Form 2555 : Foreign Earned Income Exclusion

Introduction

Form 2555 is intended for reporting foreign earned income to the IRS. Form 2555 helps taxpayers determine their exclusions relating to foreign earned income and housing in order to properly file federal income taxes.
Technicals
A U.S. citizen living and working abroad, may need to file Form 2555. To qualify for Foreign earned income exclusion, one must pass the ‘Tax Home Test’ and ‘Bona fide Residence Test’ or ‘Physical Presence Test’
Tax Home Test:
Your tax home is the location where you work indefinitely. For this, your tax home must be outside the U.S. and you cannot have an abode in the U.S.
Bona-fide Residence Test:
You are a U.S. citizen who is a bona fide resident of one or more foreign countries for an uninterrupted period that includes an entire tax year.
          or
You are a U.S. resident alien who is a citizen or national of a country with which the U.S. has an income tax treaty and are a bona fide resident of one or more foreign countries for an uninterrupted period that includes an entire tax year.
Physical Presence Test:
You are a U.S. citizen or resident alien who is physically present in one or more foreign countries for at least 330 full days during any period of 12 months in a row.
Excludable Foreign Income –
Foreign Earned Income Exclusion, qualifies you to exclude up to $105,900 of your income. However, not all foreign earned income is excludable.
Qualified Foreign Income for Exclusion

  • Earned income (wages, salary, tips, bonuses, etc.)
  • Can include self-employed income
  • Does not include unearned income such as dividends, interest, or capital gains
  • Certain meals and lodging
  • Certain foreign housing expenses.
    { * Employees of the U.S. Government or its subsidiaries working abroad do not qualify.}
    Filing
    Form 2555 must be filed along with Form 1040. For preparation and also in case of an IRS audit, one must keep records of:
  • Dates of international travel and work
  • Foreign income earning statements
  • Any 2555 forms from previous years

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