Form 673 for Expats Explained: Stop Overwithholding on Your Foreign Salary

If you’re an American working abroad for a U.S. employer, your company is probably withholding federal income tax from every paycheck as if you lived in the States. But if you qualify for the Foreign Earned Income Exclusion (FEIE), you may not owe any of that tax. Form 673 tells your employer to stop withholding on income you plan to exclude, so you keep more money each month instead of waiting for a large refund at tax time.

According to the IRS, Form 673 (Statement for Claiming Exemption from Withholding on Foreign Earned Income Eligible for the Exclusions Provided by Section 911) is the form U.S. citizens use to claim an exemption from income tax withholding on wages earned abroad. The FEIE allows you to exclude up to $130,000 of foreign earned income for the 2025 tax year ($132,900 for 2026). If your salary falls within that limit, Form 673 can reduce your federal withholding to nearly zero. Key points:

Who it’s for: U.S. citizens working abroad for a U.S. employer that withholds federal income tax
What it does: Tells your employer to reduce or stop federal income tax withholding on your foreign salary
What it doesn’t do: It doesn’t eliminate Social Security/Medicare taxes (FICA), state taxes, or your requirement to file an annual tax return

Working Abroad? Fix Your U.S. Tax Withholding

Greenback helps you apply Form 673 so your employer withholds the right amount.

Here’s who should use Form 673, how it interacts with your annual return, and when it might not be the right move.

Who Qualifies to Use Form 673?

Form 673 is available to U.S. citizens who work abroad for a U.S. employer and expect to qualify for the FEIE. You must meet three conditions:

You work for a U.S. employer that withholds federal income tax: This includes American companies with overseas offices, U.S. government contractors, and any employer running payroll through a U.S. system. If you work for a foreign company that doesn’t withhold U.S. taxes, Form 673 doesn’t apply to you because there’s no withholding to reduce.
You expect to qualify for the FEIE through one of two tests: Either the Physical Presence Test (330 full days outside the U.S. in any 12-month period) or the Bona Fide Residence Test (genuine tax resident of a foreign country for an uninterrupted period that includes a full calendar year).
Your foreign salary falls within the exclusion limit: For the 2025 tax year, you can exclude up to $130,000 ($132,900 for 2026). If your salary exceeds the limit, Form 673 can still reduce withholding on the excludable portion, but taxes will still be withheld on income above the cap.

Form 673 is only available to U.S. citizens. Resident aliens (green card holders) cannot use this form, even if they qualify for the FEIE.

How Form 673 Differs from Form 2555

These two forms work together but serve different purposes:

Form	When You Use It	Who Receives It
Form 673	During the year, to reduce withholding on current paychecks	Your U.S. employer’s payroll department
Form 2555	At tax time, to officially claim the FEIE on your return	The IRS (attached to your Form 1040)

Think of Form 673 as the “preview” and Form 2555 as the “official claim.” Form 673 adjusts your withholding based on what you expect to exclude. Form 2555 makes the exclusion official when you file your annual return. You’ll use both if you work for a U.S. employer abroad.

How Much Can Form 673 Save You Each Month?

The savings depend on your salary and tax bracket. Here’s what it looks like in practice:

Example: James earns $95,000 working in Dubai for a U.S. engineering firm. Without Form 673, his employer withholds approximately $16,000 in federal income tax over the year (about $1,333 per month). Since Dubai has no income tax and his entire salary falls under the $130,000 FEIE limit, his U.S. tax liability on this income will be $0 after he files Form 2555.

With Form 673, James’s employer stops withholding federal income tax from his paycheck. He keeps an extra $1,333 per month all year long, rather than waiting until he files his return to get a $16,000 refund.

Example with income above the FEIE limit: Laura earns $160,000 working in London for a U.S. bank. She files Form 673 to stop withholding on the first $130,000 (the excludable portion). Her employer continues to withhold tax on the remaining $30,000, but she uses the Foreign Tax Credit to offset the U.S. tax on that amount when she files her return.

What Form 673 Does Not Cover

Form 673 only affects federal income tax withholding. Several other tax obligations remain unchanged:

Social Security and Medicare (FICA) taxes: Form 673 does not reduce FICA withholding (6.2% Social Security + 1.45% Medicare). If you work for a U.S. employer abroad, FICA taxes are still withheld unless your country has a totalization agreement with the U.S., in which case you must obtain a Certificate of Coverage showing you pay into the foreign system instead.
State income taxes: Form 673 is a federal form only. If your former state still considers you a resident (common in California, New York, Virginia, and other “sticky” states), you may still owe state taxes on your foreign income, even with the FEIE.
Self-employment tax: If you have self-employment income in addition to your salary, the FEIE does not reduce your self-employment tax (15.3% on net earnings). Form 673 only applies to employer-withheld income tax.
Your annual filing requirement: Filing Form 673 does not mean you’re done with the IRS for the year. You must still file Form 1040 and Form 2555 to officially claim the FEIE.

