Form 2555 - Foreign Earned Income

You can use Form 2555 to calculate your foreign earned income exclusion and your housing exclusion or deduction. The form is one of the main ways to reduce or stop US tax on your US expat tax return.

HOW TO QUALIFY TO USE FORM 2555

your tax home must be in a foreign country
you meet the bona fide residence test or the physical presence test

You need to live for 330 full days or more in a foreign country, or countries, during a 12-month period - if you did not, you are not entitled to claim the foreign earned income exclusion.

The 330 qualifying days do not have to be consecutive.

BONA FIDE RESIDENCE TEST

You need to be a US citizen or Green Card holder who is a bona fide resident of a foreign country, or countries, for an uninterrupted period that includes an entire tax year - January 1 to December 31.

Physical Presence Test

You must be a US citizen or Green Card holder who is physically present in a foreign country, or countries, for at least 330 full days during any period of 12 months consecutively.

Foriegn Earned Income

Foreign earned income includes salaries, wages, bonuses, self employed and freelance income received for work performed outside of the US (even if that work is paid in the US).

You can not include interest, dividends, capital gains, sale of homes, rental income in the foreign earned income exclusion (FEIE).

Claiming the Foreign Earned Income Exclusion

The maximum foreign income you can exclude for the 2020 tax year is $107,600 (for 2019 the amount was $105,900).

For any foreign income above this amount, you can claim foreign tax credits using form 1116.

FOREIGN HOUSING EXCLUSION AND FOREIGN HOUSING DEDUCTION

In addition to the foreign earned income exclusion, you can also claim the foreign housing deduction and the foreign housing deduction.

Housing expenses include rent, utilities, property insurance, fees for a lease, rental of furniture and accessories, residential parking, and household repairs. You can't include the cost of buying furniture and accessories.

There are limits on housing expenses that you claim based on the country you are living in, the limits for countries are detailed in the form 2555 instructions.

When To File

While you are living outside the United States as an expat, the filing deadline for the US tax return is June 15 each year (extended to July 15 for 2020).

Form 2555 is filed with your main federal tax return with the IRS.