Foreign, International Income by U.S. Citizens
U.S. Citizens living and working abroad often wonder if they need to file a return or a previous year U.S. tax return. The simple and basic answer is this: as a U.S. Citizen, your worldwide income is subject to U.S. income tax, regardless of where you live or where you earned your taxable income. Thus, as a citizen of the United States, you have to file an income tax return if you work and/or live abroad. If you're still unsure, use this free FILEucator tax tool to determine if you have to file or not.
On the other hand, you might be exempt from a tax return if you relinquish your green card holder alien status - Form I-40, U.S. Citizen & Immigration Service - or you renounce your United States citizenship altogether as outlined in the expatriation tax provisions.
Use many of the eFile.com tax calculators or tools to learn more about your particular taxes. Not sure how to report your foreign earned income? When you prepare and e-file with eFile.com, we will help determine this for you following a simple tax interview.
Foreign Income Types
Foreign earned income has the source of the income as the place you performed the services for which you received the income, such as a foreign country. For example, if you do work for a U.S. employer in Spain and receive payment to your U.S. bank in Florida, your income is considered foreign earned income as the location on where the work is performed is the main consideration. Had you performed the same work in the U.S., you would report it as U.S. sourced income.
In the table below, find samples of foreign earned income, unearned income, and variable income generated by U.S. citizens abroad. The lists are not all inclusive, but show several more common examples.
Earned Income as the result of personal services
Salaries and wages
, commissions, professional fees, tips, bonuses, non-cash (allowances, reimbursements, lodging, meals, use of vehicle). Allowances or reimbursements are amounts paid to you for:
- Cost of living
- Home leave
Business profits, scholarships and fellowships, royalties, and rents.
Income from stock options, sole proprietorships, and partnerships or corporations.
NOT Included in Foreign Earned Income
- Payment from a U.S. Government as government employee (military, etc.)
- U.S. Pension, Social Security, or annuity payments
- Quarters (see Foreign Housing Exclusion)
- Expense reimbursement on behalf of your employer under an accountable plan
- Employer contributions to a nonexempt employee trust or to a nonqualified annuity contract
- Payments received after the end of the tax year following the tax year in which you performed the earned income services (e.g. if you performed work one year, but did not receive payment until the following year).
You might not be able to clearly determine how much of your paid work or income is done in the United States. It may have been done partly in the United States and partly in a foreign country, so it is important to determine the amount of U.S. source income using the method that most correctly shows the proper source of your income.
With a free eFile.com account, we help you make the decision that best suits your tax situation. In most cases, you can make this determination on a time basis. U.S. source income is the amount that results from multiplying your total pay (including allowances, reimbursements, and noncash fringe benefits) by a fraction. The numerator (top number) is the number of days you worked within the United States. The denominator (bottom number) is the total number of work days you were paid for. See details on the bona-fide residency and physical presence test which help determine your eligibility based on your living situation for the tax year.
More Foreign Income and Tax Information
See important subjects regarding foreign earned income are: Foreign Tax Deductions and Breaks plus Foreign Tax Credits. Read these IRS publications on U.S Citizens and Aliens Abroad and the Foreign Tax Credit for Individuals.
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