The Foreign Earned Income Exclusion (FEIE) is a handy money-saving provision that you’re definitely going to want to become familiar with if you happen to be an expat. How can you qualify for the exclusion? How is the maximum amount of the Foreign Earned Income Exclusion 2019 determined? Get the answers you need below.
How You Can Use the Foreign Earned Income Exclusion
The FEIE is one of the ways that the IRS helps expats avoid double taxation on their foreign sourced income. To use this handy exclusion, you’ll need to qualify by using either the bona fide residence test or the physical presence test. To satisfy the requirements of the bona fide residence test, you would need to have lived in your resident country for an uninterrupted period of one year. The physical presence test is a bit more flexible. The criteria for meeting the physical presence test is met if you are physically present for 330 full days over a period of 12 consecutive months. But, with the physical presence test, you get to choose which months are included in meeting those criteria, which can make all the difference for expats who need just a bit more time to become eligible.
Once you’re confident you qualify, you’ll need to attach Form 2555 or Form 2555-EZ alongside your Federal Tax Return. As you may have guessed, Form 2555-EZ is indeed easier to fill out and requires less paperwork. However, you should only use Form 2555-EZ if you are not planning on utilizing the Foreign Housing Exclusion, because that would preclude you from doing so. If you plan to deduct qualified housing expenses, you’ll need to use Form 2555, but that one form allows you to elect to use both the FEIE and the Foreign Housing Deduction.
The Foreign Earned Income Exclusion 2019 Limits
Every year, the amount of the FEIE is adjusted for inflation. And sometimes, this can cause confusion. For instance, for the tax year 2018, the earliest estimates of the allowable excludable amount came in at $104,100, but the final and official amount for the FEIE came in slightly less than expected at $103,900. The Foreign Earned Income Exclusion 2019 limit is $105,900.
Avoid Common Foreign Earned Income Exclusion 2019 Mistakes
According to the IRS, a frequent error made by those who want to use the FEIE is assuming that, since the income is excludable from tax, the taxpayer is not required to report income under the limit. In other words, some taxpayers believe the exclusion recuses them from filing requirements if their income is under the limit. Don’t make that mistake! You must still file annual Federal Tax Returns, and in order to exclude this income, you must qualify and fill out the required Form 2555.
Lastly, if you qualified for the exclusion but were in your resident country for less than a full year, you’ll have to adjust the amount of the FEIE used. To figure out what your maximum exclusion amount is, simply multiply the maximum excludable amount for the year by the number of your qualifying days in the year. Then, you’ll want to divide that number by the number of days in the year.
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Expats receive an automatic extension to file their taxes until June 15th, but if you owe taxes, the interest has been accruing since the April deadline! Get started with Greenback, and we’ll make becoming tax compliant a cinch.