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Foreign Earned Income (FEI) ExclusionSection 911 of the code provides for excluding $80,000 (in 2002) from the taxable income of an individual US Taxpayer (the amount is doubled for married couple, both working in a foreign country) if such an income was earned from foreign sources, and the taxpayer's "Tax Home" was outside the United States during the tax year. Form 2555 or 2555EZ must be attached to Form 1044 and timely filed for claiming such exclusion. To qualify for the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, your tax home must be in a foreign country throughout your period of bona fide residency or physical presence abroad. The code specify that taxpayer must:
Foreign Country:To meet bona fide residency test or the physical presence test, you must live, or be present, in a foreign country. A foreign county is any territory under the sovereignty of a government other than the United States. The term "Foreign Country" does not include Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, the Virgin Islands, or U.S. positions such as American Samoa. Foreign Earned Income:Earned income is the income earned from salaries and wages, commissions, bonuses, professional fees, and tips for "PERSONAL SERVICE PERFORMED." Only such income is considered "Earned Income" and can be included in the amount of exclusion allowed. Unearned income such as dividends, interest, capital gains, gambling winning, alimony, social security benefits, pensions, and annuities CANNOT be included in the allowed exclusion. Variable income such as business profits, royalties, and rents can be either earned or unearned. ONLY Earned Income (and certain variable income) derived from foreign source that meets 1 and 2 above can be considered for exclusion. Tax home test:To meet this test, your tax home must be in a foreign country, or countries, throughout your period of bona fide residency or physical presence, whichever applies. For this purpose, your period of physical presence is the 330 full days during which you were present in a foreign country, not the 12 consecutive months during which those days occurred. Can I Claim the Exclusion or Deduction?The chart below identifies those who meet the qualifications for claiming the foreign earned income exclusion, foreign housing exclusion, or foreign housing deduction.
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