Cuba. However, individuals working at the U.S. Naval
Base at Guantanamo Bay in Cuba are not in violation of
U.S. law. Personal service income earned by individuals at
the base is eligible for the foreign earned income exclu-
sion, provided the other requirements are met.
For current information about travel restrictions go
to Travel.state.gov/content/travel/en/international-
travel.html.
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.
Foreign earned income is generally income you receive
for services you perform during a period in which you
meet both of the following requirements.
•
Your tax home is in a foreign country.
•
You meet either the bona fide residence test or the
physical presence test.
To determine whether your tax home is in a foreign coun-
try, see Tax Home in Foreign Country, earlier. To deter-
mine whether you meet either the bona fide residence test
or the physical presence test, see Bona Fide Residence
Test and Physical Presence Test, earlier.
Foreign earned income does not include the following
amounts.
•
The value of meals and lodging that you exclude from
your income because the meals and lodging were
furnished for the convenience of your employer.
•
Pension or annuity payments you receive, including
social security benefits (see Pensions and annuities,
later).
•
Pay you receive as an employee of the U.S. Govern-
ment. (See U.S. Government Employees, later.)
•
Amounts you include in your income because of your
employer's contributions to a nonexempt employee
trust or to a nonqualified annuity contract.
•
Payments you receive after the end of the tax year fol-
lowing the tax year in which you performed the serv-
ices that earned the income.
Earned income. This is pay for personal services per-
formed, such as wages, salaries, or professional fees. The
list that follows classifies many types of income into three
categories. The column headed Variable Income lists in-
come that may fall into either the earned income category,
the unearned income category, or partly into both. For
more information on earned and unearned income, see
Earned and Unearned Income, later.
Earned Income Unearned Income Variable Income
Salaries and wages Dividends Business profits
Commissions Interest Royalties
Bonuses Capital gains Rents
Professional fees Gambling winnings Scholarships and
fellowships
Tips Alimony
Social security benefits
Pensions
Annuities
In addition to the types of earned income listed, certain
noncash income and allowances or reimbursements are
considered earned income.
Noncash income. The fair market value of property or fa-
cilities provided to you by your employer in the form of
lodging, meals, or use of a car is earned income.
Allowances or reimbursements. Earned income in-
cludes allowances or reimbursements you receive, such
as the following amounts.
•
Cost-of-living allowances.
•
Overseas differential.
•
Family allowance.
•
Reimbursement for education or education allowance.
•
Home leave allowance.
•
Quarters allowance.
•
Reimbursement for moving or moving allowance (un-
less excluded from income as discussed later in Reim-
bursement of employee expenses under Earned and
Unearned Income).
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Source of Earned Income
The source of your earned income is the place where you
perform the services for which you received the income.
Foreign earned income is income you receive for working
in a foreign country. Where or how you are paid has no ef-
fect on the source of the income. For example, income you
receive for work done in Austria is income from a foreign
source even if the income is paid directly to your bank ac-
count in the United States and your employer is located in
New York City.
Example. You are a U.S. citizen, a bona fide resident
of Canada, and working as a mining engineer. Your salary
is $76,800 per year. You also receive a $6,000 cost-of-liv-
ing allowance, and a $6,000 education allowance. Your
employment contract did not indicate that you were enti-
tled to these allowances only while outside the United
States. Your total income is $88,800. You work a 5-day
week, Monday through Friday. After subtracting your vaca-
tion, you have a total of 240 workdays in the year. You
worked in the United States during the year for 6 weeks
(30 workdays). The following shows how to figure the part
of your income that is for work done in Canada during the
year.
Number of days
worked in Canada
during the year (210)
× Total income ($88,800) = $77,700
Number of days of
work during the year
for which payment
was made (240)
Your foreign source earned income is $77,700.
Earned and Unearned Income
Earned income was defined earlier as pay for personal
services performed. Some types of income are not easily
identified as earned or unearned income. Some of these
types of income are further explained here.
Income from a sole proprietorship or partnership. In-
come from a business in which capital investment is an
important part of producing the income may be unearned
income. If you are a sole proprietor or partner and your
personal services are also an important part of producing
the income, the part of the income that represents the
value of your personal services will be treated as earned
income.
Capital a factor. If capital investment is an important
part of producing income, no more than 30% of your share
of the net profits of the business is earned income.
If you have no net profits, the part of your gross profit
that represents a reasonable allowance for personal serv-
ices actually performed is considered earned income. Be-
cause you do not have a net profit, the 30% limit does not
apply.
Example 1. You are a U.S. citizen and meet the bona
fide residence test. You invest in a partnership based in
Cameroon that is engaged solely in selling merchandise
outside the United States. You perform no services for the
partnership. At the end of the tax year, your share of the
net profits is $80,000. The entire $80,000 is unearned in-
come.
Example 2. Assume that in Example 1 you spend time
operating the business. Your share of the net profits is
$80,000; 30% of your share of the profits is $24,000. If the
value of your services for the year is $15,000, your earned
income is limited to the value of your services, $15,000.
Capital not a factor. If capital is not an income-pro-
ducing factor and personal services produce the business
income, the 30% rule does not apply. The entire amount of
business income is earned income.
Example. You and Lou Green are management con-
sultants and operate as equal partners in performing serv-
ices outside the United States. Because capital is not an
income-producing factor, all the income from the partner-
ship is considered earned income.
Income from a corporation. The salary you receive
from a corporation is earned income only if it represents a
reasonable allowance as compensation for work you do
for the corporation. Any amount over what is considered a
reasonable salary is unearned income.
Example 1. You are a U.S. citizen and an officer and
stockholder of a corporation in Honduras. You perform no
work or service of any kind for the corporation. During the
tax year, you receive a $10,000 “salary” from the corpora-
tion. The $10,000 clearly is not for personal services and
is unearned income.
Example 2. You are a U.S. citizen and work full time as
secretary-treasurer of your corporation. During the tax
year, you receive $100,000 as salary from the corporation.
If $80,000 is a reasonable allowance as pay for the work
you did, then $80,000 is earned income.
Stock options. You may have earned income if you dis-
posed of stock that you got by exercising a stock option
granted to you under an employee stock purchase plan.
If your gain on the disposition of stock you got by exer-
cising an option is treated as capital gain, your gain is un-
earned income.
However, if you disposed of the stock less than 2 years
after you were granted the option or less than 1 year after
you got the stock, part of the gain on the disposition may
be earned income. It is considered received in the year
you disposed of the stock and earned in the year you per-
formed the services for which you were granted the op-
tion. Any part of the earned income that is due to work you
did outside the United States is foreign earned income.
See Pub. 525, Taxable and Nontaxable Income, for a
discussion of the treatment of stock options.
Pensions and annuities. For purposes of the foreign
earned income exclusion, the foreign housing exclusion,
and the foreign housing deduction, amounts received as
pensions or annuities are unearned income.
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Royalties. Royalties from the leasing of oil and mineral
lands and patents are generally a form of rent or dividends
and are unearned income.
Royalties received by a writer are earned income if they
are received:
•
For the transfer of property rights of the writer in the
writer's product, or
•
Under a contract to write a book or series of articles.
Rental income. Generally, rental income is unearned in-
come. If you perform personal services in connection with
the production of rent, up to 30% of your net rental income
can be considered earned income.
Example. Larry Smith, a U.S. citizen living in Australia,
owns and operates a rooming house in Sydney. If he is op-
erating the rooming house as a business that requires
capital and personal services, he can consider up to 30%
of net rental income as earned income. On the other hand,
if he just owns the rooming house and performs no per-
sonal services connected with its operation, except per-
haps making minor repairs and collecting rents, none of
his net income from the house is considered earned in-
come. It is all unearned income.
Professional fees. If you are engaged in a professional
occupation (such as a doctor or lawyer), all fees received
in the performance of these services are earned income.
Income of an artist. Income you receive from the sale of
paintings you created is earned income.
Scholarships and fellowships. Any portion of a schol-
arship or fellowship grant that is paid to you for teaching,
research, or other services is considered earned income if
you must include it in your gross income. If the payer of
the grant is required to provide you with a Form W-2,
these amounts will be listed as wages.
Certain scholarship and fellowship income may
be exempt under other provisions. For more infor-
mation, see Pub. 970.
Use of employer's property or facilities. If you receive
fringe benefits in the form of the right to use your employ-
er's property or facilities, the fair market value of that right
is earned income. Fair market value is the price at which
the property would change hands between a willing buyer
and a willing seller, neither being required to buy or sell,
and both having reasonable knowledge of all the neces-
sary facts.
Example. You are privately employed and live in Japan
all year. You are paid a salary of $6,000 a month. You live
rent-free in a house provided by your employer that has a
fair rental value of $3,000 a month. The house is not provi-
ded for your employer's convenience. You report on the
calendar-year, cash basis. You received $72,000 salary
from foreign sources plus $36,000 fair rental value of the
house, or a total of $108,000 of earned income.
TIP
Reimbursement of employee expenses. If you are re-
imbursed under an accountable plan (defined later) for ex-
penses you incur on your employer's behalf and you have
adequately accounted to your employer for the expenses,
do not include the reimbursement for those expenses in
your earned income.
The expenses for which you are reimbursed are not
considered allocable (related) to your earned income. If
expenses and reimbursement are equal, there is nothing
to allocate to excluded income. If expenses are more than
the reimbursement, the unreimbursed expenses are con-
sidered to have been incurred in producing earned in-
come and must be divided between your excluded and in-
cluded income. (See chapter 5.) If the reimbursement is
more than the expenses, no expenses remain to be divi-
ded between excluded and included income and the ex-
cess reimbursement must be included in earned income.
These rules do not apply to the following individuals.
•
Straight-commission salespersons.
•
Employees who have arrangements with their employ-
ers under which taxes are not withheld on a percent-
age of the commissions because the employers con-
sider that percentage to be attributable to the
employees' expenses.
Accountable plan. An accountable plan is a reim-
bursement or allowance arrangement that includes all
three of the following rules.
•
The expenses covered under the plan must have a
business connection.
•
The employee must adequately account to the em-
ployer for these expenses within a reasonable period
of time.
•
The employee must return any excess reimbursement
or allowance within a reasonable period of time.
Reimbursement of moving expenses. For tax years
beginning after 2017, you can no longer deduct moving
expenses. If you received a reimbursement of moving ex-
penses, please note that, in most cases, reimbursement
of moving expenses will be earned income. This section
discusses reimbursements that must be included in
earned income.
The rules for determining when the reimbursement is
considered earned or where the reimbursement is consid-
ered earned may differ somewhat from the general rules
previously discussed.
Although you receive the reimbursement in one tax
year, it may be considered earned for services performed,
or to be performed, in another tax year. You must report
the reimbursement as income on your return in the year
you receive it, even if it is considered earned during a dif-
ferent year.
Moving expenses are only deductible for mem-
bers of the U.S. Armed Forces who move pur-
suant to a military order and incident to a perma-
nent change of station. Therefore, the exclusion from
earned income for qualified moving expenses is, gener-
ally, only available to members of the U.S. Armed Forces.
CAUTION
!
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Move from United States to foreign country. If you
move from the United States to a foreign country, your
moving expense reimbursement is generally considered
pay for future services to be performed at the new loca-
tion. The reimbursement is considered earned solely in
the year of the move if you qualify for the exclusion for a
period that includes at least 120 days during that tax year.
If you are neither a bona fide resident of nor physically
present in a foreign country or countries for a period that
includes 120 days during the year of the move, a portion
of the reimbursement is considered earned in the year of
the move and a portion is considered earned in the year
following the year of the move. To figure the amount
earned in the year of the move, multiply the reimburse-
ment by a fraction. The numerator (top number) is the
number of days in your qualifying period that fall within the
year of the move, and the denominator (bottom number) is
the total number of days in the year of the move.
The difference between the total reimbursement and
the amount considered earned in the year of the move is
the amount considered earned in the year following the
year of the move. The part earned in each year is figured
as shown in the following example.
Example. You are a U.S. citizen working in the United
States. You were told in October 2022 that you were being
transferred to a foreign country. You arrived in the foreign
country on December 15, 2022, and you are a bona fide
resident for the remainder of 2022 and all of 2023. Your
employer reimbursed you $2,000 in January 2023 for your
moving expense. Because you did not qualify for the ex-
clusion under the bona fide residence test for at least 120
days in 2022 (the year of the move), the reimbursement is
considered pay for services performed in the foreign
country for both 2022 and 2023.
You figure the part of the reimbursement for services
performed in the foreign country in 2022 by multiplying the
total reimbursement by a fraction. The fraction is the num-
ber of days during which you were a bona fide resident in
2022 (the year of the move) divided by 365. The remaining
part of the reimbursement is for services performed in the
foreign country in 2023.
This computation is used only to determine when the
reimbursement is considered earned. You would include
the amount of the reimbursement in income in 2023, the
year you received it.
Move between foreign countries. If you move be-
tween foreign countries, any moving expense reimburse-
ment that you must include in income will be considered
earned in the year of the move if you qualify for the foreign
earned income exclusion for a period that includes at least
120 days in the year of the move.
Move to United States. If you move to the United
States, the moving expense reimbursement that you must
include in income is generally considered to be U.S.
source income.
However, if under either an agreement between you
and your employer or a statement of company policy that
is reduced to writing before your move to the foreign coun-
try, your employer will reimburse you for your move back
to the United States regardless of whether you continue to
work for the employer, the includible reimbursement is
considered compensation for past services performed in
the foreign country. The includible reimbursement is con-
sidered earned in the year of the move if you qualify for the
foreign earned income exclusion for a period that includes
at least 120 days during that year. Otherwise, you treat the
includible reimbursement as received for services per-
formed in the foreign country in the year of the move and
the year immediately before the year of the move.
See the discussion under Move from United States to
foreign country, earlier, to figure the amount of the includi-
ble reimbursement considered earned in the year of the
move. The amount earned in the year before the year of
the move is the difference between the total includible re-
imbursement and the amount earned in the year of the
move.
Example. You are a U.S. citizen employed in a foreign
country. You retired from employment with your employer
on March 31, 2023, and returned to the United States on
the same day, after having been a bona fide resident of
the foreign country for several years. A written agreement
with your employer entered into before you went abroad
provided that you would be reimbursed for your move
back to the United States.
In April 2023, your former employer reimbursed you
$4,000 for the cost of your move back to the United
States. Because you were not a bona fide resident of a
foreign country or countries for a period that included at
least 120 days in 2023 (the year of the move), the includi-
ble reimbursement is considered pay for services per-
formed in the foreign country for both 2023 and 2022.
You figure the part of the moving expense reimburse-
ment for services performed in the foreign country for
2023 by multiplying the total includible reimbursement by
a fraction. The fraction is the number of days of foreign
residence during the year (90) (January 1 to March 31,
2023, equals 90 days) divided by the number of days in
the year (365). The remaining part of the includible reim-
bursement is for services performed in the foreign country
in 2022. You report the amount of the includible reim-
bursement in 2023, the year you received it.
In this example, if you met the physical presence
test for a period that included at least 120 days in
2023, the moving expense reimbursement would
be considered earned entirely in the year of the move.
