Foreign earned income exclusion - physical presence test

[Gary1111]

Hi,

My question is whether you have to be a resident alien or citizen for the whole of the 12 month period used for the physical presence test?

I am a resident alien in the 2021 tax year and will be moving abroad from the USA in June 2021 to work abroad for the next few years. In 2022, i will likely be a non resident alien for US tax purposes. So can I still use the physical presence test to exclude foreign earned income from June to December 2021 on my resident tax return?

I will be a resident alien from June to December 2021 but I won't be a resident alien from January to June 2022 as I will likely be a non resident alien for 2022. Does that have any impact on whether I can use the physical presence test for my 2021 tax return?

Thanks so much!

[LinaJ2020]

Yes, you must be a US citizen or resident. 

The Foreign Income Exclusion benefit only applies to both US citizens or residents.  It does not apply to nonresidents.

[Gary1111]

Hi Lina,

I am a US resident this tax year (in 2021) and I will only be using the Foreign Earned Income Exclusion for the 2021 tax year, when I am a US resident. So I satisfy that requirement.

My question is do you have to be a US resident for the whole of the 12 month period during which you are out of the country for the physical presence test?

Thanks

[LinaJ2020]

Yes, you do. 

In fact, this exclusion normally applies to US citizens or green card holders who work abroad. 

Originally, this exclusion was implemented to help protect Americans earning income abroad from being double-taxed, one by the IRS and one by the foreign country where they earned money in.  That's why the U.S. government also created other benefits like the foreign tax credits, deductions, and the foreign income exclusions the expats can claim.