IRS form 2555 qualifies you for the IRS Foreign Earned Income Exclusion, and is a simple form to fill out with the rest of your taxes, takes 5-20 minutes depending on how many countries you lived in that year.
This is the official language of the IRS form 2555 physical presence test:
“You meet the physical presence test if you are physically present in a foreign country or countries 330 full days during any period of 12 consecutive months including some part of the year at issue. The 330 qualifying days do not have to be consecutive.”
Plainly, it doesn’t matter if you were absent from the United States between January 1st and December 31st to qualify, it only matters that you were not present in the United States for 330 of 365 consecutive days that include, in some part, the current tax year.
You could have been in the US until april, and then outside the US from May until the following april, and that’s fine to claim the FEIE and exclude a variable amount of your earned income tax as determined each year by the IRS (currently at $126,500 annually).
By tax year(Jan. 1 - Dec. 31) you were only out of the country for 270 days, but out of 365 calendar days, you were out of the country for 330+ days from May to April, and so you pass the physical presence test, which qualifies you for the Foreign Earned Income Exclusion.
It can be a US or non-US company that employs and pays you, you just have to be physically outside the US.
This is very interesting. As someone who is looking to move his family out of this shit hole but still has a few years, I hadn’t looked too closely into the tax implications yet. My (clearly incorrect) understanding that was in a country with a tax treaty with the US, this only mattered if it was foreign sourced income.
Thanks for this
You’re welcome!
I love talking about this stuff and have been living abroad for over a decade, resulting in free time all the time, so if you have any travel questions now or down the line, let me know!
I definitely have questions as will be leaving soon. Do I still have to file my normal taxes? Like can this be done through one of the filing services (taxact or whatnot?) or do I just fill out this form and mail it too…the embassy?
You file taxes normally every year at the regular time, absolutely use an online service and then e-file directly with the IRS. Cheapest, fastest, easiest way to do it. Taxact will work fine.
Snail mail, you would mail it back to your US state’s IRS office, but it’s not at all worth the trouble.
Feel free to ask me as many questions as cross your mind, I seriously have an absurd amount of free time and like helping people get independent.
Thank you! I assume something like taxact would prompt me with that form then. This is really good to know as I was worried about having to pay taxes I absolutely could not afford with my lower income in a different country
For sure!
It’s been hit or miss that I’ve been prompted for 2555, but i’ve used several online services and they definitely all have the form available with guidance to fill in. Long and short is, fill out basic info(name, address, annual earned income), check the “physical presence test” box, write out the dates and countries you lived in that year outside of the US. If those dates are over 330 days, you qualify. It’s a pretty short form and saves travelers a looot of money.
You mentioned sending it to the State office. As an expatriate I do not file state taxes as I earn no income in any state.
That question was regarding federal income taxes, not state income taxes.
You’re doing state taxes right.
You do not need to file state income taxes for a state you have not earned any income in.
Wow. Big question here: I’ve lived 330+ days/yr in Europe for the past 5 years, am a US Citizen, and get paid in Euros. My Tax Home is verified as the USA. I haven’t filed US Taxes since moving here. My income has been well below $125,000 USD/yr this whole time. Am I to fill this form out using the amount in Euros, per my yearly European country’s tax office statements (yearly tax returns), or do I have to backpedal each and convert the Euros to USD? Hope this was clear, pry away. Thanks in advance. LOLseas
You need to file taxes, even if you don’t owe anything. That’s part of being a citizen of the United States. You really need to reach out to a CPA to file this for you and get squared away. The foreign income tax exclusion just means you don’t have to pay taxes in the US under a certain amount. You may still need to pay taxes to the country where you are residing in. This is only with countries where we have an agreement with.
Depending on the state in which your address is in, you may have to pay state taxes. This is not part of the foreign income tax exclusion, that is only for federal.
Have you been paying taxes in Europe while living there?
As far as I’m aware(not an expert, just experienced), you should have been filing your US taxes those past five years, regardless of whether you have to pay any actual taxes or how long you’ve been out of the US.
Yes, when you fill out 2555, you’d convert your euro income from your pay statements to USD and that would be your reported annual earned income that you enter on your taxes. If it’s under 125k and you’re outside of the US, you don’t have to pay income taxes on any of your earned income.
You’ll want to file your US taxes sooner than later if you haven’t yet, since living abroad does not exempt US citizens from annually filing taxes, even if you don’t need to pay any. If the IRS finds you before you remedy the situation, they get to decide the penalties and fees.
These guys have a pretty good FAQ for US expats living abroad who haven’t filed in a while, and it boils down to “file the last 3 years, and the sooner the better”.
Don’t worry, this isn’t an “everything is over” situation, I had to help other expats in the same position who came out okay without significant penalties. Read that FAQ and again, the sooner you catch up on US tax filings, the better. If you only work at a single company and don’t have many investments, it won’t take very long to fill out and file these forms, which you will be able to claim the FEIE on each year as long as you were outside of the US 330+ days said year.
If you have non-US assets(non-US bank accounts, non-US investments) that cumulatively added up to more than $10,000 USD at any point during the tax year you’re filing, you also have to disclose the accounts and amounts to the IRS via the separate online FBAR form here for each year you had more than 10k in non-US assets. If you had more than 10k, the FBAR is required reporting each year just like filing your taxes, and is another better-sooner-than-later thing. The FBAR includes a drop-down menu for “why are you filing late?” because it’s so common and you can select “I didn’t realize disclosure was required” each year you’re catching up on.
Let me know if you want any clarification or have further questions!
Thanks so much for all of this!
You’re welcome, have a good one!
Just watch out if you’re there for work, any perks you get (housing, food, car…) all get added to your salary.
Great point, and I’d suggest that workers consider any provided employment compensation like housing/car/meals as “income” rather than perks.
Keep it all under one umbrella since that’s how the IRS categorizes all compensation for employment.
What are our expat electronic filing options now that freefillableforms will be gone. If we don’t want to use Intuit or other pay software like HR Block. I’d rather just send paper documents instead of supporting those who lobbied to get rid of free options.
Before Direct File was available, there were several private options and sites that could guide filers based on their incomes to free filing programs. It looks like websites are compiling alternatives to Direct file already and many options I’m familiar with from years ago still seem available, including IRS Free File, a separate program I’ve used before that the IRS developed with private companies to offer free tax filing.
If you don’t want anything to do with private companies, you can still get all your tax forms directly from the IRS without prompts and guidance and e-file or paper file your taxes, following the guidance of your previous accepted returns to fill in the next tax year.
Meanwhile those not from the land of the free owe their country nothing if they’re out of it for half a year. Sheesh, US is such a scam.
US tax code is absurdly onerous.
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The title, body and comments are sourced and accurate.
The physical presence test, as explained in detail in the body and comments, qualifies you for the FEIE via form 2555, the IRS form mentioned in the title.
Please avoid misinformation; tax guidance, even directly from the linked IRS websites, can be complex.
Removed by mod
Your claim that this post is saying something it isn’t qualifies as misinformation.
Nowhere in the title, body or comments is one’s “residence” mentioned.
The physical presence test, which qualifies you for the FEIE via form 2555, is explained in detail in both the post body and comments and supported by the linked IRS websites.
Questions are very welcome in this community, misinformation is not.
