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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