Publication 54 - Tax Guide For U.s. Citizens And Resident Aliens Abroad - 2006 Page 17
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44required to provide you with a Form W-2, these
Reimbursement of moving expenses.
least 120 days in 2005 (the year of the move),
Earned income may include reimbursement of
the reimbursement is considered pay for serv-
amounts will be listed as wages.
moving expenses. You must include as earned
ices performed in the foreign country for both
Certain scholarship and fellowship in-
income:
2005 and 2006.
TIP
come may be exempt under other pro-
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You figure the part of the reimbursement for
Any reimbursements of, or payments for,
visions. See Publication 970, Tax
services performed in the foreign country in
nondeductible moving expenses,
Benefits for Education, chapter 1.
2005 by multiplying the total reimbursement by a
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Reimbursements that are more than your
fraction. The fraction is the number of days dur-
Use of employer’s property or facilities. If
deductible expenses and that you do not
ing which you were a bona fide resident during
you receive fringe benefits in the form of the right
return to your employer,
the year of the move divided by 365. The re-
to use your employer’s property or facilities, the
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maining part of the reimbursement is for serv-
Any reimbursements made (or treated as
fair market value of that right is earned income.
ices performed in the foreign country in 2006.
made) under a nonaccountable plan (any
Fair market value is the price at which the prop-
This computation is used only to determine
plan that does not meet the rules listed
erty would change hands between a willing
when the reimbursement is considered earned.
above for an accountable plan), even if
buyer and a willing seller, neither being required
You would include the amount of the reimburse-
they are for deductible expenses, and
to buy or sell, and both having reasonable
ment in income in 2006, the year you received it.
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knowledge of all the necessary facts.
Any reimbursement of moving expenses
Move between foreign countries. If you
you deducted in an earlier year.
Example. You are privately employed and
move between foreign countries, any moving
This section discusses reimbursements that
live in Japan all year. You are paid a salary of
expense reimbursement that you must include
must be included in earned income. Publication
$6,000 a month. You live rent-free in a house
in income will be considered earned in the year
521, Moving Expenses, discusses additional
of the move if you qualify for the exclusion for a
provided by your employer that has a fair rental
rules that apply to moving expense deductions
period that includes at least 120 days in the year
value of $3,000 a month. The house is not pro-
and reimbursements.
of the move.
vided for your employer’s convenience. You re-
port on the calendar-year, cash basis. You
The rules for determining when the reim-
Move to U.S. If you move to the United
received $72,000 salary from foreign sources
bursement is considered earned or where the
States, the moving expense reimbursement that
reimbursement is considered earned may differ
plus $36,000 fair rental value of the house, or a
you must include in income is generally consid-
somewhat from the general rules previously dis-
total of $108,000 of earned income.
ered to be U.S. source income.
cussed.
However, if under either an agreement be-
Reimbursement of employee expenses. If
Although you receive the reimbursement in
tween you and your employer or a statement of
you are reimbursed under an accountable plan
one tax year, it may be considered earned for
company policy that is reduced to writing before
(defined below) for expenses you incur on your
services performed, or to be performed, in an-
your move to the foreign country, your employer
employer’s behalf and you have adequately ac-
other tax year. You must report the reimburse-
will reimburse you for your move back to the
counted to your employer for the expenses, do
ment as income on your return in the year you
United States regardless of whether you con-
not include the reimbursement for those ex-
receive it, even if it is considered earned during
tinue to work for the employer, the includible
penses in your earned income.
a different year.
reimbursement is considered compensation for
The expenses for which you are reimbursed
past services performed in the foreign country.
Move from U.S. to foreign country. If you
are not considered allocable (related) to your
The includible reimbursement is considered
move from the United States to a foreign coun-
earned income. If expenses and reimbursement
earned in the year of the move if you qualify for
try, your moving expense reimbursement is gen-
are equal, there is nothing to allocate to ex-
the exclusion for a period that includes at least
erally considered pay for future services to be
cluded income. If expenses are more than the
120 days during that year. Otherwise, you treat
performed at the new location. The reimburse-
reimbursement, the unreimbursed expenses are
the includible reimbursement as received for
ment is considered earned solely in the year of
considered to have been incurred in producing
services performed in the foreign country in the
the move if you qualify for the exclusion for a
earned income and must be divided between
year of the move and the year immediately
period that includes at least 120 days during that
your excluded and included income in determin-
before the year of the move.
tax year.
ing the amount of unreimbursed expenses you
See the discussion under Move from U.S. to
If you do not qualify under either test for 120
can deduct. (See chapter 5.) If the reimburse-
foreign country (earlier) to figure the amount of
days during the year of the move, a portion of
ment is more than the expenses, no expenses
the includible reimbursement considered
the reimbursement is considered earned in the
remain to be divided between excluded and in-
earned in the year of the move. The amount
year of the move and a portion is considered
cluded income and the excess reimbursement
earned in the year before the year of the move is
earned in the year following the year of the
must be included in earned income.
the difference between the total includible reim-
move. To figure the amount earned in the year of
These rules do not apply to the following
bursement and the amount earned in the year of
the move, multiply the reimbursement by a frac-
individuals.
the move.
tion. The numerator (top number) is the number
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of days in your qualifying period that fall within
Straight-commission salespersons.
Example. You are a U.S. citizen employed
the year of the move, and the denominator (bot-
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Employees who have arrangements with
in a foreign country. You retired from employ-
tom number) is the total number of days in the
their employers under which taxes are not
ment with your employer on March 31, 2006,
year of the move.
withheld on a percentage of the commis-
and returned to the United States after having
The difference between the total reimburse-
sions because the employers consider
been a bona fide resident of the foreign country
ment and the amount considered earned in the
that percentage to be attributable to the
for several years. A written agreement with your
year of the move is the amount considered
employees’ expenses.
employer entered into before you went abroad
earned in the year following the year of the
provided that you would be reimbursed for your
move. The part earned in each year is figured as
Accountable plan. An accountable plan is
move back to the United States.
shown in the following example.
a reimbursement or allowance arrangement that
In April 2006, your former employer reim-
includes all three of the following rules.
bursed you $2,000 for the part of the cost of your
Example. You are a U.S. citizen working in
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move back to the United States that you were
The expenses covered under the plan
the United States. You were told in October
not allowed to deduct. Because you were not a
must have a business connection.
2005 that you were being transferred to a foreign
bona fide resident for at least 120 days in 2006
country. You arrived in the foreign country on
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The employee must adequately account to
(the year of the move), the includible reimburse-
December 15, 2005, and you qualify as a bona
the employer for these expenses within a
ment is considered pay for services performed
fide resident for the remainder of 2005 and all of
reasonable period of time.
in the foreign country for both 2006 and 2005.
2006. Your employer reimbursed you $2,000 in
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The employee must return any excess re-
January 2006 for the part of the moving expense
You figure the part of the moving expense
imbursement or allowance within a rea-
that you were not allowed to deduct. Because
reimbursement for services performed in the
sonable period of time.
you did not qualify as a bona fide resident for at
foreign country for 2006 by multiplying the total
Chapter 4 Foreign Earned Income and Housing: Exclusion – Deduction
Page 17
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