As an expat you are allowed to claim the Foreign Earned Income Exclusion (FEIE) if you
- Work outside the U.S. as an employee for a U.S. or foreign employer
- Work outside the U.S as an independent contractor or as a partner
The income you receive must be earned income outside the United States, and not investments such as dividends and interest. Earned income includes (not all inclusive) wages, salaries, professional fees, consulting fees, and other amounts received for personal services.
Your unemployment benefits are not considered earned income; however, your severance pay and salary may qualify for the FEIE if the following aforementioned requirements are met. Furthermore, your settlement may be considered earned income and qualify for the FEIE if the settlement was employment related.
- You will report your severance pay, salary, and possible settlement on the Form 1040 by entering the information in the Personal Income section or Income and Expense section of the TurboTax program when prompted.
- After entering all your data into your return, you will then type "Foreign Earned Income Exclusion" in Find/Search.
- Click the Jump to foreign earned income exclusion link
- Begin navigating through the prompts to determine the amount of exclusion that you are allowed.
- The information will appear on the Form 2555 Foreign Income
Exclusion
Please note a non-FEIE settlement (excluding personal injury awards), and unemployment compensation is still considered a reportable and taxable event and must be entered in your return even if they don't qualify for the FEIE.
