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Tax Tips for U.S. Americans Abroad

The Foreign Income Exclusion 2019 Rules for US Expats

The Foreign Income Exclusion 2019 Rules for US Expats

Tax season for US expats happens all year round. From the April 15th deadline to automatic extensions into June, and filing deadlines into October, US expats can’t escape the tax responsibility that comes with living abroad. But taxes as an expat can be empowering. You can save some serious money and reduce your tax bill by something called the Foreign Earned Income Exclusion.

Known as the FEIE, this foreign earned income tax credit is a money-saving deduction. It can also be a breath of fresh air for expats. It can not only lower but completely eliminate your tax liability as a US expat. 

Interested to learn more? Read on to understand the rules for saving money through the Foreign Income Exclusion 2019 for US expats.

Understand Exactly What FEIE is as a US Expat

It’s important to know exactly what you are going to get involved with if you as a US expat decide to utilize the Foreign Earned Income Exclusion.

The FEIE (or Form 2555) is a tax benefit that allows you to exclude a certain amount of foreign earned income from being taxed from the IRS. For 2019, the tax year is for 2018. From this, you can exclude up to $103,900 of money earned outside the US. For the 2019 tax season, the foreign earned income exclusion amount is increased to $105,900.

How do I calculate my foreign earned income, for the exclusion?

  • Let’s say you earned $112,800 as a foreign income in 2018. Subtract the maximum exclusion rate ($103,900) from your yearly salary leaving $8,900 that becomes taxable by the IRS.
  • Something to remember is that the taxable amount is taxable at the rate applying to what you originally earned. It’s called the stacking rule, and your exclusion will only apply to foreign earned income too! 

Any other income from pension funds, interest, capital gains, etc cannot be excluded from the IRS foreign income exclusion. Also, you can increase your foreign exclusion with qualified housing expenses as well.

The maximum FEIE amount is only available for those who were qualified to use FEIE for the entire tax year! Otherwise, that FEIE amount is prorated based on the number of your qualifying days.

Know What is and What is Not Covered for FEIE

Some of the income you receive as a resident of a foreign country may not actually qualify for the IRS Foreign Earned Income Exclusion. For example, the IRS has listed out the following types that cannot be covered:

  • Pay for work in international waters
  • Pay received as an employee of the US government or related agency
  • The values of meals and lodging are excluded from income since it was furnished for the convenience of the employer
  • Payments received after the end of the tax year in the subsequent year that services were performed
  • Pay in specific combat zones
  • Pension or annuity payments, and benefits like social security 

Stay Updated for Maximum Amount Changes

Planning on taking up the most of what the Foreign Earned Income Exclusion has to offer? It’s important to stay up to date on the changes regarding the maximum amount. Every year, inflation within the country happens, so whatever the maximum amount for last year was, it will probably be different for the coming year.

Even though we are in the year 2019, US expats must file federal income taxes from the last year (2018). So for the 2018 tax year, the maximum amount you can exclude for paying taxes from your foreign income to the IRS is $103,900.

As we approach 2020, the maximum amount for the tax year 2019 is going to be different than the year before. So US expats, the maximum amount has risen to $105,900 for the 2019 tax year! This means you can exclude up to this amount from taxation (sounds pretty good to us…).

You can always be sure we at MyExpatTaxes will keep you updated on the tax changes and FEIE info that happen throughout the year. Better yet, instead of reading our blogs to stay updated on the changes, trust that our software provides everything you need for the tax year, along with wholesome support for your individual tax profile. 

Make Sure You Qualify for Foreign Earned Income Exclusion

It’s necessary to know if you are even eligible to use the exclusion. Otherwise, you’ll be putting your time and effort into nothing.

The first thing you can do to see if you qualify for the FEIE is by using either the bona fide residence test OR physical presence test:

Bona Fide Residence test:

  • Answer this: Were you a registered resident and subject to local income taxes in your host country for at least a full calendar year? Then you can claim the Foreign Earned Income Exclusion for up to the maximum amount ($105, 900).

Physical Presence Test:

  • You will need to be outside of the US for 330 full days in a consecutive 12 month period, that begins or ends in the tax year. If yes, you qualify for the FEIE.
  • Even if you have been in the US for more than 36 days in the tax year, there is a possibility you could still claim the Foreign Earned Income Exclusion. It depends on your unique, individual tax profile and situation. You can see what is available to you once you sign up through our app.

If you end up qualifying for the FEIE from passing one of the tests, you may also be able to get foreign housing deductions. This can help you reduce your tax liability even more!

The Foreign Housing Exclusion can allow excluding qualified housing expenses like rent, utilities, or repairs from taxation. Check out this blog to learn more about this feature for families.