Storage expense reimbursements. If you are reim-
bursed for storage expenses, the reimbursement is for
services you perform during the period of time for which
the storage expenses are incurred.
U.S. Government Employees
For purposes of the foreign earned income exclusion, the
foreign housing exclusion, and the foreign housing deduc-
tion, foreign earned income does not include any amounts
paid by the United States or any of its agencies to its em-
ployees. This includes amounts paid from both appropri-
ated and nonappropriated funds.
TIP
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The following organizations (and other organizations
similarly organized and operated under U.S. Army, Navy,
or Air Force regulations) are integral parts of the Armed
Forces, agencies, or instrumentalities of the United States.
•
U.S. Armed Forces exchanges.
•
Commissioned and noncommissioned officers' mes-
ses.
•
Armed Forces motion picture services.
•
Kindergartens on foreign Armed Forces installations.
Amounts paid by the United States or its agencies to
persons who aren’t their employees may qualify for exclu-
sion or deduction.
If you are a U.S. Government employee paid by a U.S.
agency that assigned you to a foreign government to per-
form specific services for which the agency is reimbursed
by the foreign government, your pay is from the U.S. Gov-
ernment and doesn’t qualify for exclusion or deduction.
If you have questions about whether you are an em-
ployee or an independent contractor, get Pub. 15-A.
American Institute in Taiwan. Amounts paid by the
American Institute in Taiwan aren’t foreign earned income
for purposes of the foreign earned income exclusion, the
foreign housing exclusion, or the foreign housing deduc-
tion. If you are an employee of the American Institute in
Taiwan, allowances you receive are exempt from U.S. tax
up to the amount that equals tax-exempt allowances re-
ceived by civilian employees of the U.S. Government.
Allowances. Cost-of-living and foreign-area allowances
paid under certain acts of Congress to U.S. civilian offi-
cers and employees stationed in Alaska and Hawaii or
elsewhere outside the 48 contiguous states and the Dis-
trict of Columbia can be excluded from gross income. Post
differentials are wages that must be included in gross in-
come, regardless of the act of Congress under which they
are paid.
More information. Pub. 516 has more information for
U.S. Government employees abroad.
Exclusion of Meals and Lodging
You don’t include in your income the value of meals and
lodging provided to you and your family by your employer
at no charge if the following conditions are met.
1. The meals are furnished:
a. On the business premises of your employer, and
b. For the convenience of your employer.
2. The lodging is furnished:
a. On the business premises of your employer,
b. For the convenience of your employer, and
c. As a condition of your employment.
If these conditions are met, don’t include the value of
the meals or lodging in your income, even if a law or your
employment contract says that they are provided as com-
pensation.
Amounts you don’t include in income because of these
rules aren’t foreign earned income.
If you receive a Form W-2, excludable amounts
shouldn’t be included in the total reported in box 1 as wa-
ges.
Family. Your family, for this purpose, includes only your
spouse and your dependents.
Lodging. The value of lodging includes the cost of heat,
electricity, gas, water, sewer service, and similar items
needed to make the lodging fit to live in.
Business premises of employer. Generally, the busi-
ness premises of your employer is wherever you work. For
example, if you work as a housekeeper, meals and lodging
provided in your employer's home are provided on the
business premises of your employer. Similarly, meals pro-
vided to cowhands while herding cattle on land leased or
owned by their employer are considered provided on the
premises of their employer.
Convenience of employer. Whether meals or lodging
are provided for your employer's convenience must be de-
termined from all the facts and circumstances. Meals fur-
nished at no charge are considered provided for your em-
ployer's convenience if there is a good business reason
for providing them, other than to give you more pay.
On the other hand, if your employer provides meals to
you or your family as a means of giving you more pay, and
there is no other business reason for providing them, their
value is extra income to you because they aren’t furnished
for the convenience of your employer.
Condition of employment. Lodging is provided as a
condition of employment if you must accept the lodging to
properly carry out the duties of your job. You must accept
lodging to properly carry out your duties if, for example,
you must be available for duty at all times or you could not
perform your duties if the lodging wasn’t furnished.
Foreign camps. If the lodging is in a camp located in a
foreign country, the camp is considered part of your em-
ployer's business premises. The camp must be:
•
Provided for your employer's convenience because
the place where you work is in a remote area where
satisfactory housing isn’t available to you on the open
market within a reasonable commuting distance,
•
Located as close as reasonably possible in the area
where you work, and
•
Provided in a common area or enclave that isn’t avail-
able to the general public for lodging or accommoda-
tions and that normally houses at least 10 employees.
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Foreign Earned Income
Exclusion
If your tax home is in a foreign country and you meet the
bona fide residence test or the physical presence test, you
can choose to exclude from your income a limited amount
of your foreign earned income. Foreign earned income
was defined earlier in this chapter.
You can also choose to exclude from your income a for-
eign housing amount. This is explained later under For-
eign Housing Exclusion. If you choose to exclude a foreign
housing amount, you must figure the foreign housing ex-
clusion before you figure the foreign earned income exclu-
sion. Your foreign earned income exclusion is limited to
your foreign earned income minus your foreign housing
exclusion.
If you choose to exclude foreign earned income, you
cannot deduct, exclude, or claim a credit for any item that
can be allocated to or charged against the excluded
amounts. This includes any expenses, losses, and other
normally deductible items allocable to the excluded in-
come. For more information about deductions and credits,
see chapter 5.
Limit on Excludable Amount
You may be able to exclude up to $120,000 of your foreign
earned income in 2023.
You cannot exclude more than the smaller of:
•
$120,000, or
•
Your foreign earned income (discussed earlier) for the
tax year minus your foreign housing exclusion (dis-
cussed later).
If both you and your spouse work abroad and each of
you meets either the bona fide residence test or the physi-
cal presence test, you can each choose the foreign
earned income exclusion. You both don’t need to meet the
same test. Together, you and your spouse can exclude as
much as $240,000.
Paid in year following work. Generally, you are consid-
ered to have earned income in the year in which you do
the work for which you receive the income, even if you
work in one year but are not paid until the following year. If
you report your income on a cash basis, you report the in-
come on your return for the year you receive it. If you work
one year, but are not paid for that work until the next year,
the amount you can exclude in the year you are paid is the
amount you could have excluded in the year you did the
work if you had been paid in that year. For an exception to
this general rule, see Year-end payroll period, later.
Example. You were a bona fide resident of Brazil for
all of 2022 and 2023. You report your income on the cash
basis. In 2021, you were paid $87,900 for work you did in
Brazil during that year. You excluded all of the $87,900
from your income in 2022.
In 2023, you were paid $124,300 for your work in Brazil.
$23,800 was for work you did in 2022 and $100,500 was
for work you did in 2023. You can exclude $20,800 of the
$23,800 from your income in 2023. This is the $108,700
maximum exclusion in 2022 minus the $87,900 actually
excluded that year. You must include the remaining $3,000
in income in 2023 because you could not have excluded
that income in 2022 if you had received it that year. You
can exclude all of the $100,500 you were paid for work
you did in 2023 from your 2023 income.
Your total foreign earned income exclusion for 2023 is
$121,300 ($20,800 for work you did in 2022 and $100,500
for work you did in 2022). You would include in your 2023
income $3,000 for the work you did in 2022.
Year-end payroll period. There is an exception to the
general rule that income is considered earned in the year
you do the work for which you receive the income. If you
are a cash-basis taxpayer, any salary or wage payment
you receive after the end of the year in which you do the
work for which you receive the pay is considered earned
entirely in the year you receive it if all four of the following
apply.
•
The period for which the payment is made is a normal
payroll period of your employer that regularly applies
to you.
•
The payroll period includes the last day of your tax
year (December 31 if you figure your taxes on a calen-
dar-year basis).
•
The payroll period is not longer than 16 days.
•
The payday comes at the same time in relation to the
payroll period that it would normally come and it
comes before the end of the next payroll period.
Example. You are paid twice a month. For the normal
payroll period that begins on the 1st of the month and
ends on the 15th of the month, you are paid on the 16th
day of the month. For the normal payroll period that begins
on the 16th of the month and ends on the last day of the
month, you are paid on the 1st day of the following month.
Because all of the above conditions are met, the pay you
received on January 1, 2023, is considered earned in
2023.
Income earned over more than 1 year. Regardless of
when you actually receive income, you must apply it to the
year in which you earned it in figuring your excludable
amount for that year. For example, a bonus may be based
on work you did over several years. You determine the
amount of the bonus that is considered earned in a partic-
ular year in two steps.
1. Divide the bonus by the number of calendar months in
the period when you did the work that resulted in the
bonus.
2. Multiply the result of (1) by the number of months you
did the work during the year. This is the amount that is
subject to the exclusion limit for that tax year.
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Income received more than 1 year after it was
earned. You can’t exclude income you receive after the
end of the year following the year you do the work to earn
it.
Example. You were a bona fide resident of Sweden
for 2021, 2022, and 2023. You report your income on the
cash basis. In 2021, you were paid $69,000 for work you
did in Sweden that year, and in 2022, you were paid
$74,000 for that year's work in Sweden. You excluded all
the income on your 2021 and 2022 returns.
In 2023, you were paid $92,000; $82,000 for your work
in Sweden during 2023, and $10,000 for work you did in
Sweden in 2021. You cannot exclude any of the $10,000
for work done in 2021 because you received it after the
end of the year following the year in which you earned it.
You must include the $10,000 in income. You can exclude
all of the $82,000 received for work you did in 2023.
Community income. The maximum exclusion applies
separately to the earnings of spouses. Ignore any com-
munity property laws when you figure your limit on the for-
eign earned income exclusion.
Part-year exclusion. If the period for which you qualify
for the foreign earned income exclusion includes only part
of the year, you must adjust the maximum limit based on
the number of qualifying days in the year. The number of
qualifying days is the number of days in the year within the
period on which you both:
•
Have your tax home in a foreign country, and
•
Meet either the bona fide residence test or the physi-
cal presence test.
For this purpose, you can count as qualifying days all
days within a period of 12 consecutive months once you
are physically present and have your tax home in a foreign
country for 330 full days. To figure your maximum exclu-
sion, multiply the maximum excludable amount for the
year by the number of your qualifying days in the year, and
then divide the result by the number of days in the year.
Example. You report your income on the calen-
dar-year basis and you qualified for the foreign earned in-
come exclusion under the bona fide residence test for 75
days in 2023. You can exclude a maximum of 75/365 of
$120,000, or $24,658 of your foreign earned income for
2023. If you qualify under the bona fide residence test for
all of 2024, you can exclude your foreign earned income
up to the 2024 limit.
Physical presence test. Under the physical presence
test, a 12-month period can be any period of 12 consecu-
tive months that includes 330 full days. If you qualify for
the foreign earned income exclusion under the physical
presence test for part of a year, it is important to carefully
choose the 12-month period that will allow the maximum
exclusion for that year.
Note. See How to figure the 12-month period under
Physical Presence Test, earlier, for the rules on figuring
the 12-month period.
Example. You are physically present and have your
tax home in a foreign country for a 16-month period from
June 1, 2022, through September 30, 2023, except for 16
days in December 2022 when you were on vacation in the
United States. You figure the maximum exclusion for 2022
as follows.
1. Beginning with June 1, 2022, count forward 330 full
days. Do not count the 16 days you spent in the Uni-
ted States. The 330th day, May 12, 2023, is the last
day of a 12-month period.
2. Count backward 12 months from May 12, 2023, to
find the first day of this 12-month period, May 13,
2022. This 12-month period runs from May 13, 2022,
through May 12, 2023.
3. Count the total days during 2022 that fall within this
12-month period. This is 233 days (May 13, 2022–De-
cember 31, 2022).
4. Multiply $108,700 (the maximum exclusion for 2022)
by the fraction 233/365 to find your maximum exclu-
sion for 2022 ($69,389).
You figure the maximum exclusion for 2023 in the oppo-
site manner.
1. Beginning with your last full day, September 30, 2022,
count backward 330 full days. Do not count the 16
days you spent in the United States. That day, Octo-
ber 19, 2022, is the first day of a 12-month period.
2. Count forward 12 months from October 19, 2022, to
find the last day of this 12-month period, October 18,
2023. This 12-month period runs from October 19,
2022, through October 18, 2023.
3. Count the total days during 2023 that fall within this
12-month period. This is 291 days (January 1, 2023 –
October 18, 2023).
4. Multiply $120,000, the maximum limit, by the fraction
291/365 to find your maximum exclusion for 2022
($95,671).
Choosing the Exclusion
The foreign earned income exclusion is voluntary. You can
choose the exclusion by completing the appropriate parts
of Form 2555.
When You Can Choose the Exclusion
Your initial choice of the exclusion on Form 2555 must
generally be made with one of the following returns.
•
A return filed by the due date (including any exten-
sions).
•
A return amending a timely filed return. Amended re-
turns must generally be filed by the later of 3 years af-
ter the filing date of the original return or 2 years after
the tax is paid.
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•
A return filed within 1 year from the original due date of
the return (determined without regard to any exten-
sions).
Filing after the above periods. You can choose the ex-
clusion on a return filed after the periods described above
if you owe no federal income tax after taking into account
the exclusion. If you owe federal income tax after taking
into account the exclusion, you can choose the exclusion
on a return filed after the periods described earlier if you
file before the IRS discovers that you failed to choose the
exclusion. Whether or not you owe federal income tax af-
ter taking the exclusion into account, if you file your return
after the periods described earlier, you must type or legi-
bly print at the top of the first page of the Form 1040 or
1040-SR, “Filed pursuant to section 1.911-7(a)(2)(i)(D).”
If you owe federal income tax after taking into account
the foreign earned income exclusion and the IRS discov-
ered that you failed to choose the exclusion, you may still
be able to choose the exclusion. You must request a pri-
vate letter ruling under Regulations section 301.9100-3
and Revenue Procedure 2021-1, 2021-01 I.R.B. 1, availa-
ble at IRS.gov/irb/2021-01_IRB#REV-PROC-2021-1.
Effect of Choosing the Exclusion
Once you choose to exclude your foreign earned income,
that choice remains in effect for that year and all later
years unless you revoke it.
Foreign tax credit or deduction. Once you choose to
exclude foreign earned income, you can’t take a foreign
tax credit or deduction for taxes on income you can ex-
clude. If you do take a credit or deduction for any of those
taxes in a later year, your election for the foreign earned
income exclusion will be revoked beginning with that year.
See Pub. 514 for more information.
Additional child tax credit. You can’t take the additional
child tax credit if you claim the foreign earned income ex-
clusion.
Earned income credit. If you claim the foreign earned
income exclusion, you don’t qualify for the earned income
credit for the year. For more information on this credit, see
Pub. 596.
Figuring tax on income not excluded. If you claim the
foreign earned income exclusion, the housing exclusion
(discussed later), or both, you must figure the tax on your
nonexcluded income using the tax rates that would have
applied had you not claimed the exclusions. See the
Instructions for Form 1040 and complete the Foreign
Earned Income Tax Worksheet to figure the amount of tax
to enter on Form 1040 or 1040-SR, line 16. If you must at-
tach Form 6251 to your return, use the Foreign Earned In-
come Tax Worksheet provided in the Instructions for Form
6251.
