Is Income From a US Company Foreign Earned for US Tax Purposes?

Freelancing and Foreign Earned Income

This week, a reader wrote in to “Ask Dave” whether income earned from US companies still qualifies as ‘foreign earned income’. This is a very common question and an important one to fully understand, as it directly impacts your US taxes.

“Hi! I’m a US expat freelancer living in Switzerland. I file Schedule C and Form 2555 to report my earnings. If some of my customers are US companies, does it still count as foreign earned income? Or do I have to declare income from US sources separately?”

Answer:

I hear this question quite frequently!  If you qualify for and plan to use the Foreign Earned Income Exclusion, any income earned while physically present inside a foreign country is ‘foreign earned’ and can be excluded from US tax liability (up to the threshold, which is $99,200 in 2014). So it’s ultimately about where the income is earned, not where it is being paid from.

One thing to consider here, is that if you decide to take your freelance work on the road and complete some work in the US, it’s the reverse situation. Any money earned while on US soil, even if your client is in Switzerland, is not foreign earned income and therefore cannot be excluded from US taxes. So it’s really important to keep detailed records of your travel and earnings if you decide to travel to US.

On the same note, remember that to qualify for the Foreign Earned Income Exclusion via the Physical Presence test, you need to be physically present inside a foreign country for 330 of any 365-day period. These must be full days, so any time spent traveling between Switzerland and the US does not count towards your 330 days. Count your days carefully or you could get a nasty surprise at tax time!

If you would like a more detailed guide on the ins and outs of US expat taxes, download one of our free US tax guides! They are a great resource to keep on hand when you want to learn more about your US tax obligations.