Claim Your Foreign Earned Income Exclusion

Once you are certain you qualify for the FEIE, you can now get started! You can do the work manually by completing the Form 2555 or Form 2555-EZ.

Form 2555 is the standard form for the Foreign Earned Income Exclusion. Form 2555-EZ is only for US expats who are NOT planning to use foreign housing deductions in conjunction with the FEIE. Please note that the EZ version of the Form 2555 is discontinued after the 2018 tax season.

Once you complete the form, please attach it to your Federal Tax Return, put it in an envelope, stamp, and send it on its way!

For a more easier, eco-friendly solution, just hop onto our app and get ready for a smooth ride. Our friendly team and tax preparers can also answer any tax-related questions you have along the way. We answer questions every day regarding points like qualifying children for the family tax credit, the appropriate filing status (like married filing jointly), and more!

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36 Comments

  1. Avatar Peter on February 21, 2020 at 12:50 am

    Hi. I live abroad, make less than the FEIE threshold, and so am not liable to pay U.S. income taxes. If I have capital gains from short-term stock sales (held for less than a year), then what is my capital gains tax rate if I don’t have to pay U.S. taxes because I qualify for FEIE?

    Thanks so much!

    • Markus Markus on February 22, 2020 at 12:35 pm

      That’ll depend on how much your earnings where – best would be to create an account with us at https://app.myexpattaxes.com and enter your data so that the software can make a full assessment of your situation.

  2. Avatar Mike McMillan on February 22, 2020 at 11:16 pm

    I am dual US/UK citizen, live in the UK (30+ years) and retired last year with no employment income for 2019. I have a UK pension and received a net lump sum payment of £50,000 in 2019. (HMRC withheld approx 25% UK tax on my gross lump sum withdrawal). My question: if I use the foreign tax credit for the UK HMRC withholding, will I lose my U.S. personal exemption? In other words, can I still claim the personal exemption as well as utilise the foreign tax credit?

    • Markus Markus on February 26, 2020 at 10:22 am

      Hi Mike!
      The Tax Cuts and Jobs Act of 2017 suspended the Personal Exemption in conjunction with the Foreign Tax Credit. You can find the details here:
      https://www.irs.gov/publications/p514

  3. Avatar justin on February 26, 2020 at 10:06 pm

    “Please note that the EZ version of the Form 2555 is discounted after the 2018 tax season.”

    What does it mean for a form to be discounted? I guess your spell check put the wrong word

    • Michelle H. Michelle H. on March 2, 2020 at 12:18 pm

      Oops, we meant ”discontinued.” I just corrected it. Thanks for pointing that out!

  4. Avatar Ben on February 28, 2020 at 6:01 am

    HI. I lived in Germany for the entire year in 2019 and am planning to take the FEIE. However, I also contributed 6K to a Roth IRA, without knowing at the time that I would incur a penalty if I take the FEIE. My income level is just above the max FEIE, but not enough above to allow the full Roth Contribution. My question: Do I have to take the full FEIE, or can I only take most of it so that my Roth contribution is valid? If I can take a partial, how do I do this?

    Thanks!
    Ben

    • Markus Markus on March 25, 2020 at 9:13 pm

      Hi Ben!

      It would probably be more beneficial to switch to the Foreign Tax Credit, but best would be to create an account with us so that we have the full picture of you information.

  5. Avatar John on March 4, 2020 at 8:42 am

    I work in one of the qualified combat zones. I rotate back to the states for vacation every two months. Then I come back to work for two months. I only earn my income in the foreign combat zone country. Would I qualify for any of the fie? Also, I work and lived at two different combat zone countries within the tax year.

    • Markus Markus on March 25, 2020 at 9:18 pm

      Hi John, I’m afraid you wouldn’t qualify for the FEIE because you wouldn’t pass the physical presence test. If you’d like us to look into you situation a bit more, please reach out via email so we can discuss the details not in this public forum.

  6. Avatar Melissa on March 9, 2020 at 5:34 am

    Hi! My family and I have lived in Taiwan for the 2019-2020 school year. We may end up going home early if our school goes back to Online Learning because of the Coronavirus. What kind of financial penalty will we face if we were not out of the US for the full 330 days? We all have an Alien Resident Card in Taiwan and make less than the $103,000.

    • Markus Markus on March 25, 2020 at 9:03 pm

      You won’t be able to exclude you foreign earned income – did you pay taxes in Taiwan? Then we could use the Foreign Tax Credit instead.

  7. Avatar Jay on March 25, 2020 at 4:24 pm

    If, one year, taking the FEIE on Form 2555 would actually result in a higher tax burden, can we – withOUT revoking the election of the FEIE – simply NOT file Form 2555, NOT exclude the foreign earned income, NOT take a foreign tax credit on the foreign tax paid on that income, and include the foreign income in our US taxable income calculations?
    Or does the FEIE election = MUST file Form 2555 and include all foreign earned income on it every year no matter what?
    thanks.

