Form 2555 Instructions for Expats
Form 2555 can make an expat’s life a lot easier! This form helps expats elect to use the Foreign Earned Income Exclusion (FEIE), one of the biggest money-savers in the expat realm. Read our guide below and follow the simple Form 2555 instructions, and you’ll be saving money in no time at all.
Why Do Expats Need IRS Form 2555?
If you want to use the Foreign Earned Income Exclusion – and trust us, in most situations, you do! – then you’ll need to fill out IRS Form 2555 (or Form 2555-EZ) and return it with your Form 1040 (Federal Tax Return) by the deadline. If you qualify, you can exclude from US taxation $112,000 on your 2019 taxes.
Step 1: Qualify Using One of the Tests.
In order to be eligible for the FEIE, you’ll need to qualify using either the bona fide residence test or the physical presence test. The bona fide residence test requires that you were in your country of residence for an uninterrupted calendar year. The physical presence test allows a bit more flexibility. If you were physically present for 330 full days (each day defined as 24 consecutive hours) during 12 consecutive months, you will pass the physical presence test. The 330 days do not have to be consecutive, and you can pick and choose the months that are most conducive to your passing the test, which can be helpful depending on your travel calendar. Don’t forget: select whichever test helps you qualify, and don’t attempt to use both.
Step 2: Determine Which Form You Need to File.
Form 2555 and Form 2555-EZ both accomplish the same goal, but Form 2555-EZ does so with less paperwork. However, in order to use Form 2555-EZ, all of the following must apply:
- You must have been physically present in a foreign country for at least 330 days in a 12-month period.
- You must be a US citizen or resident alien.
- You must have earned less than the foreign income exclusion amount for that tax year (for example, $112,000 for 2022). If you have self-employment income, you cannot use Form 2555-EZ; you must file Form 2555 with your expat tax return.
- You must file a tax return for a period covering a calendar year (not a fiscal year).
- You are foregoing the Foreign Housing Exclusion.
- You don’t have business or moving expenses associated with your job.
If those are true, great! You just saved yourself a bit of time. However, if you’re using the regular Form 2555, you can claim the Foreign Housing Exclusion at the same time, and potentially save yourself from higher tax liability.
Step 3: Complete Form 2555 by the Deadline.
If you’re using Form 2555-EZ, gather the following information before you get started:
- Employer’s name and address (foreign and US, if applicable)
- International travel calendar
- Prior year Form 2555-EZ, if available
- Foreign income earnings statements
No matter which form you plan to use, remember that the following types of income do not qualify for the FEIE: income received as an employee of the US government, income for work in international waters or in specific combat zones, income received after the end of the tax year in the subsequent year that services were performed, the cost of meals and lodging furnished for the convenience of the employer, or pension or annuity payments, including benefits such like social security.
Ready to File? Greenback Can Help with Form 2555.
Greenback accountants specialize in helping expats, and many of them are expats themselves! Get started with Greenback today, and you’ll find out how easy the Form 2555 instructions really can be.
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