Revoking the Exclusion
You can revoke your choice for any year. You do this by at-
taching a statement that you are revoking one or more
previously made choices to the return or amended return
for the first year that you do not wish to claim the exclu-
sion(s). You must specify which choice(s) you are revok-
ing. You must revoke separately a choice to exclude for-
eign earned income and a choice to exclude foreign
housing amounts.
If you revoked a choice and within 5 years again wish to
choose the same exclusion, you must apply for IRS appro-
val. You do this by requesting a ruling from the IRS.
Mail your request for a ruling, in duplicate, to:
Associate Chief Counsel (International)
Internal Revenue Service
Attn: CC:PA:LPD:DRU
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044
In deciding whether to give approval, the IRS will consider
any facts and circumstances that may be relevant. These
may include a period of residence in the United States, a
move from one foreign country to another foreign country
with different tax rates, a substantial change in the tax
laws of the foreign country of residence or physical pres-
ence, and a change of employer. For more information go
to IRS.gov/Individuals/International-Taxpayers/Revoking-
Your-Choice-to-Exclude-Foreign-Earned-Income.
If a private delivery service is used, the address
is:
Associate Chief Counsel (International)
Internal Revenue Service
Attn: CC:PA:LPD:TSS, Room 5336
1111 Constitution Ave. NW
Washington, DC 20224
Foreign Housing Exclusion and
Deduction
In addition to the foreign earned income exclusion, you
can also claim an exclusion or a deduction from gross in-
come for your housing amount if your tax home is in a for-
eign country and you qualify for the exclusions and deduc-
tion under either the bona fide residence test or the
physical presence test.
The housing exclusion applies only to amounts consid-
ered paid for with employer-provided amounts. The hous-
ing deduction applies only to amounts paid for with
self-employment earnings.
If you are married and you and your spouse each quali-
fies under one of the tests, see Married Couples, later.
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Housing Amount
Your housing amount is the total of your housing expenses
for the year minus the base housing amount.
Base housing amount. The computation of the base
housing amount (line 32 of Form 2555) is tied to the maxi-
mum foreign earned income exclusion. The amount is
16% of the exclusion amount (computed on a daily basis),
multiplied by the number of days in your qualifying period
that fall within your tax year.
For 2023, the maximum foreign earned income exclu-
sion is $120,000 per year; 16% of this amount is $19,200,
or $56.60 per day. To figure your base housing amount if
you are a calendar-year taxpayer, multiply $56.60 by the
number of your qualifying days during 2023. (See
Part-year exclusion under Limit on Excludable Amount,
earlier.) Subtract the result from your total housing expen-
ses (up to the applicable limit) to find your housing
amount.
Example. Your qualifying period includes all of 2023.
During the year, you spent $19,124 for your housing. This
is below the limit for the location in which you incurred the
expenses. Your housing amount is $20,404 minus
$19,200, or $1,204.
U.S. Government allowance. You must reduce your
housing amount by any U.S. Government allowance or
similar nontaxable allowance intended to compensate you
or your spouse for the expenses of housing during the pe-
riod for which you claim a foreign housing exclusion or de-
duction.
Housing expenses. Housing expenses include your rea-
sonable expenses paid or incurred for housing in a foreign
country for you and (if they live with you) for your spouse
and dependents.
Consider only housing expenses for the part of the year
that you qualify for the foreign earned income exclusion.
Housing expenses include:
•
Rent,
•
The fair rental value of housing provided in kind by
your employer,
•
Repairs,
•
Utilities (other than telephone charges),
•
Real and personal property insurance,
•
Nondeductible occupancy taxes,
•
Nonrefundable fees for securing a leasehold,
•
Rental of furniture and accessories, and
•
Residential parking.
Housing expenses do not include:
•
Expenses that are lavish or extravagant under the cir-
cumstances;
•
Deductible interest and taxes (including deductible in-
terest and taxes of a tenant-stockholder in a coopera-
tive housing corporation);
•
The cost of buying property, including principal pay-
ments on a mortgage;
•
The cost of domestic labor (maids, gardeners, etc.);
•
Pay television subscriptions;
•
Improvements and other expenses that increase the
value or appreciably prolong the life of property;
•
Purchased furniture or accessories; or
•
Depreciation or amortization of property or improve-
ments.
No double benefit. You can’t include in housing
expenses the value of meals or lodging that you
exclude from gross income (see Exclusion of
Meals and Lodging, earlier).
Limit on housing expenses. The amount of qualified
housing expenses eligible for the housing exclusion and
housing deduction is limited. The limit is generally 30% of
the maximum foreign earned income exclusion (computed
on a daily basis), multiplied by the number of days in your
qualifying period that fall within your tax year. For 2023,
this is generally $98.63 per day ($36,000 per year). How-
ever, the limit will vary depending upon the location of your
foreign tax home.
A qualified individual incurring housing expenses in a
high-cost locality during 2023 can use housing expenses
that total more than the standard limit on housing expen-
ses ($36,000) to determine the housing amount. An indi-
vidual who does not incur housing expenses in a high-cost
locality is limited to maximum housing expenses of $98.63
per day ($36,000 per year).
The limits for high-cost localities are listed in the
Instructions for Form 2555.
You can elect to apply the 2023 housing cost lim-
its to figure your 2022 housing exclusion instead
of using the 2022 limits. The IRS and Treasury an-
ticipate that you will be able to elect to apply the 2024 lim-
its to figure your 2023 housing exclusion instead of using
the 2023 limits.
Second foreign household. Ordinarily, if you main-
tain two foreign households, your reasonable foreign
housing expenses include only costs for the household
that bears the closer relationship (not necessarily geo-
graphic) to your tax home. However, if you maintain a sec-
ond, separate household outside the United States for
your spouse or dependents because living conditions
near your tax home are dangerous, unhealthful, or other-
wise adverse, include the expenses for the second house-
hold in your reasonable foreign housing expenses. You
can’t include expenses for more than one second foreign
household at the same time.
If you maintain two households and you exclude the
value of one because it is provided by your employer, you
can still include the expenses for the second household in
figuring a foreign housing exclusion or deduction.
Adverse living conditions include:
•
A state of warfare or civil insurrection in the general
area of your tax home, and
CAUTION
!
TIP
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•
Conditions under which it is not feasible to provide
family housing (for example, if you must live on a con-
struction site or drilling rig).
Foreign Housing Exclusion
If you do not have self-employment income, all of your
earnings are employer-provided amounts and your entire
housing amount is considered paid for with those em-
ployer-provided amounts. This means that you can ex-
clude (up to the limits) your entire housing amount.
Employer-provided amounts. These include any
amounts paid to you or paid or incurred on your behalf by
your employer that are taxable foreign earned income
(without regard to the foreign earned income exclusion) to
you for the year. Employer-provided amounts include:
•
Your salary,
•
Any reimbursement for housing expenses,
•
Amounts your employer pays to a third party on your
behalf,
•
The fair rental value of company-owned housing fur-
nished to you unless that value is excluded under the
rules explained earlier under Exclusion of Meals and
Lodging,
•
Amounts paid to you by your employer as part of a tax
equalization plan, and
•
Amounts paid to you or a third party by your employer
for the education of your dependents.
Choosing the exclusion. You can choose the housing
exclusion by completing the appropriate parts of Form
2555. Rules about choosing the exclusion under Foreign
Earned Income Exclusion, earlier, also apply to the foreign
housing exclusion.
Your housing exclusion is the lesser of:
•
That part of your housing amount paid for with em-
ployer-provided amounts, or
•
Your foreign earned income.
If you choose the housing exclusion, you must figure it be-
fore figuring your foreign earned income exclusion. You
cannot claim less than the full amount of the housing ex-
clusion to which you are entitled.
Figuring tax on income not excluded. If you claim
the housing exclusion, the foreign earned income exclu-
sion (discussed earlier), or both, you must figure the tax
on your nonexcluded income using the tax rates that
would have applied had you not claimed the exclusions.
See the Instructions for Form 1040 and complete the For-
eign Earned Income Tax Worksheet to figure the amount
of tax to enter on Form 1040 or 1040-SR, line 16. If you
must attach Form 6251 to your return, use the Foreign
Earned Income Tax Worksheet provided in the Instructions
for Form 6251.
Foreign tax credit or deduction. Once you choose to
exclude foreign housing amounts, you can’t take a foreign
tax credit or deduction for taxes on income you can ex-
clude. If you do take a credit or deduction for any of those
taxes, your choice to exclude housing amounts may be
considered revoked. See Pub. 514 for more information.
Additional child tax credit. You can’t take the additional
child tax credit if you claim the foreign housing exclusion.
Earned income credit. If you claim the foreign housing
exclusion, you don’t qualify for the earned income credit
for the year.
Foreign Housing Deduction
If you don’t have self-employment income, you can’t take a
foreign housing deduction.
How you figure your housing deduction depends on
whether you have only self-employment income or both
self-employment income and employer-provided income.
In either case, the amount you can deduct is subject to the
limit described later.
Self-employed, no employer-provided amounts. If
none of your housing amount is considered paid for with
employer-provided amounts, such as when all of your in-
come is from self-employment, you can deduct your hous-
ing amount, subject to the limit described later.
Take the deduction by including it on line 24j of Sched-
ule 1 (Form 1040).
Self-employed and employer-provided amounts. If
you are both an employee and a self-employed individual
during the year, you can deduct part of your housing
amount and exclude part of it. To find the part that you can
exclude, multiply your housing amount by the em-
ployer-provided amounts (discussed earlier) and then di-
vide the result by your foreign earned income. This is the
amount you can use to figure your foreign housing exclu-
sion. You can deduct the balance of the housing amount,
subject to the limit described later.
Example. Your housing amount for the year is
$18,000. During the year, your total foreign earned income
is $100,000, of which half ($50,000) is from self-employ-
ment and half is from your services as an employee. Half
of your housing amount ($18,000 ÷ 2) is considered provi-
ded by your employer. You can exclude $9,000 as a hous-
ing exclusion. You can deduct the remaining $9,000 as a
housing deduction subject to the following limit.
Limit
Your housing deduction cannot be more than your foreign
earned income minus the total of:
•
Your foreign earned income exclusion, plus
•
Your housing exclusion.
Carryover. You can carry over to the next year any part of
your housing deduction that is not allowed because of the
limit. You are allowed to carry over your excess housing
deduction to the next year only. If you can’t deduct it in the
next year, you can’t carry it over to any other year. You
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deduct the carryover in figuring adjusted gross income.
The amount of carryover you can deduct is limited to your
foreign earned income for the year of the carryover minus
the total of your foreign earned income exclusion, housing
exclusion, and housing deduction for that year.
Additional child tax credit. You can’t take the additional
child tax credit if you claim the foreign housing deduction.
Married Couples
If both you and your spouse qualify for the foreign housing
exclusion or the foreign housing deduction, how you figure
the benefits depends on whether you maintain separate
households.
Separate Households
If you and your spouse live apart and maintain separate
households, you both may be able to claim the foreign
housing exclusion or the foreign housing deduction. You
both can claim the exclusion or the deduction if both of the
following conditions are met.
•
You and your spouse have different tax homes that
aren’t within reasonable commuting distance of each
other.
•
Neither spouse's residence is within reasonable com-
muting distance of the other spouse's tax home.
Housing exclusion. Each spouse claiming a housing
exclusion must figure separately the part of the housing
amount that is attributable to employer-provided amounts,
based on the separate foreign earned income.
One Household
If you and your spouse lived in the same foreign house-
hold and file a joint return, you must figure your housing
amounts jointly. If you file separate returns, only one
spouse can claim the housing exclusion or deduction.
In figuring your housing amount jointly, you can com-
bine your housing expenses and figure one base housing
amount. Either spouse (but not both) can claim the hous-
ing exclusion or housing deduction. However, if you and
your spouse have different periods of residence or pres-
ence and the one with the shorter period of residence or
presence claims the exclusion or deduction, you can claim
as housing expenses only the expenses for that shorter
period.
Example. Tom and Jane live together and file a joint
return. Tom was a bona fide resident of and had his tax
home in Ghana from August 17, 2023, through December
31, 2024. Jane was a bona fide resident of and had her
tax home in Ghana from September 15, 2023, through De-
cember 31, 2024.
During 2023, Tom received $75,000 of foreign earned
income and Jane received $50,000 of foreign earned in-
come. Tom paid $10,000 for housing expenses, of which
$7,500 was for expenses incurred from September 15
through the end of the year. Jane paid $3,000 for housing
expenses in 2023, all of which were incurred during her
period of residence in Ghana.
Tom and Jane figure their housing amount jointly. If Tom
claims the housing exclusion, their housing expenses
would be $13,000 ($10,000 + $3,000) and their base
housing amount, using Tom's 2023 period of residence
(August 17–December 31, 2023), would be $7,754
($56.60 × 137 days). Tom's housing amount would be
$5,246 ($13,000 – $7,754). If, instead, Jane claims the
housing exclusion, their housing expenses would be limi-
ted to $10,500 ($7,500 + $3,000) and their base housing
amount, using Jane's period of residence (September 15–
December 31, 2023), would be $6,113 ($56.60 × 108
days). Jane's housing amount would be $4,387 ($10,500
– $6,113).
Form 2555
Use Form 2555 to claim the foreign earned income exclu-
sion. You must file Form 2555 each year you are claiming
the exclusion.
Also, use Form 2555 to claim either the foreign housing
exclusion or the foreign housing deduction. Form 2555
shows how you meet the bona fide residence test or phys-
ical presence test, how much of your earned income is ex-
cluded, and how to figure the amount of your allowable
housing exclusion or deduction.
Note. Don’t submit Form 2555 by itself.
If you are a U.S. citizen or resident alien who is a citizen
or national of a U.S. treaty country, you can claim the ex-
clusion under the bona fide residence test. You should fill
out Parts I, II, IV, and V of Form 2555. In filling out Part II,
be sure to give your visa type and the period of your bona
fide residence. Frequently, these items are overlooked.
U.S. citizens and all resident aliens can claim the exclu-
sion under the physical presence test. You should fill out
Parts I, III, IV, and V of Form 2555. When filling out Part III,
be sure to insert the beginning and ending dates of your
12-month period and the dates of your arrivals and depar-
tures, as requested in the travel schedule.
You must fill out Part VI if you are claiming a foreign
housing exclusion or deduction.
If you are claiming the foreign earned income exclusion,
fill out Part VII.
If you are claiming the foreign earned income exclusion,
the foreign housing exclusion, or both, fill out Part VIII.
Finally, fill out Part IX if you are claiming the foreign
housing deduction.
If you and your spouse both qualify to claim the foreign
earned income exclusion, the foreign housing exclusion,
or the foreign housing deduction, you and your spouse
must file separate Forms 2555 to claim these benefits.
See the discussion earlier under Separate Households.
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Exclusion – Deduction
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5.
Deductions and Credits
Topics
This chapter discusses:
•
The rules concerning items related to excluded
income,
•
Contributions to foreign charitable organizations,
•
Contributions to individual retirement arrangements
(IRAs),
•
Taxes of foreign countries and U.S. territories, and
•
How to report deductions.
