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

3) The employee must return any excess re-

fide resident for the remainder of 2000 and all of

(the year of the move), the includible reimburse-

imbursement or allowance within a reason-

2001. Your employer reimbursed you $2,000 in

ment is considered pay for services performed

able period of time.

January 2001 for the part of the moving expense

in the foreign country for both 2001 and 2000.

that you were not allowed to deduct. Because

You figure the part of the moving expense

you did not qualify as a bona fide resident for at

reimbursement for services performed in the

Reimbursement of moving expenses.

least 120 days last year (the year of the move),

foreign country for 2001 by multiplying the total

Earned income may include reimbursement of

the reimbursement is considered pay for ser-

includible reimbursement by a fraction. The frac-

moving expenses. You must include as earned

vices performed in the foreign country for both

tion is the number of days of foreign residence

income:

2000 and 2001.

during the year (90) divided by the number of

You figure the part of the reimbursement for

days in the year (365). The remaining part of the

1) Any reimbursements of, or payments for,

services performed in the foreign country in

includible reimbursement is for services per-

nondeductible moving expenses,

2000 by multiplying the total reimbursement by a

formed in the foreign country in 2000. You report

2) Reimbursements that are more than your

fraction. The fraction is the number of days dur-

the amount of the includible reimbursement on

deductible expenses and that you do not

ing which you were a bona fide resident during

your Form 1040 for 2001, the year you received

return to your employer,

the year of the move divided by 366. The re-

it.

maining part of the reimbursement is for ser-

3) Any reimbursements made (or treated as

In this example, if you qualified under

vices performed in the foreign country in 2001.

made) under a nonaccountable plan (any

TIP

the physical presence test for a period

This computation is used only to determine

plan that does not meet the rules listed

that included at least 120 days in 2001,

when the reimbursement is considered earned.

above for an accountable plan), even if

the moving expense reimbursement would be

You would report the amount you include in

they are for deductible expenses, and

considered earned entirely in the year of the

income in 2001, the year you received it.

move.

4) Any reimbursement of moving expenses

Move between foreign countries. If you

you deducted in an earlier year.

move between foreign countries, any moving

Storage expense reimbursements. If you

This section discusses reimbursements that

expense reimbursement that you must include

are reimbursed for storage expenses, the reim-

must be included in earned income. Publication

in income will be considered earned in the year

bursement is for services you perform during the

521, Moving Expenses, discusses additional

of the move if you qualify under either the bona

period of time for which the storage expenses

rules that apply to moving expense deductions

fide residence test or the physical presence test

are incurred.

and reimbursements.

for a period that includes at least 120 days in the

The rules for determining when the reim-

year of the move.

bursement is considered earned or where the

U.S. Government Employees

Move to U.S. If you move to the United

reimbursement is considered earned may differ

States, the moving expense reimbursement that

For purposes of the foreign earned income ex-

somewhat from the general rules previously dis-

you must include in income is generally consid-

clusion, the foreign housing exclusion, and the

cussed.

ered to be U.S. source income.

foreign housing deduction, foreign earned in-

Although you receive the reimbursement in

However, if under either an agreement be-

come does not include any amounts paid by the

one tax year, it may be considered earned for

tween you and your employer or a statement of

United States or any of its agencies to its em-

services performed, or to be performed, in an-

company policy that is reduced to writing before

ployees. Payments to employees of nonap-

other tax year. You must report the reimburse-

your move to the foreign country, your employer

propriated fund activities are not foreign earned

ment as income on your return in the year you

will reimburse you for your move back to the

income. Nonappropriated fund activities include

receive it, even if it is considered earned during

United States regardless of whether you con-

the following employers.

a different year.

tinue to work for the employer, the includible

Move from U.S. to foreign country. If you

1) Armed forces post exchanges.

reimbursement is considered compensation for

move from the United States to a foreign coun-

past services performed in the foreign country.

2) Officers’ and enlisted personnel clubs.

try, your moving expense reimbursement is gen-

The includible reimbursement is considered

erally considered pay for future services to be

3) Post and station theaters.

earned in the year of the move if you qualify

performed at the new location. The reimburse-

under the bona fide residence test or the physi-

4) Embassy commissaries.

ment is considered earned solely in the year of

cal presence test for at least 120 days during

the move if your tax home is in a foreign country

Amounts paid by the United States or its

that year. Otherwise, you treat the includible

and you qualify under the bona fide residence

agencies to persons who are not their employ-

reimbursement as received for services per-

test or physical presence test for at least 120

ees may qualify for exclusion or deduction.

formed in the foreign country in the year of the

days during that tax year.

move and the year immediately before the year

If you are a U.S. Government employee paid

If you do not qualify under either test for 120

of the move.

by a U.S. agency that assigned you to a foreign

days during the year of the move, a portion of

See the discussion under Move from U.S. to

government to perform specific services for

the reimbursement is considered earned in the

foreign country (earlier) to figure the amount of

which the agency is reimbursed by the foreign

year of the move and a portion is considered

the includible reimbursement considered

government, your pay is from the U.S. Govern-

earned in the year following the year of the

earned in the year of the move. The amount

ment and does not qualify for exclusion or de-

move. To figure the amount earned in the year of

earned in the year before the year of the move is

duction.

the move, multiply the reimbursement by a frac-

the difference between the total includible reim-

If you have questions about whether you are

tion. The numerator (top number) is the number

bursement and the amount earned in the year of

an employee or an independent contractor, get

of days in your qualifying period that fall within

the move.

Publication 15 – A, Employer’s Supplemental

the year of the move, and the denominator (bot-

Tax Guide.

tom number) is the total number of days in the

Example. You are a U.S. citizen employed

year of the move.

in a foreign country. You retired from employ-

Panama Canal Commission. U.S. employ-

ment with your employer on March 31, 2001,

ees of the Panama Canal Commission are em-

The difference between the total reimburse-

and returned to the United States after having

ployees of a U.S. Government agency. Because

ment and the amount considered earned in the

been a bona fide resident of the foreign country

they are U.S. Government employees, their for-

year of the move is the amount considered

for several years. A written agreement with your

eign earned income does not include any

earned in the year following the year of the

employer entered into before you went abroad

amounts paid to them by the Panama Canal

move. The part earned in each year is figured as

provided that you would be reimbursed for your

Commission. No provision of the Panama Canal

shown in the following example.

move back to the United States.

Treaty or Agreement exempts their income from

Example. You are a U.S. citizen working in

In April 2001, your former employer reim-

U.S. taxation. Employees of the Panama Canal

the United States. You were told in October

bursed you $2,000 for the part of the cost of your

Commission and civilian employees of the De-

2000 that you were being transferred to a foreign

move back to the United States that you were

fense Department of the United States stationed

country. You arrived in the foreign country on

not allowed to deduct. Because you were not a

in Panama can exclude certain foreign-area and

December 15, 2000, and you qualify as a bona

bona fide resident for at least 120 days last year

cost-of-living allowances. See Publication 516,

Chapter 4 Foreign Earned Income and Housing: Exclusion – Deduction

Page 17

Publication 54 - Tax Guide For U.s. Citizens And U.s. Citizens Abroad - 2001 Page 17

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