    • Markus Markus on March 25, 2020 at 9:31 pm

      Hello Jay – it would be best to move this conversation through email so that we could go into more details. I’m struggling right now to think of a scenario where excluding your foreign income would result in a higher tax burden.
      If you could send me more details to the support email, that would be helpful!

  8. Avatar Jay on March 27, 2020 at 8:57 am

    Thanks very much for the response, Markus. I agree, in principle, it should always be better to take either the FEIE or the FTC. However, my question is one of the IRS rules, not of the better choice.
    Having elected the FEIE, is it allowed by the IRS to simply NOT file Form 2555 one year, to NOT exclude that foreign earned income (and, clearly, to also NOT take any credit for any foreign tax paid on that income that COULD have been excluded)? Or, having elected the FEIE, MUST all FEI (and the resulting exclusion) be included on a Form 2555 every year?
    thanks.

    • Avatar Bruce on April 24, 2020 at 5:14 pm

      Hi Jay.

      Per IRS:
      “You can revoke your choice for any tax year. You do this by attaching a statement that you are revoking one or more previously made choices to the return or amended return for the first year that you do not wish to claim the exclusion(s). You must specify which choice(s) you are revoking. You must revoke separately a choice to exclude foreign earned income and a choice to exclude foreign housing amounts.

      If you revoked a choice and within 5 tax years wish to again choose the same exclusion, you must apply for IRS approval. You do this by requesting a ruling from the Internal Revenue Service.”

      This webpage may be helpful:
      https://www.irs.gov/individuals/international-taxpayers/revoking-your-choice-to-exclude-foreign-earned-income

      P.S. I have no connection with myexpattaxes

  9. Avatar Isabella on March 28, 2020 at 6:20 am

    Hello,

    I moved to South Korea in November of this year and am not an extremely tax savvy person. I don’t qualify for the FEIE (because I had only been a resident for two months in 2019), but when I enter my foreign earned income, my return drops significantly. Is there something else I should be reporting as I am having to pay half of the wages I earned abroad back in taxes? Im so lost 🙁

    • Markus Markus on April 4, 2020 at 7:58 am

      Hi Isabella,

      You could sign up with us and use our guided questionnaire to see what amount you’d owe or what your refund would be.

  10. Avatar Naomi on March 28, 2020 at 9:24 pm

    hello–I’m curious if I can claim the foreign tax credit on income above the max FEIE. For example, suppose I earn $155,900 and in 2019, the max I can exclude is $105,900. For the remaining days $50,000, can I then use foreign tax credits to offset the US tax I would own on the $50,000.?

    • Michelle H. Michelle H. on April 1, 2020 at 9:27 am

      Hi Naomi,

      Yes, you can exclude the max amount of $105,900 via FEIE, then use FTC on the remaining excess.

      However, keep in mind that according to the IRS: You may not take either a credit or a deduction for taxes paid or accrued on income you exclude under the foreign earned income exclusion or the foreign housing exclusion. There’s no double taxation in this situation because that income isn’t subject to U.S. income tax. Source: https://www.irs.gov/taxtopics/tc856

      In your case, you need to make sure you also exclude the appropriate amount of foreign taxes, so that you don’t over claim foreign tax credit.

      Also, for many cases, using FEIE and FTC combined can lead a higher income tax rate.

      If you need support, MyExpatTaxes will sort all this out for you, we just need to know your total income and total foreign taxes paid! Then we’ll figure out the best approach for your individual situation!

  11. Avatar Bri on April 13, 2020 at 3:59 pm

    Hi there,

    I am a US citizen living in Canada (and have since birth). I got married in October 2019 so I’m confused about how to handle adding my spouse onto my tax return this year. He does not have a SSN.

    Thanks!

    • Michelle H. Michelle H. on April 17, 2020 at 12:14 pm

      Hi Bri,
      If your spouse is a non-US citizen you can file ”married filing separately.” Best way is to use our software as we work especially with US citizens abroad with spouses who have no SSN.

  12. Avatar Ryan on April 23, 2020 at 10:34 am

    Hi,
    I lived in Norway for the full duration of 2019 as a resident. However, my job required international travel with some business trips being back in the U.S. I’m under the impression that income earned during these trips is US earned income thus not applicable for FEIE or FTC. What I don’t understand is that portion of income has already been taxed in Norway and is now tax liable in the US. I don’t know what measures are available to prevent double taxation in this specific case.

    • Michelle H. Michelle H. on April 26, 2020 at 6:27 am

      You are correct, that they are US sourced and not applicable for FEIE. However, you could use a Tax Treaty to make them eligible for FTC to ensure no double taxation. We handle this all for you in our expat tax software!

