Irs Publication 54 - Tax Guide For U.s. Citizens And Resident Aliens Abroad

could not perform your duties if the lodging was

report your income on a cash basis, you report

it in figuring your excludable amount for that

not furnished.

the income on your return for the year you re-

year. For example, a bonus may be based on

ceive it. If you work one year, but are not paid for

work you did over several years. You determine

Foreign camps. If the lodging is in a camp

that work until the next year, the amount you can

the amount of the bonus that is considered

located in a foreign country, the camp is consid-

exclude in the year you are paid is the amount

earned in a particular year in two steps.

ered part of your employer’s business premises.

you could have excluded in the year you did the

The camp must be:

1. Divide the bonus by the number of calen-

work if you had been paid in that year. For an

•

dar months in the period when you did the

Provided for your employer’s convenience

exception to this general rule, see Year-end

work that resulted in the bonus.

because the place where you work is in a

payroll period, later.

remote area where satisfactory housing is

2. Multiply the result of (1) by the number of

Example. You were a bona fide resident of

not available to you on the open market

months you did the work during the year.

Brazil for all of 2007 and 2008. You report your

within a reasonable commuting distance,

This is the amount that is subject to the

income on the cash basis. In 2007, you were

•

exclusion limit for that tax year.

Located as close as reasonably possible

paid $76,000 for work you did in Brazil during

in the area where you work, and

that year. You excluded all of the $76,000 from

Income received more than 1 year after it was

•

your income in 2007.

Provided in a common area or enclave

earned. You cannot exclude income you re-

In 2008, you were paid $101,400 for your

that is not available to the general public

ceive after the end of the year following the year

work in Brazil. $13,000 was for work you did in

for lodging or accommodations and that

you do the work to earn it.

2007 and $88,400 was for work you did in 2008.

normally houses at least ten employees.

Example. You were a bona fide resident of

You can exclude $9,700 of the $13,000 from

Sweden for 2006, 2007, and 2008. You report

your income in 2008. This is the $85,700 maxi-

your income on the cash basis. In 2006, you

mum exclusion in 2007 minus the $76,000 actu-

were paid $69,000 for work you did in Sweden

Foreign Earned

ally excluded that year. You must include the

that year and in 2007 you were paid $74,000 for

remaining $3,300 in income in 2008 because

that year’s work in Sweden. You excluded all the

Income Exclusion

you could not have excluded that income in

income on your 2006 and 2007 returns.

2007 if you had received it that year. You can

In 2008, you were paid $92,000; $82,000 for

exclude $87,600 of the $88,400 you were paid

If your tax home is in a foreign country and you

your work in Sweden during 2008, and $10,000

for work you did in 2008 from your 2008 income.

meet the bona fide residence test or the physical

for work you did in Sweden in 2006. You cannot

Your total foreign earned income exclusion

presence test, you can choose to exclude from

exclude any of the $10,000 for work done in

for 2008 is $97,300 ($9,700 of the pay received

your income a limited amount of your foreign

2006 because you received it after the end of the

in 2008 for work you did in 2007 and $87,600 for

earned income. Foreign earned income was de-

year following the year in which you earned it.

work you did in 2008). You would include in your

fined earlier in this chapter.

You must include the $10,000 in income. You

2008 income $4,100 ($3,300 for the work you

You can also choose to exclude from your

can exclude all of the $82,000 received for work

did in 2007 and $800 for the work you did in

income a foreign housing amount. This is ex-

you did in 2008.

2008).

plained later under Foreign Housing Exclusion.

Community income. The maximum exclu-

If you choose to exclude a foreign housing

Year-end payroll period. There is an excep-

sion applies separately to the earnings of a hus-

amount, you must figure the foreign housing

tion to the general rule that income is considered

band and wife. Ignore any community property

exclusion before you figure the foreign earned

earned in the year you do the work for which you

laws when you figure your limit on the foreign

income exclusion. Your foreign earned income

receive the income. If you are a cash-basis tax-

earned income exclusion.

exclusion is limited to your foreign earned in-

payer, any salary or wage payment you receive

come minus your foreign housing exclusion.

Part-year exclusion. If the period for which

after the end of the year in which you do the work

If you choose to exclude foreign earned in-

you qualify for the foreign earned income exclu-

for which you receive the pay is considered

come, you cannot deduct, exclude, or claim a

sion includes only part of the year, you must

earned entirely in the year you receive it if all

credit for any item that can be allocated to or

adjust the maximum limit based on the number

four of the following apply.

charged against the excluded amounts. This

of qualifying days in the year. The number of

•

The period for which the payment is made

includes any expenses, losses, and other nor-

qualifying days is the number of days in the year

is a normal payroll period of your employer

mally deductible items allocable to the excluded

within the period on which you both:

that regularly applies to you.

income. For more information about deductions

•

Have your tax home in a foreign country,

and credits, see chapter 5.

•

The payroll period includes the last day of

and

your tax year (December 31 if you figure

Limit on Excludable Amount

•

Meet either the bona fide residence test or

your taxes on a calendar-year basis).

the physical presence test.

•

The payroll period is not longer than 16

You may be able to exclude up to $87,600 of

days.

your foreign earned income in 2008.

For this purpose, you can count as qualifying

You cannot exclude more than the smaller

•

days all days within a period of 12 consecutive

The payday comes at the same time in

of:

months once you are physically present and

relation to the payroll period that it would

have your tax home in a foreign country for 330

normally come and it comes before the

•

$87,600, or

full days. To figure your maximum exclusion,

end of the next payroll period.

•

Your foreign earned income (discussed

multiply the maximum excludable amount for the

earlier) for the tax year minus your foreign

year by the number of your qualifying days in the

Example. You are paid twice a month. For

housing exclusion (discussed later).

year, and then divide the result by the number of

the normal payroll period which begins on the

days in the year.

first of the month and ends on the fifteenth of the

If both you and your spouse work abroad and

month, you are paid on the sixteenth day of the

each of you meets either the bona fide residence

Example. You report your income on the

month. For the normal payroll period that begins

test or the physical presence test, you can each

calendar-year basis and you qualified for the

on the sixteenth of the month and ends on the

choose the foreign earned income exclusion.

foreign earned income exclusion under the bona

last day of the month, you are paid on the first

You do not both need to meet the same test.

fide residence test for 75 days in 2008. You can

day of the following month. Because all of the

Together, you and your spouse can exclude as

exclude a maximum of 75/366 of $87,600, or

above conditions are met, the pay you received

much as $175,200.

$17,951, of your foreign earned income for

on January 1, 2008, is considered earned in

2008. If you qualify under the bona fide resi-

Paid in year following work. Generally, you

2008.

dence test for all of 2009, you can exclude your

are considered to have earned income in the

foreign earned income up to the 2009 limit.

year in which you do the work for which you

Income earned over more than 1 year. Re-

receive the income, even if you work in one year

gardless of when you actually receive income,

Physical presence test. Under the physi-

but are not paid until the following year. If you

you must apply it to the year in which you earned

cal presence test, a 12-month period can be any

Chapter 4 Foreign Earned Income and Housing: Exclusion – Deduction

Page 19

Irs Publication 54 - Tax Guide For U.s. Citizens And Resident Aliens Abroad - 2008 Page 19

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