What is foreign earned income? Is it income from a foreign source or income paid by a U.S. company while living abroad?
Earned income is pay for personal services performed, such as wages, salaries, or professional fees. Foreign earned income is income you receive for services you perform in a foreign country during a period when your tax home is in a foreign country and during which you meet either the bona fide residence test or the physical presence test. Foreign earned income does not include the following amounts.
- The previously excluded value of meals and lodging furnished for the convenience of your employer.
- Pension or annuity payments including social security benefits.
- U.S. Government payments to its employees.
- Amounts included in your income because of your employer's contributions to a nonexempt employee trust or to a nonqualifying annuity contract.
- Recaptured unallowable moving expenses
- Payments received after the end of the tax year following the tax year in which you performed the services that earned the income.
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I have a bank account in a foreign country. Do I have to report the interest?
If you are a U.S. citizen with investment income from sources outside the United States (foreign income), you must report all that income on your tax return unless it is exempt by U.S. law. This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the foreign payer.
You will report the income on Form 1040, SCHEDULE B, Interest & Dividend Income. Check the box "yes" on the bottom of Schedule B if you have a foreign bank account.
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Do I have to meet the 330-day presence test or have a valid working resident VISA to meet the requirement for foreign income exclusion?
To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must have foreign earned income, your tax home must be in a foreign country, and you must be one of the following:
- A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year,
- A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or
- A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.
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I am a nonresident. Can I take the foreign earned income exclusion if I meet the bona fide resident test or physical presence test? If yes, what is the tax form used for nonresident taxpayer?
No, nonresident alien's do not qualify for the foreign earned income exclusion. Only if you are a U.S. citizen or a resident alien of the United States and live abroad, may you qualify to exclude up to $76,000 of your foreign earned income.
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