If you are a US citizen living and working abroad, you will likely take advantage of the Foreign Earned Income Exclusion (FEIE) on your US expat taxes by completing Form 2555 or 2555-EZ. The FEIE allows qualifying taxpayers to exclude up to $105,900 of foreign earned income from their 2019 US expat taxes and $103,900 from their 2018 US expat taxes. The exclusion is not automatic and must be claimed by attaching either Form 2555 or Form 2555-EZ to your tax return. Find out which one you should choose below!
US Expat Taxes: Form 2555 or 2555-EZ
Naturally, when it comes to preparing your own US expat taxes, you will gravitate toward any form that ends with “EZ.” Form 2555 is a three-page form with nine sections, each addressing different aspects of the FEIE. Form 2555-EZ, on the other hand, is only two pages and four parts and is comparatively simple. However, to be eligible to use Form 2555-EZ with your US expat taxes, you have to meet very specific criteria:
- You must have been physically present in a foreign country or countries for at least 330 days during a 12-month period.
- You must be a US citizen or resident alien.
- You must have earned less than $105,900 for 2019 of wages in a foreign country. Self-employment income is not included in this criterion, and requires Form 2555 with your US expat taxes instead.
- You must file a tax return for a period covering a calendar year (no fiscal-year filers).
- You do not intend to claim the Foreign Housing Exclusion or deduction.
- You do not have business or moving expenses associated with your position of employment.
These standards all seem fairly straightforward, but surprisingly eliminate a large portion of US expats from eligibility. If you are lucky enough to meet all of the criteria listed above, you will save yourself much time while filing your US expat taxes. The remainder of this article will discuss how to complete Form 2555-EZ for your US expat taxes.
As with all tax-related matters, adequate recordkeeping and advanced preparation makes the process go smoothly. To complete Form 2555-EZ, you will need to have the following information readily available:
- Employer’s name and address (foreign and US, if applicable),
- International travel calendar, including days you might have worked in the US,
- Prior year Form 2555-EZ, if available, and
- Foreign income earnings statements.
Once you have this information and have downloaded Form 2555-EZ from the IRS’s website, you will be ready to complete this form of your US expat taxes. It’s important to note that one Form 2555-EZ will need to be completed for each expat. If a husband and wife each lives and works abroad, they will complete two Forms 2555-EZ to attach to their joint US expat taxes. Even though much of the above information will be the same if they live and travel together, the IRS will consider each FEIE claim separately. Once you’ve gathered all of this information for each qualifying expat, you will be ready to complete Form 2555-EZ.
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Completing Form 2555-EZ: Blake and Lauren Expat
One of the best ways to learn something new is by examples. Therefore, to demonstrate how to complete Form 2555-EZ, we will introduce you to Blake and Lauren Expat. Blake and Lauren got married in their small Montana hometown and lived there for three years before deciding to move to Brazil to pursue careers as professional samba dancers. In late 2017, they received their work visas and said goodbye to their family and friends. Because of her great skill, Lauren was immediately hired by a professional dance group and worked all through 2018, earning 3,579 REA (Brazilian Real) per week. During 2018, she traveled to the US to do a five-day long performance as part of her dance group. Although Blake did eventually receive work, we will complete Lauren’s Form 2555-EZ as an example.
Part I – Test to See Whether You Can Use the Foreign Earned Income Exclusion
To eligible to claim the FEIE on your US expat taxes, you must meet one of the two tests: Bona Fide Residence or Physical Presence. If you lived in a foreign country for the entire tax year, you will meet the Bona Fide Residence test. Because Blake and Lauren moved to Brazil in December 2017, they lived in Brazil for all of 2018 and qualified for the FEIE under the Bona Fide Residence test. If they hadn’t lived in Brazil for the entire calendar year, they could still qualify for the FEIE under the Physical Presence Test if they had been physically present for 330 days during a 12-month period. The 12-month period can be flexible but must start or end within the tax year. Your tax return due date can be extended to meet the requirements.