Useful Items
You may want to see:
Publication
501 Dependents, Standard Deduction, and Filing
Information
514 Foreign Tax Credit for Individuals
523 Selling Your Home
590-A Contributions to Individual Retirement
Arrangements (IRAs)
597 Information on the United States–Canada
Income Tax Treaty
Form (and Instructions)
1116 Foreign Tax Credit
2106 Employee Business Expenses
2555 Foreign Earned Income
Schedule A (Form 1040) Itemized Deductions
Schedule C (Form 1040) Profit or Loss From
Business
SS-5 Application for a Social Security Card
W-7 Application for IRS Individual Taxpayer
Identification Number
See chapter 7 for information about getting these publica-
tions and forms.
Items Related to Excluded
Income
U.S. citizens and resident aliens living outside the United
States are generally allowed the same deductions as citi-
zens and residents living in the United States.
501
514
523
590-A
597
1116
2106
2555
Schedule A (Form 1040)
Schedule C (Form 1040)
SS-5
W-7
If you choose to exclude foreign earned income or
housing amounts, you cannot deduct, exclude, or claim a
credit for any item that can be allocated to or charged
against the excluded amounts. This includes any expen-
ses, losses, and other normally deductible items that are
allocable to the excluded income. You can deduct only
those expenses connected with earning includible in-
come.
These rules apply only to items definitely related to the
excluded earned income and they do not apply to other
items that aren’t definitely related to any particular type of
gross income. These rules don’t apply to items such as:
•
Qualified retirement contributions,
•
Alimony payments,
•
Charitable contributions,
•
Medical expenses,
•
Mortgage interest, or
•
Real estate taxes on your personal residence.
For purposes of these rules, your housing deduction
isn’t treated as allocable to your excluded income, but the
deduction for self-employment tax is.
If you receive foreign earned income in a tax year after
the year in which you earned it, you may have to file an
amended return for the earlier year to properly adjust the
amounts of deductions, credits, or exclusions allocable to
your foreign earned income and housing exclusions.
Example. In 2022, you had $95,600 of foreign earned
income and $9,500 of deductions allocable to your foreign
earned income. You did not have a housing exclusion. Be-
cause you excluded all of your foreign earned income, you
would not have been able to claim any of the deductions
on your 2022 return.
In 2023, you received a $18,000 bonus for work you did
abroad in 2022. You can exclude $16,400 of the bonus be-
cause the limit on the foreign earned income exclusion for
2022 was $112,000 and you have already excluded
$95,600. Since you must include $1,600 of the bonus
($18,000 − $16,400) for work you did in 2022 in income,
you can file an amended return for 2021 to claim $133.80
($9,500 x $1,600/$113,600) of the deductions. These are
the deductions allocable to the foreign earned income
($9,500) multiplied by the includible portion of the foreign
earned income ($1,600) and divided by the total foreign
earned income for 2022 ($113,600).
Contributions to Foreign
Charitable Organizations
If you make contributions directly to a foreign church or
other foreign charitable organization, you generally cannot
deduct them. Exceptions are explained under Canadian,
Mexican, and Israeli charities, later.
You can deduct contributions to a U.S. organization that
transfers funds to a charitable foreign organization if the
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U.S. organization controls the use of the funds by the for-
eign organization or if the foreign organization is just an
administrative arm of the U.S. organization.
Canadian, Mexican, and Israeli charities. Under the in-
come tax treaties with Canada, Mexico, and Israel, you
may be able to deduct contributions to certain Canadian,
Mexican, and Israeli charitable organizations. Generally,
you must have income from sources in Canada, Mexico,
or Israel, and the organization must meet certain require-
ments. See Pub. 597 and Pub. 526, Charitable Contribu-
tions, for more information.
Contributions to Individual
Retirement Arrangements
Contributions to your individual retirement arrangements
(IRAs) that are traditional IRAs or Roth IRAs are generally
limited to the lesser of $6,500 ($7,500 if 50 or older) or
your compensation that is includible in your gross income
for the tax year. In determining compensation for this pur-
pose, don’t take into account amounts you exclude under
either the foreign earned income exclusion or the foreign
housing exclusion. Don’t reduce your compensation by
the foreign housing deduction.
If you are covered by an employer retirement plan at
work, your deduction for your contributions to your tradi-
tional IRAs is generally limited based on your modified ad-
justed gross income. This is your adjusted gross income
figured without taking into account the foreign earned in-
come exclusion, the foreign housing exclusion, or the for-
eign housing deduction. Other modifications are also re-
quired. For more information on contributions to IRAs, see
Pub. 590-A.
Taxes of Foreign Countries and
U.S. Territories
You can take either a credit or a deduction for income
taxes paid to a foreign country or a U.S. territory. Taken as
a deduction, foreign income taxes reduce your taxable in-
come. Taken as a credit, foreign income taxes reduce your
tax liability. You must treat all foreign income taxes the
same way. If you take a credit for any foreign income
taxes, you cannot deduct any foreign income taxes. How-
ever, you may be able to deduct other foreign taxes. See
Deduction for Other Foreign Taxes, later.
There is no rule to determine whether it is to your ad-
vantage to take a deduction or a credit for foreign income
taxes. In most cases, it is to your advantage to take foreign
income taxes as a tax credit, which you subtract directly
from your U.S. tax liability, rather than as a deduction in
figuring taxable income. However, if foreign income taxes
were imposed at a high rate and the proportion of foreign
income to U.S. income is small, a lower final tax may result
from deducting the foreign income taxes. In any event, you
should figure your tax liability both ways and then use the
one that is better for you.
You can make or change your choice within 10 years
from the due date for filing the tax return on which you are
entitled to take either the deduction or the credit.
Foreign income taxes. These are generally income
taxes you pay to any foreign country or U.S. territory.
Foreign income taxes on U.S. return. Foreign income
taxes can only be taken as a credit on Schedule 3 (Form
1040), line 1, or as an itemized deduction on Schedule A
(Form 1040). These amounts cannot be included as with-
held income taxes on Form 1040 or 1040-SR, line 25.
Foreign taxes paid on excluded income. You cannot
take a credit or deduction for foreign income taxes paid on
earnings you exclude from tax under any of the following.
•
Foreign earned income exclusion.
•
Foreign housing exclusion.
•
Territory exclusion.
If your wages are completely excluded, you can’t deduct
or take a credit for any of the foreign taxes paid on your
wages.
If only part of your wages is excluded, you can’t deduct
or take a credit for the foreign income taxes allocable to
the excluded part. You find the taxes allocable to your ex-
cluded wages by applying a fraction to the foreign taxes
paid on foreign earned income received during the tax
year. The numerator (top number) of the fraction is your
excluded foreign earned income received during the tax
year minus deductible expenses allocable to that income
(not including the foreign housing deduction). The denom-
inator (bottom number) of the fraction is your total foreign
earned income received during the tax year minus all de-
ductible expenses allocable to that income (including the
foreign housing deduction).
If foreign law taxes both earned income and some other
type of income and the taxes on the other type can’t be
separated, the denominator of the fraction is the total
amount of income subject to foreign tax minus deductible
expenses allocable to that income.
If you take a foreign tax credit for tax on income
you could have excluded under your choice to ex-
clude foreign earned income or your choice to ex-
clude foreign housing costs, one or both of the choices
may be considered revoked.
Credit for Foreign Income Taxes
If you take the foreign tax credit, you may have to file Form
1116 with Form 1040 or 1040-SR. Form 1116 is used to
figure the amount of foreign tax paid or accrued that can
be claimed as a foreign tax credit. Don’t include the
amount of foreign tax paid or accrued as withheld federal
income taxes on Form 1040 or 1040-SR, line 25.
The foreign income tax for which you can claim a credit
is the amount of legal and actual tax liability you pay or
CAUTION
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accrue during the year. The amount for which you can
claim a credit is not necessarily the amount withheld by
the foreign country. You can’t take a foreign tax credit for
income tax you paid to a foreign country that would be re-
funded by the foreign country if you made a claim for re-
fund.
Subsidies. If a foreign country returns your foreign tax
payments to you in the form of a subsidy, you cannot claim
a foreign tax credit based on these payments. This rule
applies to a subsidy provided by any means that is deter-
mined, directly or indirectly, by reference to the amount of
tax, or to the base used to figure the tax.
Some ways of providing a subsidy are refunds, credits,
deductions, payments, or discharges of obligations. A
credit is also not allowed if the subsidy is given to a person
related to you, or persons who participated in a transac-
tion or a related transaction with you.
Limit
The foreign tax credit is limited to the part of your total U.S.
tax that is in proportion to your taxable income from sour-
ces outside the United States compared to your total taxa-
ble income. The allowable foreign tax credit can’t be more
than your actual foreign tax liability.
Exemption from limit. You won’t be subject to this limit
and won’t have to file Form 1116 if you meet all three of
the following requirements.
•
Your only foreign source income for the year is passive
income (dividends, interest, royalties, etc.) that is re-
ported to you on a payee statement (such as a Form
1099-DIV or 1099-INT).
•
Your foreign taxes for the year that qualify for the credit
are not more than $300 ($600 if you are filing a joint
return) and are reported on a payee statement.
•
You elect this procedure.
If you make this election, you can’t carry back or carry
over any unused foreign tax to or from this year.
Separate limit. You must figure the limit on a separate
basis with regard to “section 951A category income,” “for-
eign branch category income,” “passive category income,”
“general category income,” “section 901(j) income,” “cer-
tain income re-sourced by treaty,” and any “lump-sum dis-
tributions” from an employer benefit plan for which the
special averaging treatment is used to determine your tax
(see the Instructions for Form 1116).
Figuring the limit. In figuring taxable income in each
category, you take into account only the amount that you
must include in income on your federal tax return. Don’t
take any excluded amount into account.
To determine your taxable income in each category, de-
duct expenses and losses that are definitely related to that
income.
Other expenses (such as itemized deductions or the
standard deduction) not definitely related to specific items
of income must be apportioned to the foreign income in
each category by multiplying them by a fraction. The nu-
merator (top number) of the fraction is your gross foreign
income in the separate limit category. The denominator
(bottom number) of the fraction is your gross income from
all sources. For this purpose, gross income includes in-
come that is excluded under the foreign earned income
provisions but does not include any other exempt income.
You must use special rules for deducting interest expen-
ses. For more information on allocating and apportioning
your deductions, see Pub. 514.
Recapture of foreign losses. If you have an overall for-
eign loss and the loss reduces your U.S. source income
(resulting in a reduction of your U.S. tax liability with re-
spect to U.S. source income), you must recapture the loss
in later years when you have taxable income from foreign
sources. This is done by treating a part of your taxable in-
come from foreign sources in later years as U.S. source
income. This reduces the numerator of the limiting fraction
and the resulting foreign tax credit limit.
Recapture of domestic losses. If you have an overall
domestic loss and the loss reduces your foreign source in-
come (resulting in a reduction in the amount of foreign tax
credit you can claim for taxes paid during that year), you
must recapture the loss in later years when you have U.S.
source taxable income. This is done by treating a part of
your taxable income from U.S. sources in later years as
foreign source income. This increases the numerator of
the limitation fraction and the resulting foreign tax credit
limit.
Foreign tax credit carryback and carryover. The
amount of foreign income tax not allowed as a credit be-
cause of the limit can be carried back 1 year and carried
forward 10 years.
The Schedule B (Form 1116) is used to reconcile your
prior year foreign tax carryover with your current year for-
eign tax carryover. The schedule replaces the previous at-
tachment requirement for Part III, line 10 (Form 1116). For
more information, see the Instructions for Schedule B
(Form 1116) and the instructions for Form 1116, line 10, at
IRS.gov/Form1116.
Deduction for Foreign Income Taxes
Instead of taking the foreign tax credit, you can deduct for-
eign income taxes as an itemized deduction on Schedule
A (Form 1040).
You deduct only foreign income taxes paid on income
that is subject to U.S. tax. You can’t deduct foreign taxes
paid on earnings you exclude from tax under any of the
following.
•
Foreign earned income exclusion.
•
Foreign housing exclusion.
•
Territory exclusion.
Example. You are a U.S. citizen and qualify to exclude
your foreign earned income. Your excluded wages in
Country X are $70,000 on which you paid income tax of
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$10,000. You received dividends from Country X of
$2,000 on which you paid income tax of $600.
You can deduct the $600 tax payment because the divi-
dends relating to it are subject to U.S. tax. Because you
exclude your wages, you cannot deduct the income tax of
$10,000.
If you exclude only a part of your wages, see the earlier
discussion under Foreign taxes paid on excluded income.
Deduction for Other Foreign Taxes
You cannot deduct other foreign taxes, such as real prop-
erty or personal property taxes, unless you incurred the
expenses in a trade or business or in the production of in-
come.
On the other hand, you can generally deduct real prop-
erty or personal property taxes when you pay them to U.S.
territories. But if you claim the territory exclusion, see Pub.
570.
The deduction for foreign taxes other than foreign in-
come taxes isn’t related to the foreign tax credit. You can
take deductions for these miscellaneous foreign taxes and
also claim the foreign tax credit for income taxes imposed
by a foreign country.
How To Report Deductions
If you exclude foreign earned income or housing amounts,
how you show your deductions on your tax return and how
you figure the amount allocable to your excluded income
depend on whether the expenses are used in figuring ad-
justed gross income (Form 1040 or 1040-SR, line 11) or
are itemized deductions.
If you have deductions used in figuring adjusted gross
income, enter the total amount for each of these items on
the appropriate lines and schedules of Form 1040 or
1040-SR. Generally, you figure the amount of a deduction
related to the excluded income by multiplying the deduc-
tion by a fraction, the numerator of which is your foreign
earned income exclusion and the denominator of which is
your foreign earned income. Enter the amount of the de-
duction(s) related to excluded income on line 44 of Form
2555.
If you have itemized deductions related to excluded in-
come, enter on Schedule A (Form 1040) only the part not
related to excluded income. You figure that amount by
subtracting from the total deduction the amount related to
excluded income. Generally, you figure the amount that is
related to the excluded income by multiplying the total de-
duction by a fraction, the numerator of which is your for-
eign earned income exclusion and the denominator of
which is your foreign earned income. Attach a statement
to your return showing how you figured the deductible
amount.
Example 1. You are a U.S. citizen employed as an ac-
countant. Your tax home is in Germany for the entire tax
year. You meet the physical presence test. Your foreign
earned income for the year was $129,875 and your invest-
ment income was $8,890. After excluding $120,000, your
adjusted gross income is $18,765.
Generally, mortgage interest is deductible on Sched-
ule A (Form 1040). You paid mortgage interest on your for-
eign home of $15,000. Your mortgage is under $750,000.
Reduce the $15,000 of your mortgage interest by 92.3%
(0.923) ($13,845) because you excluded 92.3% (0.923)
($120,000/$129,875) of your foreign earned income.
The remaining mortgage interest of $1,155 can be de-
ducted on line 8a or 8b of Schedule A (Form 1040).
