When talking about the reasons for their moving to a foreign nation, most Americans point out the factors like affordable medical cost, foods and affordable housing. However, the problem they face is that even though they are away from their home nation the United States, they are taxed for the foreign earned income. Thanks to the exemption rules applicable that will help them save a lot and even there are chances to nullify the tax they will have to pay on the income they earn by working or through self-employment in a foreign country.
What does FEIE do for Foreign Earned Income?
FEIE implies Foreign Earned Income Exclusion. As the name implies, it helps the expats to exclude the income they earn in a foreign nation from being charged income tax in the United States. It helps expats to exclude a part of their annual gross income for tax purposes. As per the 2018 tax rules, the maximum exclusion that can be claimed by expats is $104,100. The relieving thing for them is that this amount keeps on increases year after year. So, if they claim this amount in 2018, in 2019, the amount they can claim will be more.
Is the Foreign Earned Income Exemption applicable to all?
No, not all expats can claim the exemption for the Foreign Earned Income. They will have to prove that they have spent an entire year living outside the United States. For this purpose, the IRS needs them to submit documents like foreign tax receipts, overseas housing contracts and United State Flight Tickets. In other words, they will have to pass one of the Bona Fide Residence Test and the Physical Presence Test to claim exemption under FEIE.
In short, FEIE is really a boon for those earning by working in a foreign nation but continues to hold US Citizenship.