If you live and work abroad, you may qualify to exclude all or part
of your foreign earnings from income. Foreign earned income is defined
as pay, such as wages, salaries, and professional fees, for personal services
performed in a foreign country during the time your tax home is in a foreign
country and you meet either a bona fide residence test or a physical presence
test. The place where you perform the services is what defines your income
as foreign, not where or how you are paid. For instance, income received
for personal services performed in France is foreign earned income, even
if the employer is American and your pay is deposited in an American bank.
Wages paid by the U.S. government to its employees are not eligible for
the exclusion. However, amounts paid to independent contractors by the
U.S. government may be eligible for the exclusion.
Usually, foreign earned income does not include such items as interest,
dividends, pensions, annuities, or amounts attributable to certain employee
trusts. If you are self-employed, and both capital investment and personal
services are factors in producing your income, your earned income is the
smaller of the value of your personal services or 30% of net profits. Additional
rules are described in Publication
54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.
Your net self-employment income is generally subject to self-employment
tax even if it is excluded for income tax purposes. However, if it was
earned in a country that has a Social Security agreement with the United
States, called a totalization agreement, it may be exempt from U.S. Social
Security taxes, including the self-employment tax.
If you violate U.S. restrictions that prohibit travel to certain
countries, your foreign earned income from such a country does not qualify
for exclusion. See Publication 54 for current travel restrictions. For
more information, select Topics 853 and 854,
and Publication 54. Forms and publications can be downloaded
from this site, or ordered by calling 1-800-829-3676.
If the information you need relating to this topic is not addressed
in Publication 54, you may call the IRS National Office hotline. The number
is (202) 874-1460. This is not a toll-free number.
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