Income Earned Abroad

The United States taxes its citizens and residents on worldwide income, and there is a limited exclusion for gross income earned abroad. To qualify the American citizen or resident must be a bona fide resident of a foreign country/countries for an uninterrupted period that includes an entire taxable year, or an American must be present in a foreign country/countries for at least 330 days during any period of twelve consecutive months. The exclusion is for only foreign earned income that is defined as foreign source income attributable to the taxpayer’s performance of services. The maximum exclusion is $100,800 in 2015.

There is an exclusion for amounts paid as reimbursement for foreign housing expenses in excess of a statutorily provided base housing amount (16% of the exclusion amount) if the housing expenses are paid for by the taxpayer’s employer.

If the housing costs are not paid for by the employer the taxpayer may deduct a limited amount of housing costs in computing adjusted gross income. The limitation is the excess of the foreign earned income of the individual for the tax year, over the amount of such income excluded from gross income for the taxable year (that is the foreign earned income of such individual and the housing cost amount).