  13. Avatar james stallworth on May 4, 2020 at 4:05 am

    I work in Saudi arabia and I don’t earn about 100k. how does this affect my taxes this 19-20? I’m retired military and they do tax my retirement so does the FEIE apply to me?

    • Michelle H. Michelle H. on May 4, 2020 at 2:56 pm

      If you have no earned income (i.e. salary), FEIE will not be relevant for you. Instead, MyExpatTaxes will look to use either Foreign Tax Credit or Tax Treaty Benefits to sort out your tax situation.

  14. Avatar Caviar on May 5, 2020 at 11:36 am

    I spent 10.5 months in the U.S and the last 1.5 months of 2019 abroad. What kind of foreign income deductions apply to me?

    • Michelle H. Michelle H. on May 5, 2020 at 4:08 pm

      You could take advantage of some expat tax benefits. Do sign up on our app at: app.myexpattaxes.com so we can show you!

  15. Avatar Charles on May 8, 2020 at 1:56 am

    Hi. My single niece is a US citizen who has been living abroad since 1994. She took a FEIE in 2014 and previous years on a small amount of foreign sourced earned income. In each year she met the tax home test and either either the bona fide residency or physical presence tests. In 2015-2018 she had no foreign place of business, employment or post of duty and no FEI. In light of this she did not file a 2555ez., However, she never formally revoked her earlier choice for prior tax years.

    1. Was it still necessary for her to file a Form 2555/2555ez reporting $0 FEI for 2015-2018 since she never revoked her earlier choice?

    In 2019 she earned under $6,000 of FEI for around 40 days of work for a single foreign employer. These were her sole earnings for the year.

    2. Can she choose to take the FEIE on those earnings for 2019?

    3. If she chooses not to take the FEIE must she revoke her previous choice on her 2019 return?

    Thanks!

    • Jody Fennell Jody Fennell on May 8, 2020 at 2:59 pm

      Hi Charles!
      Here are our answers to your questions:
      1. Was it still necessary for her to file a Form 2555/2555ez reporting $0 FEI for 2015-2018 since she never revoked her earlier choice?
      —> No, if she has no foreign income to exclude there is no need to file this form.
      2. Can she choose to take the FEIE on those earnings for 2019?
      —> Sure, if that would be the best option for her expat tax case and she passes the requirements to use the FEIE Form.
      3. If she chooses not to take the FEIE must she revoke her previous choice on her 2019 return?
      —> Yes, since she has income to exclude this year.
      Our MyExpatTaxes Software will figure this all out for her if it helps! 🙂

  16. Avatar Ross on May 14, 2020 at 7:33 pm

    I’m currently in the US, and am trying to file a few years worth of back taxes. I’m eligible for the FEIE for each year, and since I have no other income / assets, I’m well under the threshold so have no tax liability. However, on the 1040, I assume I still list the tax I withheld by my foreign employer. Doing so would see me get a refund, so is that even possible, or does my FEIE negate everything?

    • Michelle H. Michelle H. on May 15, 2020 at 10:55 am

      Hi Ross,
      Do sign up on our app and we will show you exactly what you need to do regarding Form 1040 and getting a refund.

  17. Avatar ABDALLA B. on May 20, 2020 at 7:43 am

    I realized while filling my 2019 Form 2555 that I mistakenly marked the “No” checkbox for the “are you claiming the housing deduction/exclusion” after line 27 when filing my 2018 Form 2555. I did not intend to revoke the exclusion/deduction but the effect of this on the exclusion was irrelevant as Part VI line 33 is less than zero and I am not required to complete the rest of part VI or any of IX.

    Should I send in an amended tax return and correct this checkbox to yes or am I considered to have revoked the exclusion and therefore cannot amend the tax return? Also for the purposes of my 2019 taxes, should I mark “have you ever revoked either of the exclusions” as yes or rather should I amend my 2019 tax return to mark this as “yes”?

    • Michelle H. Michelle H. on May 20, 2020 at 10:41 am

      Hi Abdalla,
      Please sign up through our app so we can personally assist you with this matter. Thank you.

  18. Avatar Alex on May 24, 2020 at 6:50 pm

    Hello,

    my job in Cayman Islands was terminated due to company shutdown, due to COVID-19. I received salary and severance through May 15, 2020. If I submit a claim for unemployment benefits in the U.S., do I forfeit my foreign income exclusion for wages Jan-May, 2020?

    Thank you.

    • Michelle H. Michelle H. on May 26, 2020 at 11:12 am

      We are sorry that happened! Generally, there is no impact to having unemployment income during the year and also claiming FEIE for the wages already earned! If you try us out next year (https://app.myexpattaxes.com/welcome), we’ll be better able to advise after we see you entire tax profile!

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