Example 2. You are a U.S. citizen, have a tax home in
Spain, and meet the physical presence test. You are
self-employed and personal services produce the busi-
ness income. Your gross income was $121,842, business
expenses were $67,695, and net income (profit) was
$54,147. You choose the foreign earned income exclusion
and exclude $120,000 of your gross income. Since your
excluded income is 98.48% (0.9848) of your total income,
98.48% (0.9848) of your business expenses are not de-
ductible. Report your total income and expenses on
Schedule C (Form 1040). On Form 2555, you will show
the following.
•
Line 20a, $121,842, gross income.
•
Lines 42 and 43, $120,000, foreign earned income ex-
clusion.
•
Line 44, $66,666 (98.48% (0.9848) × $67,695), busi-
ness expenses attributable to the exclusion.
Example 3. Assume in Example 2 that both capital
and personal services combine to produce the business
income. No more than 30% of your net income or $16,244
($54,147 x 30% (0.30)), assuming that this amount is a
reasonable allowance for your services, is considered
earned and can be excluded. Your exclusion of $16,244 is
13.33% of your gross income ($16,244 ÷ $121,842). Be-
cause you excluded 13.33% of your net income, $9,024
(13.33% (0.1333) x $67,695) of your business expenses
is attributable to the excluded income and is not deducti-
ble.
Example 4. You are a U.S. citizen, have a tax home in
Brazil, and meet the physical presence test. You are
self-employed and both capital and personal services
combine to produce business income. Your gross income
was $146,000, business expenses were $172,000, and
your net loss was $26,000. A reasonable allowance for the
services you performed for the business is $77,000. Be-
cause you incurred a net loss, the earned income limit of
30% of your net profit does not apply. The $77,000 is for-
eign earned income. If you choose to exclude the
$77,000, you exclude 52.74% of your gross income
($77,000 ÷ $146,000), and 52.74% of your business ex-
penses ($90,713) is attributable to that income and is not
deductible. Show your total income and expenses on
Schedule C (Form 1040). On Form 2555, exclude $77,000
and show $90,713 on line 44. Subtract line 44 from
line 43, and enter the difference as a negative (in paren-
theses) on line 45. Because this amount is negative, enter
it as a positive (no parentheses) on line 8d of Schedule 1
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(Form 1040), and combine it with your other income to ar-
rive at total income on line 9 of Schedule 1 (Form 1040).
In this situation (Example 4), you would probably
not want to choose the foreign earned income ex-
clusion if this was the first year you were eligible. If
you had chosen the exclusion in an earlier year, you might
want to revoke the choice for this year. To do so would
mean that you could not claim the exclusion again for the
next 5 tax years without IRS approval. See Choosing the
Exclusion in chapter 4.
Example 5. You are a U.S. citizen, have a tax home in
Panama, and meet the bona fide residence test. You have
been performing services for clients as a partner in a firm
that provides services exclusively in Panama. Capital in-
vestment is not material in producing the partnership's in-
come. Under the terms of the partnership agreement, you
are to receive 50% of the net profits. The partnership re-
ceived gross income of $248,000 and incurred operating
expenses of $102,250. Of the net profits of $145,750, you
received $72,875 as your distributive share.
You choose to exclude $120,000 of your share of the
gross income. Because you exclude 96.77% (0.9677)
($120,000 ÷ $124,000) of your share of the gross income,
you cannot deduct $49,474, which is 96.77% (0.9677) of
your share of the operating expenses (96.77% (0.9677) ×
$51,125). Report $72,875, your distributive share of the
partnership net profit, on Schedule E (Form 1040). On
Form 2555, show $120,000 on line 42 and show $49,474
on line 44. Your exclusion on Form 2555 is $70,521.
6.
Tax Treaty Benefits
Topics
This chapter discusses:
•
Some common tax treaty benefits,
•
How to get help in certain situations, and
•
How to get copies of tax treaties.
Useful Items
You may want to see:
Publication
597 Information on the United States–Canada
Income Tax Treaty
901 U.S. Tax Treaties
See chapter 7 for information about getting these publica-
tions.
TIP
597
901
Purpose of Tax Treaties
The United States has bilateral income tax treaties, also
known as conventions, with many countries. See Table 3
under the list of tax treaty tables at IRS.gov/Individuals/
International-Taxpayers/Tax-Treaty-Tables for a list of coun-
tries with which the United States has an income tax treaty
in effect.
Under these treaties, citizens and residents of the Uni-
ted States who are subject to taxes imposed by the for-
eign countries are entitled to certain credits, deductions,
exemptions, and reductions in the rate of taxes of those
foreign countries. If a foreign country with which the Uni-
ted States has a treaty imposes a tax on you, you may be
entitled to benefits under the treaty.
Treaty benefits are generally available to residents of
the United States. They are generally not available to U.S.
citizens who do not reside in the United States. However,
certain treaty benefits and safeguards, such as the non-
discrimination provisions, are available to U.S. citizens re-
siding in the treaty countries. U.S. citizens residing in a for-
eign country may also be entitled to benefits under that
country's tax treaties with third countries.
Certification of U.S. residency. Use Form 8802 to re-
quest certification of U.S. residency for purposes of claim-
ing benefits under a tax treaty. Certification can be reques-
ted for the current and any prior calendar years.
You should examine the specific treaty articles to
find if you are entitled to a tax credit, tax exemp-
tion, reduced rate of tax, or other treaty benefit or
safeguard.
For more information on tax treaties, go to IRS.gov/
Individuals/International-Taxpayers/Tax-Treaties.
Common Benefits
Some common tax treaty benefits are explained below.
The credits, deductions, exemptions, reductions in rate,
and other benefits provided by tax treaties are subject to
conditions and various restrictions. Benefits provided by
certain treaties are not necessarily provided by others.
Personal service income. If you are a U.S. resident
who is in a treaty country for a limited number of days in
the tax year and you meet certain other requirements, the
payment you receive for personal services performed in
that country may be exempt from that country's income
tax.
Professors and teachers. If you are a U.S. resident,
the payment you receive for the first 2 or 3 years that you
are teaching or doing research in a treaty country may be
exempt from that country's income tax.
Students, trainees, and apprentices. If you are a
U.S. resident, amounts you receive from the United States
TIP
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for study, research, or business, professional, and techni-
cal training in a treaty country may be exempt from a treaty
country's income tax.
Some treaties exempt non-compensatory grants, allow-
ances, and awards received from governmental and cer-
tain nonprofit organizations. Also, under certain circum-
stances, a limited amount of pay received by students,
trainees, and apprentices for the performance of services
in a treaty country may be exempt from the income tax of
many treaty countries.
Pensions and annuities. If you are a U.S. resident,
nongovernment pensions and annuities you receive may
be exempt from the income tax of treaty countries.
Most treaties contain separate provisions for exempting
government pensions and annuities from treaty country in-
come tax, and some treaties provide exemption from the
treaty country's income tax for social security payments.
Investment income. If you are a U.S. resident, invest-
ment income, such as interest and dividends, that you re-
ceive from sources in a treaty country may be exempt from
that country's income tax or taxed at a reduced rate.
Several treaties provide exemption for capital gains
(other than from sales of real property in most cases) if
specified requirements are met.
Tax credit provisions. If you are a U.S. resident who re-
ceives income from or owns capital in a foreign country,
you may be taxed on that income or capital by both the
United States and the treaty country.
Most treaties allow you to take a credit against or de-
duction from the treaty country's taxes based on the U.S.
tax on the income.
Nondiscrimination provisions. Most U.S. tax treaties
provide that the treaty country cannot discriminate by im-
posing more burdensome taxes on U.S. citizens who are
residents of the treaty country than it imposes on its own
citizens in the same circumstances.
Saving clauses. U.S. treaties contain saving clauses
that provide that the treaties do not affect the U.S. taxation
of its own citizens and residents. As a result, U.S. citizens
and residents cannot generally use the treaty to reduce
their U.S. tax liability.
However, most treaties provide exceptions to saving
clauses that allow certain provisions of the treaty to be
claimed by U.S. citizens or residents. It is important that
you examine the applicable saving clause to determine if
an exception applies.
More information on treaties. Pub. 901 contains an ex-
planation of treaty provisions that apply to amounts re-
ceived by teachers, students, workers, and government
employees and pensioners who are alien nonresidents or
residents of the United States. Since treaty provisions are
generally reciprocal, you can usually substitute “U.S.” for
the name of the treaty country whenever it appears, and
vice versa when “U.S.” appears in the treaty exemption
discussions in Pub. 901.
Pub. 597 contains an explanation of a number of fre-
quently used provisions of the United States–Canada
income tax treaty.
For additional information, go to IRS.gov/Individuals/
International-Taxpayers/Tax-Treaties.
Competent Authority
Assistance
If you are a U.S. citizen or resident alien, you can request
assistance from the U.S. competent authority if you think
that the actions of the United States, a treaty country, or
both, cause or will cause a tax situation not intended by
the treaty between the two countries. You should read any
treaty articles, including the mutual agreement procedure
article, that apply in your situation.
The U.S. competent authority cannot consider requests
involving countries with which the United States does not
have a tax treaty.
Instructions for how to prepare and submit a request
are available at IRS.gov/CompetentAuthority.
Your request for competent authority consideration
should be addressed to:
Commissioner
Large Business and International Division
1111 Constitution Ave. NW
Washington, DC 20224
SE:LB:TTPO:APMA:TAIT:
NCA 570-03
(Attention: TAIT)
Obtaining Copies of Tax
Treaties
You can get complete information about treaty provisions
from the taxing authority in the country from which you re-
ceive income or from the treaty itself. You can obtain the
text of most U.S. treaties at IRS.gov/Businesses/
International-Businesses/United-States-Income-Tax-
Treaties-A-to-Z.
If you have questions about a treaty, you can visit
IRS.gov/Individuals/International-Taxpayers/Tax-Treaties.
7.
How To Get Tax Help
If you are overseas and need tax help, see Taxpayer As-
sistance Outside the United States, later.
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Taxpayer Assistance Inside the
United States
If you have questions about a tax issue; need help prepar-
ing your tax return; or want to download free publications,
forms, or instructions, go to IRS.gov to find resources that
can help you right away.
Preparing and filing your tax return. After receiving all
your wage and earnings statements (Forms W-2, W-2G,
1099-R, 1099-MISC, 1099-NEC, etc.); unemployment
compensation statements (by mail or in a digital format) or
other government payment statements (Form 1099-G);
and interest, dividend, and retirement statements from
banks and investment firms (Forms 1099), you have sev-
eral options to choose from to prepare and file your tax re-
turn. You can prepare the tax return yourself, see if you
qualify for free tax preparation, or hire a tax professional to
prepare your return.
Free options for tax preparation. Your options for pre-
paring and filing your return online or in your local com-
munity, if you qualify, include the following.
•
Free File. This program lets you prepare and file your
federal individual income tax return for free using soft-
ware or Free File Fillable Forms. However, state tax
preparation may not be available through Free File. Go
to IRS.gov/FreeFile to see if you qualify for free online
federal tax preparation, e-filing, and direct deposit or
payment options.
•
VITA. The Volunteer Income Tax Assistance (VITA)
program offers free tax help to people with
low-to-moderate incomes, persons with disabilities,
and limited-English-speaking taxpayers who need
help preparing their own tax returns. Go to IRS.gov/
VITA, download the free IRS2Go app, or call
800-906-9887 for information on free tax return prepa-
ration.
•
TCE. The Tax Counseling for the Elderly (TCE) pro-
gram offers free tax help for all taxpayers, particularly
those who are 60 years of age and older. TCE volun-
teers specialize in answering questions about pen-
sions and retirement-related issues unique to seniors.
Go to IRS.gov/TCE or download the free IRS2Go app
for information on free tax return preparation.
•
MilTax. Members of the U.S. Armed Forces and quali-
fied veterans may use MilTax, a free tax service of-
fered by the Department of Defense through Military
OneSource. For more information, go to
MilitaryOneSource (MilitaryOneSource.mil/MilTax).
Also, the IRS offers Free Fillable Forms, which can
be completed online and then e-filed regardless of in-
come.
Using online tools to help prepare your return. Go to
IRS.gov/Tools for the following.
•
The Earned Income Tax Credit Assistant (IRS.gov/
EITCAssistant) determines if you’re eligible for the
earned income credit (EIC).
•
The Online EIN Application (IRS.gov/EIN) helps you
get an employer identification number (EIN) at no
cost.
•
The Tax Withholding Estimator (IRS.gov/W4App)
makes it easier for you to estimate the federal income
tax you want your employer to withhold from your pay-
check. This is tax withholding. See how your withhold-
ing affects your refund, take-home pay, or tax due.
•
The First-Time Homebuyer Credit Account Look-up
(IRS.gov/HomeBuyer) tool provides information on
your repayments and account balance.
•
The Sales Tax Deduction Calculator (IRS.gov/
SalesTax) figures the amount you can claim if you
itemize deductions on Schedule A (Form 1040).
Getting answers to your tax questions. On
IRS.gov, you can get up-to-date information on
current events and changes in tax law.
•
IRS.gov/Help: A variety of tools to help you get an-
swers to some of the most common tax questions.
•
IRS.gov/ITA: The Interactive Tax Assistant, a tool that
will ask you questions and, based on your input, pro-
vide answers on a number of tax law topics.
•
IRS.gov/Forms: Find forms, instructions, and publica-
tions. You will find details on the most recent tax
changes and interactive links to help you find answers
to your questions.
•
You may also be able to access tax law information in
your electronic filing software.
Need someone to prepare your tax return? There are
various types of tax return preparers, including enrolled
agents, certified public accountants (CPAs), accountants,
and many others who don’t have professional credentials.
If you choose to have someone prepare your tax return,
choose that preparer wisely. A paid tax preparer is:
•
Primarily responsible for the overall substantive accu-
racy of your return,
•
Required to sign the return, and
•
Required to include their preparer tax identification
number (PTIN).
Although the tax preparer always signs the return,
you're ultimately responsible for providing all the
information required for the preparer to accurately
prepare your return. Anyone paid to prepare tax returns for
others should have a thorough understanding of tax mat-
ters. For more information on how to choose a tax pre-
parer, go to Tips for Choosing a Tax Preparer on IRS.gov.
CAUTION
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Employers can register to use Business Services On-
line. The Social Security Administration (SSA) offers on-
line service at SSA.gov/employer for fast, free, and secure
online W-2 filing options to CPAs, accountants, enrolled
agents, and individuals who process Form W-2, Wage
and Tax Statement, and Form W-2c, Corrected Wage and
Tax Statement.
IRS social media. Go to IRS.gov/SocialMedia to see the
various social media tools the IRS uses to share the latest
information on tax changes, scam alerts, initiatives, prod-
ucts, and services. At the IRS, privacy and security are our
highest priority. We use these tools to share public infor-
mation with you. Don’t post your social security number
(SSN) or other confidential information on social media
sites. Always protect your identity when using any social
networking site.
The following IRS YouTube channels provide short, in-
formative videos on various tax-related topics in English,
Spanish, and ASL.
•
Youtube.com/irsvideos.
•
Youtube.com/irsvideosmultilingua.
•
Youtube.com/irsvideosASL.
Watching IRS videos. The IRS Video portal
(IRSVideos.gov) contains video and audio presentations
for individuals, small businesses, and tax professionals.
