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

Table 4-1. How To Figure Overlapping 12-Month Periods

This Table illustrates Example 2 under How to figure the 12-month period.

First Full 12-Month Period

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

’00

’01

* 28-day vacation in the United States

Second Full 12-Month Period

for the bona fide residence test or physical pres-

ther the bona fide residence test or the physical

Allowances or reimbursements. Earned in-

ence test for 2001 without meeting the minimum

presence test, see Bona Fide Residence Test

come includes allowances or reimbursements

time requirement. However, in figuring your ex-

and Physical Presence Test, earlier.

you receive, such as the following amounts.

clusion, the number of your qualifying days of

Foreign earned income does not include the

•

Cost of living allowances.

bona fide residence or physical presence in-

following amounts.

•

cludes only days of actual residence or pres-

Overseas differential.

1) The value of meals and lodging that you

ence within the country.

•

Family allowance.

exclude from your income because it was

You can read the Internal Revenue Bulletins

furnished for the convenience of your em-

•

on the Internet at Or, you can get

Reimbursement for education or education

ployer.

a copy of the list of countries by writing to:

allowance.

2) Pension or annuity payments you receive,

•

Home leave allowance.

including social security benefits (see Pen-

Internal Revenue Service

•

Quarters allowance.

sions and annuities, later).

International Section

•

P.O. Box 920

Reimbursement for moving or moving al-

3) Pay you receive as an employee of the

Bensalem, PA 19020-8518.

lowance (unless excluded from income as

U.S. Government. (See U.S. Government

discussed later).

Employees, later.)

4) Amounts you include in your income be-

Source of Earned Income

U.S. Travel Restrictions

cause of your employer’s contributions to a

nonexempt employee trust or to a non-

If you are present in a foreign country in violation

The source of your earned income is the place

qualified annuity contract.

of U.S. law, you will not be treated as a bona fide

where you perform the services for which you

5) Any unallowable moving expense deduc-

resident of a foreign country or as physically

received the income. Foreign earned income is

tion that you choose to recapture as ex-

present in a foreign country while you are in

income you receive for working in a foreign

plained under Recapture of Moving

violation of the law. Income that you earn from

country. Where or how you are paid has no

Expense Deduction in chapter 5).

sources within such a country for services per-

effect on the source of the income. For example,

formed during a period of violation does not

income you receive for work done in Austria is

6) Payments you receive after the end of the

qualify as foreign earned income. Your housing

income from a foreign source even if the income

tax year following the tax year in which you

expenses within that country (or outside that

is paid directly to your bank account in the

performed the services that earned the in-

country for housing your spouse or dependents)

United States and your employer is located in

come.

while you are in violation of the law cannot be

New York City.

included in figuring your foreign housing

If you receive a specific amount for work

Earned income. This is pay for personal

amount.

done in the United States, you must report that

services performed, such as wages, salaries,

Currently, the countries to which travel re-

amount as U.S. source income. If you cannot

or professional fees. The list that follows classi-

strictions apply and the beginning dates of the

determine how much is for work done in the

fies many types of income into three categories.

restrictions are as follows:

United States, or for work done partly in the

The column headed Variable Income lists in-

United States and partly in a foreign country,

•

come that may fall into either the earned income

Cuba — January 1, 1987

determine the amount of U.S. source income

category, the unearned income category, or

•

using the method that most correctly shows the

Iraq — August 2, 1990

partly into both. For more information on earned

proper source of your income.

•

and unearned income, see Earned and

Libya — January 1, 1987

In most cases you can make this determina-

Unearned Income, later.

The restrictions are still in effect in all three

tion on a time basis. U.S. source income is the

countries.

Earned

Unearned

Variable

amount that results from multiplying your total

Income

pay (including allowances, reimbursements

Foreign Earned Income

other than for foreign moves, and noncash

Salaries and

Dividends

Business

wages

Interest

profits

fringe benefits) by a fraction. The numerator (top

Commissions

Capital gains

Royalties

To claim the foreign earned income exclusion,

number) is the number of days you worked

Bonuses

Gambling

Rents

the foreign housing exclusion, or the foreign

within the United States. The denominator (bot-

Professional fees

winnings

housing deduction, you must have foreign

tom number) is the total number of days of work

Tips

Alimony

earned income.

for which you were paid.

Social security

benefits

Foreign earned income generally is income

Pensions

Example. You are a U.S. citizen, a bona

you receive for services you perform during a

Annuities

fide resident of Canada, and working as a min-

period in which you meet both of the following

ing engineer. Your salary is $76,800 per year.

requirements.

In addition to the types of earned income

You also receive a $6,000 cost of living allow-

listed, certain noncash income and allowances

1) Your tax home is in a foreign country.

ance, and a $6,000 education allowance. Your

or reimbursements are considered earned in-

employment contract did not indicate that you

come.

2) You meet either the bona fide residence

were entitled to these allowances only while

test or the physical presence test.

Noncash income. The fair market value of

outside the United States. Your total income is

To determine whether your tax home is in a

property or facilities provided to you by your

$88,800. You work a 5-day week, Monday

foreign country, see Tax Home in Foreign Coun-

employer in the form of lodging, meals, or use of

through Friday. After subtracting your vacation,

try, earlier. To determine whether you meet ei-

a car is earned income.

you have a total of 240 workdays in the year.

Chapter 4 Foreign Earned Income and Housing: Exclusion – Deduction

Page 15

Publication 54 - Tax Guide For U.s. Citizens And U.s. Citizens Abroad - 2001 Page 15

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