IRC § 911(b)(1)(A) provides the definition of “foreign income.” For tax purposes, this provision is important because If certain requirements are met, a taxpayer may qualify for the foreign earned income, foreign housing exclusions and the foreign housing deduction. Under certain circumstances, the value of meals and lodging provided to a taxpayer by an employer may also be excluded from income.
U.S. citizens or a resident aliens of the United States living abroad are taxed on their worldwide income. However, they may qualify to exclude from income up to an amount of their foreign earnings that is adjusted annually for inflation. In 2015, this amount was $100,800. Additionally, certain foreign housing amounts may be excluded or deducted.
The term “foreign earned income” is defined by federal law (the Tax Code) as the amount received by an individual from sources within a foreign country or countries which constitute earned income attributable to services performed by the individual during the defined statutory period.
Foreign earned income does not include amounts:
(i) received as a pension or annuity;
(ii) paid by the United States or an agency thereof to an employee of the United States or an agency thereof;
(iii) included in gross income by reason of § 402(b) (relating to taxability of beneficiary of nonexempt trust) or § 403(c) (relating to taxability of beneficiary under a nonqualified annuity); or
(iv) received after the close of the taxable year following the taxable year in which the services to which the amounts are attributable are performed.
A qualifying individual may claim the foreign earned income exclusion on foreign earned self-employment income. This excluded amount reduces the individual’s regular income tax, but not the individual’s self-employment tax. Also, a taxpayer may claim the foreign housing deduction in lieu of a foreign housing exclusion.
Beginning with the tax year 2006, a qualifying individual claiming the foreign earned income exclusion, the housing exclusion, or both, is required to calculate the tax on remaining non-excluded income using the tax rates that would have applied had the individual not claimed the exclusions.
If you live in the New York or the Tri-State area and have any questions about any tax-related issues, call THE TAX EXPERTS at the Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation call 212-490-0704.
