If you are a US citizen or a Permanente Resident and you live abroad, you are taxed on your worldwide income and you are considered a US Taxpayer. US citizens and Permanent Residents that live abroad may qualify to exclude from their income an amount of their foreign earnings if they meet certain requirements. Section 911 of the Internal Revenue Code presents the exclusion which is known as Foreign Earned Income Exclusion (FEIE). Under the FEIF, a US Taxpayer can exclude $104,100 in 2018 from the income reported on the Taxpayer’s US federal income tax return.
To claim the foreign earned income exclusion, the US Taxpayer must have foreign earned income and be:
⦁ A US citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or
⦁ A US Permanent Resident 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 US or a Permanent Resident who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.
The FEIE is voluntary and at the election of a qualified individual. US Taxpayers can choose the exclusion by completing Form2555. The initial choice of the FEIE on Form 2555 is made with one of the following Returns:
⦁ A return filed by the due date (including any extensions).
⦁ A return amending a timely filed return. Amended returns generally must be filed by the later of 3 years after the filing date of the original return or 2 years after the tax is paid.
⦁ A return filed within 1 year from the original due date of the return (determined without regard to any extensions).
What if the Return is not timely filed?
What if the Return is not timely filed?
US Taxpayers have filing options if the Returns are filed after the above periods if the Taxpayer does not have a tax liability after taking into account the FEIE. US Taxpayers can choose the exclusion on a Return filed after the periods described above if the US Taxpayer doesn’t have a federal income tax liability after taking into account the exclusion.
What if the Return is not timely filed and the Taxpayer owes taxes?
If the US Taxpayer owes federal income tax after taking into account the FEIE, the US Taxpayer can choose the exclusion on a return filed after the periods described earlier if the US Taxpayer files BEFORE the IRS discovers that the US Taxpayer failed to choose the exclusion.
US Taxpayers have options to get the FEIE
Whether or not US Taxpayers owe federal taxes after taking the exclusion into account, US Taxpayers that file Returns after the periods described earlier, must type or legibly print at the top of the first page of the Form 1040 “Filed pursuant to section 1.911-7(a)(2)(i)(D)”
If US Taxpayers owe federal income tax after taking into account the FEIE and the IRS discovered that the US Taxpayer failed to choose the FEIE, the US Taxpayer may still be able to choose the FEIE by requesting a private letter ruling under Income Tax Regulation.
Don’t be a victim of your own making
US Taxpayers are able to “late claim” the FEIE but need to proceed cautiously. Timing and accuracy is essential when a US Taxpayer is claiming the FEIE. US Taxpayers ought to seek the advice of a specialized tax expert.
