Bona Fide Residence vs. Physical Presence Test
US citizens who live and work outside the United States may be able to exclude all or part of their foreign-earned wages and self-employment income from the federal income tax through a provision called the Foreign Earned Income Exclusion (FEIE).
However, to qualify for the FEIE, a person needs to either work or reside outside the United States and complete the Bona Fide Residence or Physical Presence Test to prove eligibility.
- The Bona Fide Residence Test can be used if you think you are a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.
- To meet the requirements for the Physical Presence Test, you must be physically present in a foreign country or countries for at least 330 full days during a 12-month period. The days do not have to be consecutive.
Bona Fide Residence Test
The bona fide residence test can be used if you are a bona fide resident of a foreign country or countries for an uninterrupted period in the entire tax year. You can use the bona fide residence test to qualify for the FEIE and foreign housing deductions only if you are a US citizen or a US resident alien.
To qualify as a bona fide resident of a foreign country, you must have established a residence there. Your residence is not always the same as your domicile. Your domicile is your permanent home – a place you always return to or intend to return to.
You can look at a bona fide residence test based on the intention or purpose of your trip and the nature and length of your stay outside the United States.
Under the bona fide residence test, taxpayers can leave the country for brief trips back to the US or elsewhere for vacation. However, you must have a clear intention of returning from such trips to your foreign residence.
Physical Presence Test
If you are physically present in a foreign country or countries for 330 full days (a full day is 24 consecutive hours) during 12 consecutive months, you would then meet the physical presence test. The 330 days do not have to be consecutive; this also applies to US citizens and US permanent residents.
One of the differences between the physical presence test vs. the bona fide residence test is that the physical presence test is based on how long a person stays in a foreign country and is not dependent on the kind of residence established, the intentions of returning to the US, or the nature of the stay abroad.
Additionally, the 330 days for the physical presence test are counted for any reason for staying abroad, not necessarily if it is for employment reasons. You can even be on vacation. However, you do not meet the test if illness, family problems, a vacation, or your employer’s orders cause you to be present for less than the required amount of time.
Exceptions to Both Tests
Both tests have a time requirement for you to qualify, whether you’re looking at the bona fide resident or physical presence tests.
However, the minimum requirement can be waived if you must leave a foreign country because of war, civil unrest, or adverse conditions, as long as you can show that you are not meeting the test due to those conditions. You must have your tax home in the foreign country and be a bona fide resident of, or physically present in, the foreign country on or before the beginning date of the waiver.
Additionally, if you are in a foreign country in violation of US law, you will not be treated as a bona fide resident or as physically present in a foreign country while you are in violation of the law. Income in those countries would not qualify as foreign-earned income, and your housing expenses abroad could not be included in your foreign housing amount.
Do You Have Specific Questions About Which Test You Should Use?
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