Online tax information in other languages. You can
find information on IRS.gov/MyLanguage if English isn’t
your native language.
Free Over-the-Phone Interpreter (OPI) Service. The
IRS is committed to serving taxpayers with limited-English
proficiency (LEP) by offering OPI services. The OPI Serv-
ice is a federally funded program and is available at Tax-
payer Assistance Centers (TACs), most IRS offices, and
every VITA/TCE tax return site. The OPI Service is acces-
sible in more than 350 languages.
Accessibility Helpline available for taxpayers with
disabilities. Taxpayers who need information about ac-
cessibility services can call 833-690-0598. The Accessi-
bility Helpline can answer questions related to current and
future accessibility products and services available in al-
ternative media formats (for example, braille, large print,
audio, etc.). The Accessibility Helpline does not have ac-
cess to your IRS account. For help with tax law, refunds, or
account-related issues, go to IRS.gov/LetUsHelp.
Note. Form 9000, Alternative Media Preference, or
Form 9000(SP) allows you to elect to receive certain types
of written correspondence in the following formats.
•
Standard Print.
•
Large Print.
•
Braille.
•
Audio (MP3).
•
Plain Text File (TXT).
•
Braille Ready File (BRF).
Disasters. Go to IRS.gov/DisasterRelief to review the
available disaster tax relief.
Getting tax forms and publications. Go to IRS.gov/
Forms to view, download, or print all of the forms, instruc-
tions, and publications you may need. Or, you can go to
IRS.gov/OrderForms to place an order.
Getting tax publications and instructions in eBook
format. Download and view most tax publications and in-
structions (including the Instructions for Form 1040) on
mobile devices as eBooks at IRS.gov/eBooks.
IRS eBooks have been tested using Apple's iBooks for
iPad. Our eBooks haven’t been tested on other dedicated
eBook readers, and eBook functionality may not operate
as intended.
Access your online account (individual taxpayers
only). Go to IRS.gov/Account to securely access infor-
mation about your federal tax account.
•
View the amount you owe and a breakdown by tax
year.
•
See payment plan details or apply for a new payment
plan.
•
Make a payment or view 5 years of payment history
and any pending or scheduled payments.
•
Access your tax records, including key data from your
most recent tax return, and transcripts.
•
View digital copies of select notices from the IRS.
•
Approve or reject authorization requests from tax pro-
fessionals.
•
View your address on file or manage your communica-
tion preferences.
Get a transcript of your return. With an online ac-
count, you can access a variety of information to help you
during the filing season. You can get a transcript, review
your most recently filed tax return, and get your adjusted
gross income. Create or access your online account at
IRS.gov/Account.
Tax Pro Account. This tool lets your tax professional
submit an authorization request to access your individual
taxpayer IRS online account. For more information, go to
IRS.gov/TaxProAccount.
Using direct deposit. The safest and easiest way to re-
ceive a tax refund is to e-file and choose direct deposit,
which securely and electronically transfers your refund di-
rectly into your financial account. Direct deposit also
avoids the possibility that your check could be lost, stolen,
destroyed, or returned undeliverable to the IRS. Eight in
10 taxpayers use direct deposit to receive their refunds. If
you don’t have a bank account, go to IRS.gov/
DirectDeposit for more information on where to find a bank
or credit union that can open an account online.
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Reporting and resolving your tax-related identity
theft issues.
•
Tax-related identity theft happens when someone
steals your personal information to commit tax fraud.
Your taxes can be affected if your SSN is used to file a
fraudulent return or to claim a refund or credit.
•
The IRS doesn’t initiate contact with taxpayers by
email, text messages (including shortened links), tele-
phone calls, or social media channels to request or
verify personal or financial information. This includes
requests for personal identification numbers (PINs),
passwords, or similar information for credit cards,
banks, or other financial accounts.
•
Go to IRS.gov/IdentityTheft, the IRS Identity Theft
Central webpage, for information on identity theft and
data security protection for taxpayers, tax professio-
nals, and businesses. If your SSN has been lost or
stolen or you suspect you’re a victim of tax-related
identity theft, you can learn what steps you should
take.
•
Get an Identity Protection PIN (IP PIN). IP PINs are
six-digit numbers assigned to taxpayers to help pre-
vent the misuse of their SSNs on fraudulent federal in-
come tax returns. When you have an IP PIN, it pre-
vents someone else from filing a tax return with your
SSN. To learn more, go to IRS.gov/IPPIN.
Ways to check on the status of your refund.
•
Go to IRS.gov/Refunds.
•
Download the official IRS2Go app to your mobile de-
vice to check your refund status.
•
Call the automated refund hotline at 800-829-1954.
The IRS can’t issue refunds before mid-February
for returns that claimed the EIC or the additional
child tax credit (ACTC). This applies to the entire
refund, not just the portion associated with these credits.
Making a tax payment. Payments of U.S. tax must be
remitted to the IRS in U.S. dollars. Digital assets are not
accepted. Go to IRS.gov/Payments for information on how
to make a payment using any of the following options.
•
IRS Direct Pay: Pay your individual tax bill or estimated
tax payment directly from your checking or savings ac-
count at no cost to you.
•
Debit Card, Credit Card, or Digital Wallet: Choose an
approved payment processor to pay online or by
phone.
•
Electronic Funds Withdrawal: Schedule a payment
when filing your federal taxes using tax return prepara-
tion software or through a tax professional.
•
Electronic Federal Tax Payment System: Best option
for businesses. Enrollment is required.
•
Check or Money Order: Mail your payment to the ad-
dress listed on the notice or instructions.
•
Cash: You may be able to pay your taxes with cash at
a participating retail store.
CAUTION
!
•
Same-Day Wire: You may be able to do same-day
wire from your financial institution. Contact your finan-
cial institution for availability, cost, and time frames.
Note. The IRS uses the latest encryption technology to
ensure that the electronic payments you make online, by
phone, or from a mobile device using the IRS2Go app are
safe and secure. Paying electronically is quick, easy, and
faster than mailing in a check or money order.
What if I can’t pay now? Go to IRS.gov/Payments for
more information about your options.
•
Apply for an online payment agreement (IRS.gov/
OPA) to meet your tax obligation in monthly install-
ments if you can’t pay your taxes in full today. Once
you complete the online process, you will receive im-
mediate notification of whether your agreement has
been approved.
•
Use the Offer in Compromise Pre-Qualifier to see if
you can settle your tax debt for less than the full
amount you owe. For more information on the Offer in
Compromise program, go to IRS.gov/OIC.
Filing an amended return. Go to IRS.gov/Form1040X
for information and updates.
Checking the status of your amended return. Go to
IRS.gov/WMAR to track the status of Form 1040-X amen-
ded returns.
It can take up to 3 weeks from the date you filed
your amended return for it to show up in our sys-
tem, and processing it can take up to 16 weeks.
Understanding an IRS notice or letter you’ve re-
ceived. Go to IRS.gov/Notices to find additional informa-
tion about responding to an IRS notice or letter.
Responding to an IRS notice or letter. You can now
upload responses to all notices and letters using the
Document Upload Tool. For notices that require additional
action, taxpayers will be redirected appropriately on
IRS.gov to take further action. To learn more about the
tool, go to IRS.gov/Upload.
Note. You can use Schedule LEP (Form 1040), Re-
quest for Change in Language Preference, to state a pref-
erence to receive notices, letters, or other written commu-
nications from the IRS in an alternative language. You may
not immediately receive written communications in the re-
quested language. The IRS’s commitment to LEP taxpay-
ers is part of a multi-year timeline that is scheduled to be-
gin providing translations in 2023. You will continue to
receive communications, including notices and letters, in
English until they are translated to your preferred lan-
guage.
Contacting your local TAC. Keep in mind, many ques-
tions can be answered on IRS.gov without visiting a TAC.
Go to IRS.gov/LetUsHelp for the topics people ask about
most. If you still need help, TACs provide tax help when a
tax issue can’t be handled online or by phone. All TACs
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now provide service by appointment, so you’ll know in ad-
vance that you can get the service you need without long
wait times. Before you visit, go to IRS.gov/TACLocator to
find the nearest TAC and to check hours, available serv-
ices, and appointment options. Or, on the IRS2Go app,
under the Stay Connected tab, choose the Contact Us op-
tion and click on “Local Offices.”
The Taxpayer Advocate Service (TAS)
Is Here To Help You
What Is TAS?
TAS is an independent organization within the IRS that
helps taxpayers and protects taxpayer rights. TAS strives
to ensure that every taxpayer is treated fairly and that you
know and understand your rights under the Taxpayer Bill
of Rights.
How Can You Learn About Your Taxpayer
Rights?
The Taxpayer Bill of Rights describes 10 basic rights that
all taxpayers have when dealing with the IRS. Go to
TaxpayerAdvocate.IRS.gov to help you understand what
these rights mean to you and how they apply. These are
your rights. Know them. Use them.
What Can TAS Do for You?
TAS can help you resolve problems that you can’t resolve
with the IRS. And their service is free. If you qualify for
their assistance, you will be assigned to one advocate
who will work with you throughout the process and will do
everything possible to resolve your issue. TAS can help
you if:
•
Your problem is causing financial difficulty for you,
your family, or your business;
•
You face (or your business is facing) an immediate
threat of adverse action; or
•
You’ve tried repeatedly to contact the IRS but no one
has responded, or the IRS hasn’t responded by the
date promised.
How Can You Reach TAS?
TAS has offices in every state, the District of Columbia,
and Puerto Rico. To find your advocate’s number:
•
Go to TaxpayerAdvocate.IRS.gov/Contact-Us;
•
Download Pub. 1546, The Taxpayer Advocate Service
Is Your Voice at the IRS, available at IRS.gov/pub/irs-
pdf/p1546.pdf;
•
Call the IRS toll free at 800-TAX-FORM
(800-829-3676) to order a copy of Pub. 1546;
•
Check your local directory; or
•
Call TAS toll free at 877-777-4778.
How Else Does TAS Help Taxpayers?
TAS works to resolve large-scale problems that affect
many taxpayers. If you know of one of these broad issues,
report it to them at IRS.gov/SAMS. Be sure to not include
any personal taxpayer information.
Low Income Taxpayer Clinics (LITCs)
LITCs are independent from the IRS and TAS. LITCs rep-
resent individuals whose income is below a certain level
and who need to resolve tax problems with the IRS. LITCs
can represent taxpayers in audits, appeals, and tax collec-
tion disputes before the IRS and in court. In addition,
LITCs can provide information about taxpayer rights and
responsibilities in different languages for individuals who
speak English as a second language. Services are offered
for free or a small fee. For more information or to find an
LITC near you, go to the LITC page at
TaxpayerAdvocate.IRS.gov/LITC or see IRS Pub. 4134,
Low Income Taxpayer Clinic List, at IRS.gov/pub/irs-pdf/
4134.pdf.
Taxpayer Assistance Outside
the United States
If you are outside the United States, you can call
267-941-1000 (English-speaking only). This num-
ber is not toll free.
Fax 681-247-3101 (for international tax account
issues only).
If you wish to write instead of calling, please ad-
dress your letter to:
Internal Revenue Service
International Accounts
Philadelphia, PA 19255-0725
U.S.A.
Additional contacts for taxpayers who live outside the Uni-
ted States are available at IRS.gov/uac/Contact-My-Local-
Office-Internationally.
Taxpayer Advocate Service (TAS). If you live outside
the United States, you can call TAS at +15.15.56.46.827.
Your call will be automatically routed to Hawaii or Puerto
Rico depending on your location. If you select Spanish,
your call will be routed to the Puerto Rico office for assis-
tance. You can contact TAS at:
Internal Revenue Service
Taxpayer Advocate Service
City View Plaza, 48 Carr 165, 5th floor, Suite 200,
Guaynabo, P.R. 00968-8000
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You can call TAS toll free at 877-777-4778. For
more information on TAS and contacts if you are
outside of the United States, go to
TaxpayerAdvocate.IRS.gov/Get-Help/International/.
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Questions and Answers
This section answers tax-related questions commonly
asked by taxpayers living abroad.
Filing Requirements—Where, When, and How
1) When are U.S. income tax returns due?
Generally, for calendar-year taxpayers, U.S. income tax re-
turns are due on April 15. If you are a U.S. citizen or resi-
dent and both your tax home and your abode are outside
the United States and Puerto Rico on the regular due
date, an automatic extension is granted to June 15 for fil-
ing the return. Interest will be charged on any tax due, as
shown on the return, from April 15.
2) I am going abroad this year and expect to qualify
for the foreign earned income exclusion. How can I
secure an extension of time to file my return, when
should I file my return, and what forms are required?
a) You should file Form 2350 by the due date of your re-
turn to request an extension of time to file. Form 2350 is a
special form for those U.S. citizens or residents abroad
who expect to qualify for the foreign earned income exclu-
sion or the housing exclusion or deduction under either
the bona fide residence test or physical presence test and
would like to have an extension of time to delay filing until
after they have qualified.
b) If the extension is granted, you should file your return
after you qualify, but by the approved extension date.
c) You must file your Form 1040 or 1040-SR with Form
2555.
3) My entire income qualifies for the foreign earned
income exclusion. Must I file a tax return?
Generally, yes. Every U.S. citizen or resident who receives
income must file a U.S. income tax return unless total in-
come without regard to the foreign earned income exclu-
sion is below an amount based on filing status. The in-
come levels for filing purposes are discussed under Filing
Requirements in chapter 1.
4) I was sent abroad by my company in November of
last year. I plan to secure an extension of time on
Form 2350 to file my tax return for last year because I
expect to qualify for the foreign earned income
exclusion under the physical presence test. However,
if my company recalls me to the United States before
the end of the qualifying period and I find I will not
qualify for the exclusion, how and when should I file
my return?
If your regular filing date has passed, you should file a re-
turn, Form 1040 (Form 1040 or 1040-SR for 2023), as
soon as possible for last year. Include a statement with
this return noting that you have returned to the United
States and won’t qualify for the foreign earned income ex-
clusion. You must report your worldwide income on the re-
turn. If you paid a foreign tax on the income earned
abroad, you may be able to either deduct this tax as an
itemized deduction or claim it as a credit against your U.S.
income tax.
However, if you pay the tax due after the regular due
date, interest will be charged from the regular due date
until the date the tax is paid.
5) I am a U.S. citizen and have no taxable income
from the United States, but I have substantial income
from a foreign source. Am I required to file a U.S.
income tax return?
Yes. All U.S. citizens and resident aliens are subject to
U.S. tax on their worldwide income. If you paid taxes to a
foreign government on income from sources outside the
United States, you may be able to claim a foreign tax
credit against your U.S. income tax liability for the foreign
taxes paid. Form 1116 is used to figure the allowable
credit.
6) I am a U.S. citizen who has retired, and I expect to
remain in a foreign country. Do I have any further
U.S. tax obligations?
Your U.S. tax obligation on your income is the same as
that of a retired person living in the United States. (See the
discussion on filing requirements in chapter 1 of this publi-
cation.)
7) I have been a bona fide resident of a foreign
country for over 5 years. Is it necessary for me to pay
estimated tax?
