All about The Foreign Earned Income Exclusion

Not each of the person who give taxes within the United States lives or works on the land of Amerika. If you live out of the Amerika, you may get able of excluding a part or all of the different kind of the wages or self-employment wages from the state’s federal income taxation along with the foreign earned income exclusion. For qualifying for this exclusion, you may need of meeting a few of the criteria.

If you qualify, you become eligible to exclude up to the $104,100 for the foreign-source earned income in the tax year of 2018. This amount of the income exclusion usually increases each of the year. 

The Bona Fide Residence Test

You get considered as one of the bona fide person living in the foreign country only if you live in the country for the continuous time which includes the span of a whole tax year. This tax year initiates form the 1^st Jan to the 31^st December, thus the period for the qualification of the bona fide residence test may include one complete year. 

The vacations or trips out of the foreign country don’t jeopardize the status of yours as a bona fide resident, if these trips are of short span and you have intended of returning to that foreign country where you have been living.  

The Physical Presence Test

You will be considered present physically within the foreign country only if you live in that country for more than 330 complete days at least.

You are able to work and live in a few of the foreign countries. However, you should be present physically for 330 complete days at least in these countries. A "complete day" has 24 hours. Thus the day of departure and arrival in the country usually don’t consider in the physical presence test. 

The Income on Which the Exclusion Applies

The process of foreign earned income exclusion implies just the income got from doing the services of an employee or work like an independent contractor. The earned income can be the wages, salaries, professional fees, or any other amounts got as the compensation for any kid of personal services. The Self-employment income comes in this category too. 

The Tax by which Income gets Excluded

This way of exclusion excludes the earned income out of the federal income taxation. Other kinds of the income can’t get excluded with the help of this provision. This exclusion doesn’t decrease your self-employment tax—a mechanism which is used for the payment of self-employments paus in the Medicare taxes and the Social Security.

The Maximum Exclusion

The total amount got from the foreign wages as well as salary which the taxpayers are able to exclude each of the years gets limited to real foreign income or maximum limit annually. Since the Internal Revenue Service annually settled for the inflation in 2006 while making the total of the exclusion up to $104,100 in tax year of 2018.  

The Prorated Exclusion

Selecting any of the consecutive periods of 12-month for qualifying for this exclusion as per the physical presence test shows that the taxpayers may need to spread their exclusion amount for more than two years. they may need to pro-rate their maximum exclusion for each of the year. 

The Housing Exclusion

You may also get able to get the amounts excluded which your employer has paid you for the housing. This can include any of the amount which is paid directly or anyone else for housing, education of the children, rent, or tax equalization payments. You should also meet the similar time requirements for the physical presence or tests. 

Following are the expenses for getting yourself qualified for the foreign housing exclusion:

•    Repairs

•    Rent

•    Utilities like telephone

•    Rent value for housing 

•    Rent for furniture

•    Insurance for a Real property as well as personal property

•    Occupancy taxes

•    Parking fees

Uniting the Exclusions 

A tax payer can claim for the exclusion process for the foreign income, foreign housing exclusion, or together. But, you can exclude one income at a time. It is general more beneficial for using the foreign housing exclusion if the foreign income gets more than the maximum amount of foreign income exclusion.