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One of the main ways expats can reduce their tax bill is by using the Foreign Earned Income Exclusion (FEIE). This money-saving deduction is an absolute lifesaver for many expats, lowering if not altogether eliminating their tax liability. Get the Foreign Earned Income Exclusion info you need for 2019 and 2020 so you know what to expect on tax day.
Each year, the IRS adjusts the maximum amount of the FEIE to account for inflation. For the 2019 tax year, the limit is $105,900. The Foreign Earned Income Exclusion 2020 maximum amount has risen to $107,600—which means that the first $107,600 of your foreign earned income can be excluded from taxation. In 2021, the exclusion amount increases to $108,700.
One important note: some income does not qualify for the FEIE. The IRS lists the following types of income as not covered by the FEIE:
In order to use the exclusion, you must qualify either by using the bona fide residence or physical presence test. To use the bona fide residence test, you’ll need to have been in another country for the full calendar year. To use the physical presence test, you need to have been in the country for 330 days in a consecutive 12-month period, but you get to pick which 12-month period. Even if you are unable to qualify using the physical presence test, other creative options for qualifying for the FEIE may be available to you, depending on your individual situation.
Also, if you qualify using either the physical presence or bona fide residence test, you may also be able to use the foreign housing deduction to limit your tax liability even more! The foreign housing exclusion allows you to exclude qualified housing expenses like rent, utilities, or repairs from taxation.
If you qualify for the FEIE, in order to use it, you’ll need to complete Form 2555. Once you’ve completed the form, just attach it to your Federal Tax Return, and you’re set!
Greenback accountants are known for how simple they make the expat tax filing process. Get started with Greenback today, and you can rest assured that your taxes are correct and that you’ve used every exclusion and deduction available.