U.S. taxpayers overseas have the same requirements for
paying estimated tax as those in the United States. See
the discussion under Estimated Tax Payments in chap-
ter 1.
Overseas taxpayers should not include in their estima-
ted income any income they receive that is, or will be, ex-
empt from U.S. taxation.
Overseas taxpayers can deduct their estimated hous-
ing deduction in figuring their estimated tax.
The first installment of estimated tax is due on April 15
of the year for which the income is earned.
8) Will a check payable in foreign currency be
acceptable in payment of my U.S. tax?
Generally, only U.S. currency is acceptable for payment of
income tax. However, if you are a Fulbright grantee, see
Fulbright Grant in chapter 1.
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9) I have met the test for physical presence in a
foreign country and am filing returns for 2 years.
Must I file a separate Form 2555 with each return?
Yes. A Form 2555 must be filed with each Form 1040 or
1040-SR tax return on which the benefits of income
earned abroad are claimed.
10) Does a Form 2555 with a Schedule C or Form W-2
attached constitute a return?
No. The Form 2555, Schedule C, and Form W-2 are
merely attachments and do not relieve you of the require-
ment to file a Form 1040 or 1040-SR to show the sources
of income reported and the exclusions or deductions
claimed.
11) On Form 2350, Application for Extension of Time
To File U.S. Income Tax Return, I stated that I would
qualify for the foreign earned income exclusion
under the physical presence test. If I qualify under
the bona fide residence test, can I file my return on
that basis?
Yes. You can claim the foreign earned income exclusion
and the foreign housing exclusion or deduction under ei-
ther test as long as you meet the requirements. You are
not bound by the test indicated in the application for ex-
tension of time. You must be sure, however, that you file
the Form 1040 or 1040-SR by the date approved on Form
2350, because a return filed after that date may be subject
to a failure-to-file penalty.
If you will not qualify under the bona fide residence test
until a date later than the extension granted under the
physical presence rule, apply for a new extension to a
date 30 days beyond the date you expect to qualify as a
bona fide resident.
12) I am a U.S. citizen who worked in the United
States for 6 months last year. I accepted employment
overseas in July of last year and expect to qualify for
the foreign earned income exclusion. Should I file a
return and pay tax on the income earned in the
United States during the first 6 months and then,
when I qualify, file another return covering the last 6
months of the year?
No. You have the choice of one of the following two meth-
ods of filing your return.
a) You can file your return when due under the regular
filing rules, report all your income without excluding your
foreign earned income, and pay the tax due. After you
have qualified for the exclusion, you can file an amended
return, Form 1040-X, accompanied by Form 2555, for a
refund of any excess tax paid.
b) You can postpone the filing of your tax return by ap-
plying on Form 2350 for an extension of time to file to a
date 30 days beyond the date you expect to qualify under
either the bona fide residence test or the physical
presence test, then file your return reflecting the exclusion
of foreign earned income. This allows you to file only once
and saves you from paying the tax and waiting for a re-
fund. However, interest is charged on any tax due on the
postponed tax return, but interest is not paid on refunds
paid within 45 days after the return is filed.
13) I am a U.S. citizen. I have lived abroad for a
number of years and recently realized that I should
have been filing U.S. income tax returns. How do I
correct this oversight in not having filed returns for
these years?
File the late returns as soon as possible, stating your rea-
son for filing late. For advice on filing the returns, you
should contact an IRS representative.
14) In 2016, I qualified to exclude my foreign earned
income, but I did not claim this exclusion on the
return I filed in 2017. I paid all outstanding taxes with
the return. Can I file a claim for refund now?
It is too late to claim this refund because a claim for refund
must be filed within 3 years from the date the return was
filed or 2 years from the date the tax was paid, whichever
is later. A return filed before the due date is considered
filed on the due date.
Meeting the Requirements of Either the Bona Fide
Residence Test or the Physical Presence Test
1) I recently came to Country X to work for the
Orange Tractor Co. and I expect to be here for 5 or 6
years. I understand that upon the completion of 1 full
year I will qualify for an exclusion or deduction under
the bona fide residence test. Is this correct?
Not necessarily. The law provides that to qualify under this
test for the foreign earned income exclusion, the foreign
housing exclusion, or the foreign housing deduction, a
person must be a bona fide resident of a foreign country
or countries for an uninterrupted period that includes an
entire tax year.
If, like most U.S. citizens, you file your return on a calen-
dar-year basis, the tax year referred to in the law would be
from January 1 to December 31 of any particular year. Un-
less you established residence in Country X on January 1,
it would be more than 1 year before you would be a bona
fide resident of a foreign country. Once you have comple-
ted your qualifying period, however, you are entitled to ex-
clude the income or to claim the housing exclusion or de-
duction from the date you established bona fide
residence.
2) I understand the physical presence test to be
simply a matter of being physically present in a
foreign country for at least 330 days within 12
consecutive months, but what are the criteria of the
bona fide residence test?
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To be a bona fide resident of a foreign country, you must
show that you entered a foreign country intending to re-
main there for an indefinite or prolonged period and, to
that end, you are making your home in that country. Con-
sideration is given to the type of quarters occupied,
whether your family went with you, the type of visa, the
employment agreement, and any other factor pertinent to
show whether your stay in the foreign country is indefinite
or prolonged.
To claim the foreign earned income exclusion or foreign
housing exclusion or deduction under this test, the period
of foreign residence must include 1 full tax year (usually
January 1–December 31), but once you meet this time re-
quirement, you figure the exclusions and the deduction
from the date the residence actually began.
3) To meet the qualification of “an uninterrupted
period that includes an entire tax year,” do I have to
be physically present in a foreign country for the
entire year?
No. “Uninterrupted” refers to the bona fide residence
proper and not to the physical presence of the individual.
During the period of bona fide residence in a foreign coun-
try, even during the first full year, you can leave the country
for brief and temporary trips back to the United States or
elsewhere for vacation, or even for business. To preserve
your status as a bona fide resident of a foreign country,
you must have a clear intention of returning from those
trips, without unreasonable delay, to your foreign resi-
dence.
4) I am a U.S. citizen and during 2022 was a bona fide
resident of Country X. On January 15, 2023, I was
notified that I was to be assigned to Country Y. I was
recalled to New York for 90 days of orientation and
then went to Country Y, where I have been since.
Although I was not in Country Y on January 1, I was a
bona fide resident of Country X and was in Country Y
on December 31, 2023. My family remained in
Country X until completion of the orientation period,
and my household goods were shipped directly to
my new post. Am I a bona fide resident of a foreign
country for 2023, or must I wait for the entire year of
2024 to become one?
Because you did not break your period of foreign resi-
dence, you would continue to be a bona fide resident of a
foreign country for 2023.
5) Due to illness, I returned to the United States
before I completed my qualifying period to claim the
foreign earned income exclusion. Can I figure the
exclusion for the period I resided abroad?
No. You aren’t entitled to any exclusion of foreign earned
income because you did not complete your qualifying pe-
riod under either the bona fide residence test or physical
presence test. If you paid foreign tax on the income
earned abroad, you may be able to claim that tax as a
deduction or as a credit against your U.S. tax.
6) Can a resident alien of the United States qualify
for an exclusion or deduction under the bona fide
residence test or the physical presence test?
Resident aliens of the United States can qualify for the for-
eign earned income exclusion, the foreign housing exclu-
sion, or the foreign housing deduction if they meet the re-
quirements of the physical presence test. Resident aliens
who are citizens or nationals of a country with which the
United States has an income tax treaty in effect can also
qualify under the bona fide residence test.
7) On August 13 of last year, I left the United States
and arrived in Country Z to work for the Gordon
Manufacturing Company. I expected to be able to
exclude my foreign earned income under the
physical presence test because I planned to be in
Country Z for at least 1 year. However, I was
reassigned back to the United States and left
Country Z on July 1 of this year. Can I exclude any of
my foreign earned income?
No. You can’t exclude any of the income you earned in
Country Z because you were not in a foreign country for at
least 330 full days as required under the physical pres-
ence test.
Foreign Earned Income
1) I am an employee of the U.S. Government working
abroad. Can all or part of my government income
earned abroad qualify for the foreign earned income
exclusion?
No. The foreign earned income exclusion applies to your
foreign earned income. Amounts paid by the United
States or its agencies to their employees aren’t treated, for
this purpose, as foreign earned income.
2) I qualify for the foreign earned income exclusion
under the bona fide residence test. Does my foreign
earned income include my U.S. dividends and the
interest I receive on a foreign bank account?
No. The only income that is foreign earned income is in-
come from the performance of personal services abroad.
Investment income isn’t earned income. However, you
must include it in gross income reported on your Form
1040 or 1040-SR.
3) My company pays my foreign income tax on my
foreign earnings. Is this taxable compensation?
Yes. The amount is compensation for services performed.
The tax paid by your company should be reported on
Form 1040 or 1040-SR, line 1h, and on Form 2555, Part
IV, line 22f.
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4) I live in an apartment in a foreign city for which my
employer pays the rent. Should I include in my
income the cost to my employer ($1,200 a month) or
the fair market value of equivalent housing in the
United States ($800 a month)?
You must include in income the fair market value (FMV) of
the facility provided, where it is provided. This will usually
be the rent your employer pays. Situations when the FMV
is not included in income are discussed in chapter 4 under
Exclusion of Meals and Lodging.
5) My U.S. employer pays my salary into my U.S.
bank account. Is this income considered earned in
the United States or is it considered foreign earned
income?
If you performed the services to earn this salary outside
the United States, your salary is considered earned
abroad. It does not matter that you are paid by a U.S. em-
ployer or that your salary is deposited in a U.S. bank ac-
count in the United States. The source of salary, wages,
commissions, and other personal service income is the
place where you perform the services.
6) What is considered a foreign country?
For the purposes of the foreign earned income exclusion
and the foreign housing exclusion or deduction, any terri-
tory under the sovereignty of a country other than the Uni-
ted States is a foreign country. U.S. territories are not trea-
ted as foreign countries.
7) What is the source of earned income?
The source of earned income is the place where the work
or personal services that produce the income are per-
formed. In other words, income received for work in a for-
eign country has its source in that country. The foreign
earned income exclusion and the foreign housing exclu-
sion or deduction are limited to earned income from sour-
ces within foreign countries.
Foreign Earned Income Exclusion
1) I qualify for the foreign earned income exclusion
and earned more than $120,000 during 2023. Am I
entitled to the maximum $120,000 exclusion?
Not necessarily. Although you qualify for the foreign
earned income exclusion, you may not have met either the
bona fide residence test or the physical presence test for
your entire tax year. If you didn’t meet either of these tests
for your entire tax year, you must prorate the maximum ex-
clusion based on the number of days that you did meet ei-
ther test during the year.
2) How do I qualify for the foreign earned income
exclusion?
To be eligible, you must have a tax home in a foreign
country and be a U.S. citizen or resident alien. You must
be either a bona fide resident of a foreign country or coun-
tries for an uninterrupted period that includes an entire tax
year, or you must be physically present in a foreign coun-
try or countries for at least 330 full days during any period
of 12 consecutive months. U.S. citizens may qualify under
either test. The physical presence test applies to all resi-
dent aliens, while the bona fide residence test applies to
resident aliens who are citizens or nationals of a country
with which the United States has an income tax treaty in
effect.
Your tax home must be in the foreign country or coun-
tries throughout your period of residence or presence. For
this purpose, your period of physical presence is the 330
full days during which you are present in a foreign country,
not the 12 consecutive months during which those days
occur.
3) Is it true that my foreign earned income exclusion
cannot exceed my foreign earned income?
Yes. The amount of the exclusion is limited each year to
the amount of your foreign earned income after reducing
that income by the foreign housing exclusion. The foreign
earned income must be earned during the part of the tax
year that you have your tax home abroad and meet either
the bona fide residence test or the physical presence test.
4) My wife and I are both employed, reside together,
and file a joint return. We meet the qualifications for
claiming the foreign earned income exclusion. Do we
each figure a separate foreign earned income
exclusion and foreign housing exclusion?
You figure your foreign earned income exclusion sepa-
rately because you both have foreign earned income. The
amount of the exclusion for each of you can’t exceed your
separate foreign earned incomes.
You must figure your housing exclusion jointly. See Mar-
ried Couples in chapter 4 for further details.
Social Security and Railroad Retirement Benefits
1) Are U.S. social security benefits taxable?
Benefits received by U.S. citizens and resident aliens may
be taxable, depending on the total amount of income and
the filing status of the taxpayer. Under certain treaties,
U.S. social security benefits are exempt from U.S. tax if
taxed by the country of residence.
Benefits similar to social security received from other
countries by U.S. citizens or residents may be taxable.
(Refer to U.S. tax treaties with various countries for any
benefit granted by the treaty.)
2) As a U.S. citizen or resident alien, how do I figure
the amount of my U.S. social security benefits to
include in gross income?
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See Pub. 915 to figure if any of your benefits are includible
in income.
3) How are railroad retirement benefits taxed?
The part of a tier 1 railroad retirement benefit that is equiv-
alent to the social security benefit you would have been
entitled to receive if the railroad employee's work had
been covered under the social security system rather than
the railroad retirement system is treated the same as a so-
cial security benefit, discussed above.
The other part of a tier 1 benefit that is not considered a
social security equivalent benefit is treated like a private
pension or annuity, as are tier 2 railroad retirement bene-
fits. Pensions and annuities are explained in chapter 4 un-
der Earned and Unearned Income. Vested dual benefits
and supplemental annuities are also treated like private
pensions, but are fully taxable.
The proper amounts of the social security equivalent
part of tier 1 benefits and any special guaranty benefits
are shown on the Form RRB-1099 that you receive from
the Railroad Retirement Board. The taxable amounts of
the non-social security equivalent part of tier 1, tier 2, ves-
ted dual benefits, and supplemental annuities are shown
on the Form RRB-1099-R that you receive from the Rail-
road Retirement Board.
Social Security Tax and Self-Employment Tax
1) I am a minister with earned income from abroad
and expect to qualify for the foreign earned income
exclusion. How do I pay my self-employment tax?
File a Form 1040 or 1040-SR with Schedule SE (Form
1040) and Form 2555. Figure your self-employment tax on
Schedule SE (Form 1040) and enter it on Schedule 2
(Form 1040) as the tax due with the return.
2) Because I expect to qualify for the foreign earned
income exclusion, I have requested and received an
extension of time until January 30, 2025, to file my
2023 return. However, since I will be paying
self-employment tax on my spouse's income, should
I file a 2023 return when due, pay the
self-employment tax, and then file another return
when I qualify for the exclusion?
No. You don’t need to file a 2023 Form 1040 or 1040-SR
(the regular income tax return) when due if you have re-
ceived an extension. Instead, you should pay enough esti-
mated tax to cover the self-employment tax and any in-
come tax that would be due after taking out the amount of
excludable income.
Income Tax Withholding
1) How can I get my employer to stop withholding
federal income taxes from wages while I am overseas
and eligible for the foreign earned income exclusion?
File a statement in duplicate with your employer stating
that withholding should be reduced because you meet the
bona fide residence test or physical presence test. Also,
see the following question.