When Form 673 May Not Be the Right Choice

Filing Form 673 carries some risk. If your situation changes and you don’t qualify for the FEIE, you’ll owe the taxes that weren’t withheld, plus potential interest and penalties. Consider holding off if:

You’re in your first year abroad and aren’t sure you’ll meet the tests: If you moved overseas mid-year and you’re counting on the Physical Presence Test, one unexpected trip home could push you below the 330-day threshold. It may be safer to let your employer withhold normally for the first year and claim a refund when you file.
Your income may exceed the FEIE limit significantly: If you expect bonuses, stock compensation, or other income that pushes you well above $130,000, the portion above the limit will still be taxed. Reducing withholding too aggressively could leave you with a balance due at tax time.
You’re considering the Foreign Tax Credit instead of the FEIE: If you live in a high-tax country and the FTC may be a better strategy (preserving your Child Tax Credit eligibility and IRA contribution ability), Form 673 doesn’t apply because it’s tied specifically to the FEIE.
You have multiple income sources: Form 673 only covers foreign-earned income from your U.S. employer. Investment income, rental income, and income from U.S.-based work don’t qualify. If a significant portion of your income comes from non-qualifying sources, adjusting withholding could create a shortfall.

What Happens After You Give Form 673 to Your Employer?

Your withholding changes within 1-2 pay periods: Once your employer’s payroll department processes Form 673, your federal income tax withholding will be reduced or eliminated on future paychecks. The change is not retroactive, so taxes already withheld stay withheld until you file your return and claim a refund.
Your employer may require a new Form 673 each year: Most employers ask you to resubmit the form annually to confirm you still qualify. This is standard practice and protects both you and your employer.
The IRS can still review your eligibility: Form 673 is a statement to your employer, not a binding agreement with the IRS. If the IRS later determines you didn’t qualify for the FEIE, you’ll owe the taxes that weren’t withheld, plus interest from the original due date.

How Greenback Helps with Form 673 and Your Expat Tax Strategy

Form 673 is one piece of a larger tax strategy for Americans working abroad. Getting it right means understanding how the FEIE, FTC, housing exclusion, FICA, and state taxes all interact for your specific situation. Our CPAs and Enrolled Agents help expats with Form 673 by:

Confirming your FEIE eligibility before you file Form 673: We review your days abroad, your employment arrangement, and your income types to make sure you’ll qualify for the exclusion. Filing Form 673 when you don’t qualify can create a tax bill you weren’t expecting.
Determining whether the FEIE or FTC is the better strategy for you: In high-tax countries, the FTC often saves you more than the FEIE (and preserves your Child Tax Credit and IRA eligibility). If the FTC is the better choice, Form 673 isn’t the right move. We run both scenarios before you commit.
Filing your annual return with Form 2555 to make the exclusion official: Form 673 is the preview; Form 2555 is the real thing. We prepare your complete return with all the supporting documentation to ensure the FEIE holds up.
Coordinating the rest of your expat tax obligations: FBAR, FATCA, estimated tax payments, state taxes, and the Foreign Housing Exclusion all need to work together with your FEIE claim. We handle the full picture so nothing falls through the cracks.

Frequently Asked Questions

Can green card holders use Form 673?

No. Form 673 is available only to U.S. citizens. Green card holders (resident aliens) who qualify for the FEIE must still have federal income tax withheld throughout the year and claim the exclusion as a refund when they file Form 2555 with their annual return.

Does Form 673 stop Social Security and Medicare withholding?

No. Form 673 only affects federal income tax withholding. Social Security (6.2%) and Medicare (1.45%) taxes continue to be withheld by your U.S. employer unless you’re covered by a totalization agreement and obtain a Certificate of Coverage from the foreign country’s social security administration.

What happens if I file Form 673 but don’t end up qualifying for the FEIE?

You’ll owe the federal income tax that wasn’t withheld, plus interest from the original due date (typically April 15). The IRS may also assess an underpayment penalty. If you realize mid-year that you won’t qualify, notify your employer immediately to restart withholding and consider making estimated tax payments to catch up.

Do I need to file Form 673 every year?

The IRS doesn’t technically require annual refiling, but most employers do. Your employer may ask you to submit a new Form 673 at the beginning of each year to confirm your continued eligibility. This is standard practice and protects you from having withholding reduced in a year when you may not qualify.

Can I use Form 673 if I earn more than the FEIE limit?

Yes, partially. Form 673 can reduce withholding on the excludable portion of your salary (up to $130,000 for 2025). Your employer will continue to withhold taxes on income above the limit. You can then use the Foreign Tax Credit on your annual return to offset U.S. tax on the non-excluded portion if you’ve paid foreign taxes on that income.

Your Next Steps

If you’re working abroad for a U.S. employer and you’re confident you’ll qualify for the FEIE, Form 673 can put more money in your pocket every month. But getting it wrong can create a tax bill you weren’t expecting.

If you want help determining whether Form 673 is the right move for your situation, or if you need a full expat tax strategy that accounts for the FEIE, FTC, FICA, and state taxes, we can help. Our CPAs and Enrolled Agents work with corporate expats, contractors, and remote workers every day.

Contact us, and one of our Customer Champions will be happy to help. If you’re ready to be matched with a Greenback accountant, get started here.

Take Control of Your U.S. Tax Withholding

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This article is for informational purposes only and does not constitute tax, legal, or accounting advice. Every tax situation is different. For advice related to your specific situation, consult with a qualified tax professional.