Part II – General Information
This is likely the easiest part of the entire form. Each of the questions is straightforward and requests information that you will know without referencing additional paperwork. Remember: there are no predefined answers. You will answer as applicable for your particular situation. For example, Lauren could list herself as a Professional Dancer, Samba Dancer, or just Dancer.
Part III – Days Present in the US
This is where things can begin to get tricky. If you work in the US at all while residing abroad, that income will be considered earned in the US and will reduce the amount of income eligible for the FEIE on your US expat taxes. In Lauren’s example, she worked as a dancer in the US for five days. Because she earns $979.19 each week (based on the applicable 2018 conversion rate), this amount was considered as earned in the US and will be fully taxable at US tax rates. We will discuss this more in Part IV, but it’s important to note that what you put in columns (c) and (d) are very important to your US expat taxes.
If you earned money while in the US and listed these dollars in column (d), you are required to attach a statement supporting your calculation to your US expat taxes. Again, there is no predefined format. The IRS just wants to know how you calculated the amount earned in the US, and will usually expect to see the exchange rate used, which can be obtained from the IRS website. In Lauren’s example, she could attach a statement that looked like this:
|Brazilian Real (REA)||United States Dollar (USD)|
|Weekly Salary||3,578.95||$ 979.19|
|2018 Conversion Rate||3.655||*from IRS website|
|Amount Earned in US||3,578.95||$ 979.19|
|Foreign Earned Income||182,526.45||$ 49,938.69|
Part IV – Calculate Your Foreign Earned Income Exclusion
This is the part that calculates the actual amount of eligible FEIE on your US expat taxes. The IRS has already been kind enough to complete Line 13 for you. Line 14 asks you to enter the number of days within your qualifying period. If you met the bona fide residence test like Lauren did, then you will put 365 days here because you were a resident of the foreign country for the entire year. If you qualify for the FEIE on your US expat taxes under the physical presence test, however, things get a little trickier. Your qualifying period begins when you take up residence in a foreign country. If you did this on May 1, 2018, and lived there through your filing date of June 15, 2019 (expats get an automatic two-month extension on their US expat taxes), then your “qualifying period” would be May 1, 2018 through June 15, 2019. The number of days during your qualifying period that fall within 2018 would be 244 (May 1, 2018 through December 31, 2018).
Line 15 calculates a percentage of time for the amount of the year that you resided abroad. Because Lauren was in Brazil for the entire calendar year, her percentage is 100% (1.00 on line 15). Use this percentage to multiply against the total eligible FEIE to calculate the maximum FEIE for which you’ll be eligible. Again, because Lauren resided abroad for the entire calendar year, she will be eligible for the maximum FEIE on her US expat taxes.
On Line 17, enter the amount of income that was earned in a foreign country. If you have income that was earned in the US while you maintained a foreign residence, exclude this from the amount that you enter on Line 17. Lauren earned $50,917.88 for the entire 2018 calendar year. However, the week that she worked in the US would not be considered “foreign earned” and will be excluded from Line 17. Both amounts should be included on Line 7 of Form 1040 of her US expat taxes, for total wages and salaries.
Enter the lesser of Line 16 or Line 17 on Line 18, and you will have your final foreign earned income exclusion for the year. Enter the FEIE as a negative amount on Line 21, “Other Income,” of Form 1040 of your US expat taxes. Because Lauren qualified for the FEIE and correctly claimed it on her Form 2555-EZ, she eliminated her US expat taxes. Completing Form 2555-EZ may look difficult at first, but armed with a good example and all of your organized records, it should take you less than 30 minutes to complete.
Still Have Questions?
If you have additional questions about completing Form 2555-EZ for your US expat taxes, please contact the Greenback specialists today, who can help you become tax compliant.
This article was first published on September 15, 2011. It was updated on September 11, 2019.