2) Does the IRS provide forms to be used by
employees requesting employers to stop withholding
income tax from wages they expect to be excluded
as income earned abroad?
Yes. Form 673 is a sample statement that can be used by
individuals who expect to qualify for the foreign earned in-
come exclusion under the bona fide residence test or the
physical presence test.
3) I am a U.S. citizen residing overseas, and I receive
dividend and interest income from U.S. sources from
which tax is being withheld at a rate of 30%. How can
I have this situation corrected?
File Form W-9 (indicating that you are a U.S. citizen) with
the withholding agents who are paying you the dividends
and interest. This is their authority to stop withholding the
30% income tax at the source on payments due to you.
4) As a U.S. citizen receiving dividend and interest
income from the United States from which tax has
been withheld, do I report the net dividend and
interest income on my return, or do I report the gross
amount and take credit for the tax withheld?
You must report the gross amount of the income received
and take a tax credit for the tax withheld. This is to your
advantage because the tax withheld is deducted in full
from the tax due. It is also advisable to attach a statement
to your return explaining this tax credit so there will be no
question as to the amount of credit allowable.
Deductions
1) Can I claim a foreign tax credit even though I do
not itemize deductions?
Yes. You can claim the foreign tax credit even though you
don’t itemize deductions.
2) I had to pay customs duty on a few things I
brought back with me from Europe last summer. Can
I include customs fees with my other deductible
taxes?
No. Customs duties, like federal excise taxes, aren’t de-
ductible.
3) What types of foreign taxes are deductible?
Generally, foreign income taxes are deductible as itemized
deductions. Foreign income taxes are deductible only if
you do not claim the foreign tax credit. Foreign income
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taxes paid on excluded income aren’t deductible as an
itemized deduction.
Other foreign taxes, such as real property or personal
property taxes, are only deductible if you incurred the ex-
penses in a trade or business or in the production of in-
come.
Note. Foreign income taxes are usually claimed under
the credit provisions, if they apply, because this is more
advantageous in most cases.
Scholarship and Fellowship Grantees
1) I am a Fulbright grantee. What documentation
must I attach to my return?
a) There are no special tax forms for Fulbright grantees.
File on a regular Form 1040 or 1040-SR.
b) If you claim exemption as a scholarship or fellowship
grantee, submit brochures and correspondence describ-
ing the grant and your duties.
c) If you are located in a foreign country and wish to pay
tax in foreign currency, you should submit a certified state-
ment showing that you were a Fulbright grantee and at
least 70% of the grant was paid in nonconvertible foreign
currency.
2) I taught and lectured abroad under taxable grants.
What expenses can I deduct?
You may be able to deduct your travel, meals, and lodging
expenses if you are temporarily absent from your regular
place of employment. For more information about deduct-
ing travel, meals, and lodging expenses, see Pub. 463,
Travel, Gift, and Car Expenses.
General Tax Questions
1) Can IRS personnel recommend tax practitioners
who prepare returns?
No. IRS employees aren’t permitted to recommend tax
practitioners who prepare income tax returns.
2) I just filed my return. How do I check the status of
my refund?
See Refund Information in your tax return instructions.
3) I haven’t received my refund from last year's
return. Can I claim the credit against this year's tax?
No. That would cause problems to both years' returns. If
your last year's refund is overdue, call or write the IRS. If
you write to the IRS, be sure to include your social security
number (or individual taxpayer identification number) in
the letter.
4) I forgot to include interest income when I filed my
return last week. What should I do?
To correct a mistake of this sort, you should prepare Form
1040-X. Include the omitted interest income, refigure the
tax, and send the form as soon as possible along with any
additional tax due to the Internal Revenue Service Center
where you filed your return. You may also be able to file
your Form 1040-X electronically.
Use Form 1040-X to correct an individual Form 1040 or
1040-SR income tax return filed for any year for which the
period of limitations has not expired (usually 3 years after
the due date of the return filed, or 2 years after the tax was
paid, whichever is later).
5) I am a U.S. citizen and, because I expect to qualify
for the foreign earned income exclusion, all my
foreign income (which consists solely of salary) will
be exempt from U.S. tax. Do I get any tax benefit from
income tax I paid on this salary to a foreign country
during the tax year?
No. You can’t take either a tax credit or a tax deduction for
foreign income taxes paid on income that is exempt from
U.S. tax because of the foreign earned income exclusion.
6) I am a U.S. citizen stationed abroad. I made a
personal loan to a nonresident alien who later went
bankrupt. Can I claim a bad debt loss for this
money?
Yes. The loss should be reported as a short-term capital
loss on Schedule D (Form 1040). You have the burden of
proving the validity of the loan, the subsequent bank-
ruptcy, and the recovery or nonrecovery from the loan.
7) With which countries does the United States have
tax treaties?
Table 3 under the list of tax treaty tables at IRS.gov/
Individuals/International-Taxpayers/Tax-Treaty-Tables lists
those countries with which the United States has income
tax treaties.
8) I am a retired U.S. citizen living in Europe. My only
income is from U.S. sources on which I pay U.S.
taxes. I am taxed on the same income in the foreign
country where I reside. How do I avoid double
taxation?
If you reside in a country that has an income tax treaty
with the United States, the treaty will generally contain
provisions to eliminate double taxation. Many treaties will
provide reduced rates for various types of income. Trea-
ties often provide reciprocal credits in one country for the
tax paid to the other country. Nontreaty countries, depend-
ing on their laws, may give the same type of credit.
If double taxation with a treaty country exists and you
cannot resolve the problem with the tax authorities of the
foreign country, you can contact the U.S. competent au-
thority for assistance. See chapter 6 for information on re-
questing consideration.
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9) My total income after claiming the foreign earned
income and housing exclusions consists of $5,000
taxable wages. Am I entitled to claim the earned
income credit?
No. If you claim the foreign earned income exclusion, the
foreign housing exclusion, or the foreign housing deduc-
tion, you can’t claim the earned income credit.
10) I am claiming the foreign earned income
exclusion. Can I take the additional child tax credit?
No. You can’t take the additional child tax credit if you
claim either the foreign earned income or foreign housing
exclusion, or the foreign housing deduction.
11) Last May, my employer transferred me to our
office in Puerto Rico. I understand that my salary
earned in Puerto Rico is tax exempt. Is this correct?
As long as your employer is not the U.S. Government, all
income from sources within Puerto Rico is exempt from
U.S. tax if you are a bona fide resident of Puerto Rico dur-
ing the entire tax year. The income you received from Pu-
erto Rican sources the year you moved to Puerto Rico is
not exempt. The tax paid to Puerto Rico in the year you
moved to Puerto Rico can be claimed as a foreign tax
credit on Form 1116.
12) I am a U.S. citizen married to a nonresident alien.
Can I qualify to use the head of household tax rates?
Yes. Although your nonresident alien spouse cannot qual-
ify you as a head of household, you may qualify if you
maintain a household for a qualifying child or other rela-
tive.
If your spouse was a nonresident alien at any time dur-
ing the year and you do not choose to treat your nonresi-
dent alien spouse as a resident alien, then you are treated
as unmarried for head of household purposes. You must
have another qualifying person and meet the other tests to
be eligible to file as head of household. You can use the
head of a household column in the Tax Table or Section D
of the Tax Computation Worksheet.
It may be advantageous to choose to treat your nonres-
ident alien spouse as a U.S. resident and file a joint in-
come tax return. Once you make the choice, however, you
must report the worldwide income of both yourself and
your spouse.
For more information on head of household filing sta-
tus, get Pub. 501.
Penalties and Interest
1) Does the June 15 extended due date for filing my
return because both my tax home and my abode are
outside the United States and Puerto Rico on the
regular due date relieve me from having to pay
interest on tax not paid by April 15?
No. An extension, whether an automatic extension or one
requested in writing, does not relieve you of the payment
of interest on the tax due as of April 15 following the year
for which the return is filed. The interest should be inclu-
ded in your payment.
2) If I wait to file my return until I qualify for the
foreign earned income exclusion, I will be charged
interest on the U.S. tax I will owe. To avoid being
charged interest, can I file my return on time,
reporting only my taxable income, excluding my
salary for services abroad that will be exempt after I
have met the qualifications?
No. If you file a return before you qualify for the exclusion,
you must report all income, including all income for serv-
ices performed abroad, and pay tax on all of it. After you
meet the qualifications, you can file a claim for refund by
excluding the income earned abroad. If you defer the filing
of your return, you can avoid interest on tax due on your
return to be filed by paying the tax you estimate you will
owe with your request for an extension of time to file on
Form 2350, or by paying enough estimated tax to cover
any tax that you expect will be due on the return.
Publication 54 (2023) 49
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Index
A
Alien:
Resident 2
American Institute in Taiwan, U.S.
employees of 25
American Samoa, territory
exclusion 17
Apprentices, treaty benefits for 36
Assistance (See Tax help)
B
Bilateral social security
agreements 13
Blocked income 6
Bona fide residence test
Defined 18
First year 19
Last year 19
Meeting the requirements 44
Qualifying for 18, 19
Treaty provisions 18
Voting by absentee ballot 19
Waiver of time requirements 20
C
Camps, foreign 25
Carryover of housing deduction 30
Child tax credit 28, 30, 31
Choosing the exclusion 27
Clergy, self-employment tax on 14
Community income 27
Competent authority assistance 37
Contributions:
To foreign charitable
organizations 32
To IRAs 33
Conventions, income tax 36
Credit
Earned income 28, 30
Foreign tax 11, 33-35
Related to excluded income 32
Currency:
Foreign 6
D
Deductions
Contributions to foreign charitable
organizations 32
Foreign taxes 33-35, 37, 47
Housing, foreign 30
IRA contributions 33
Related to excluded income 32
Reporting 35
Deposit of foreign currency with
disbursing officer 7
E
Earned income
Foreign 21, 25, 45
Source of 22
Types of 22-24
Earned income credit 28, 30
Employer-provided amounts 30
Estimated tax 10
Exclusion
Foreign earned income 26, 27
Housing 30
Meals and lodging 25
U.S. territories 17
Extensions
Filing income tax return 5
Meeting bona fide residence or
physical presence test 6
F
Fellowships 23
Figuring actual tax 7
Figuring estimated tax on
nonconvertible foreign
currency 7
Filing information
Estimated tax 10
Filing requirements 4
Nonresident spouse treated as
resident 9
Filing requirements
By filing status 4
Foreign currency 6
When to file and pay 4, 43
Where to file 8, 43
Foreign
Camps 25
Country, defined 17
Currency 6
Earned income 21-25, 45
Household, second 29
Foreign currency, deposit with
disbursing officer 7
Foreign earned income
Defined 21-25
U.S. Government employees 24, 25
Foreign earned income exclusion
Choosing 27
Defined 26
Earned income credit 28
Foreign tax credit 28
Income received after year
earned 26, 27
Limit 26, 27, 46
Maximum exclusion 26, 27
Part-year exclusion 27
Physical presence test, maximum
exclusion 27
Requirements 15-25
Revoking choice 28
Foreign housing exclusion:
Earned income credit 30
Foreign tax credit 30
Foreign housing exclusion/
deduction
Carryover of deduction 30
Deduction, figuring 30
Exclusion, figuring 30
Housing amount 29
Housing expenses 29
Married couples 31
Requirements 15-25
Second foreign household 29
Foreign tax credit:
Earned income exclusion 28, 30
Foreign taxes
Credit for 11, 33-35
Deduction for 33, 35, 47
Paid on excluded income 33
Form
1040-ES 10
1040-X 6, 9
1116 33
2032 13
2350 6
2555 27, 31
3115 7
4361 14
4563 17
4868 5
673 11
8689 8
W-4 11
Frequently asked questions
(FAQs) 43-49
Fulbright grant 7, 48
G
General tax questions 48
Green card test 2
Guam:
Residents of 8
Territory exclusion 17
Where to file 8
H
Housing
Amount 29, 30
Deduction 28, 30
Exclusion 28-30
Expenses 29
I
Income
Apprentices, treaty benefits for 36
Artist 23
Blocked 6
50 Publication 54 (2023)
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Community 27
Corporation 22
Earned 21-25, 45
Employer's property or facilities, use
of 23
Investment, treaty benefits for 37
Partnership 22
Pensions and annuities 22, 37
Personal service, treaty benefits
for 36
Professional fees 23
Professors, treaty benefits for 36
Railroad retirement benefits 46
Reimbursement of employee
expenses 23
Reimbursement of moving
expenses 23
Rental 23
Royalties 23
Social security benefits 46
Sole proprietorship 22
Source of 22
Stock options 22
Students, treaty benefits for 36
Teachers, treaty benefits for 36
Trainees, treaty benefits for 36
Unearned 22
Indefinite assignment 16
Individual retirement arrangements
(IRAs) 33
Investment income, treaty benefits
for 37
L
Limit on
Foreign housing deduction 30
Housing expenses 29
Income exclusion 26, 27
Lodging, exclusion of 25
M
Married couples 31
Meals and lodging, exclusion of 25
Moving:
Reimbursement of expenses 23
N
Nonresident spouse
Social security number 9
Treated as resident 9
Northern Mariana Islands:
Residents of 9
Territory exclusion 17
Where to file 9
P
Part-year exclusion 27
Pay for personal services 21, 36
Paying U.S. tax in foreign
currency 7
Payment of tax 4
Penalties and interest 49
Pensions and annuities:
Income from 22, 37
Withholding from 12
Physical presence test
12-month period 20
Defined 19
Maximum exclusion 27
Meeting the requirements 44
Waiver of time requirements 20
Professors, treaty benefits for 36
Publications (See Tax help)
Puerto Rico:
Residents of 18
Territory exclusion
Q
Questions and answers 43-49
R
Railroad retirement benefits 46
Reimbursement:
Accountable plan 23
Employee expenses 23
Moving expenses 23
Resident alien defined 2
Revoking choice to exclude 28
S
Scholarship and fellowship
grants 48
Scholarships 23
Second foreign household 29, 31
Self-employment tax:
Clergy 14
Exemption from 14
How to pay 47
Who must pay 14
Social security and Medicare
taxes 12
Social security benefits 46
Social security number:
Nonresident spouse 9
Source of earned income 22
Students, treaty benefits for 36
Substantial presence test 2
T
Taiwan, American Institute in 25
Tax help 38
Tax home 16
Tax treaties:
Benefits of 36, 37
Competent authority assistance 37
Determining residence 18
Obtaining copies of 37
Purpose of 36
Teachers, treaty benefits for 36
Temporary assignment,
expenses 16
Totalization agreements 13
Trainees, treaty benefits for 36
Travel restrictions 21
Treaties (See Tax treaties)
U
U.S. Government employees 24, 25
U.S. Virgin Islands:
Residents of 18
Territory exclusion 18
V
Virgin Islands:
Nonresidents of 8
Residents of 8
Where to file 8
W
Waiver of time requirements 20
When to file and pay 4, 43
Where to file:
Claiming exclusion/deduction 8
Commonwealth of the Northern
Mariana Islands residents 9
Guam residents 8
No legal residence in U.S. 8
Virgin Islands residents,
nonresidents 8
Withholding:
Income tax 11, 47
Pension payments 12
Publication 54 (2023) 51
