Must I live 330 days in a foreign country to qualify for exclusion?

[johnautrey1000]

This is probably a stupid question but I just want to make sure I understand correctly. If I worked less than 330 days outside the country then I do not qualify for the foreign income exclusion? I only worked for 3 months in a different country. Thank you for your help.

[GeoffreyG · Accepted solution]

This is not a "stupid question" at all; and we will be happy to answer it for you.

For purposes of qualifying for the Foreign Earned Income Exclusion, as a United States taxpayer, you must meet at least one of two different tests.  They are known as the Bona Fide Residence Test and the Physical Presence Test, and are explained on Pages 1, 2, and 3 of the instructions for IRS Form 2555, which can be read here:

https://www.irs.gov/pub/irs-pdf/i2555.pdf

Referring to the 330 days you mention in your question, this would be asking about the Physical Presence Test, to which the IRS has the following to say:

"To meet this test, you must be a U.S. citizen or resident alien who is physically present in a foreign country, or countries, for at least 330 full days during any period of 12 months in a row.  A full day means the 24-hour period that starts at midnight.  To figure 330 full days, add all separate periods you were present in a foreign country during the 12-month period.  The 330 full days can be interrupted by periods when you are traveling over international waters or are otherwise not in a foreign country.  See IRS Publication 54 for more information and examples.

The 12-month period on which the physical presence test is based must include 366 days, part of which must be in 2016. The dates may begin or end in a calendar year other than 2016."

So, what this means in practical terms for your specific situation, if you lived and worked abroad for only 3-months (90-days or so), then you would not be able to qualify under either of the Foreign Earned Income Exclusion tests, and you will therefore have to pay full regular US income taxes on your overseas earnings.

However, if you worked abroad for 3-months, but then continued to reside outside of the United States for the other 8-months required to meet the 330 day mandate (a.k.a. 11-months out of 12-months), and were not working during that time, then you could qualify for the Foreign Earned Income Exclusion under the Physical Presence Test, which would exclude much (or all) of your foreign income from US taxation.  If this applies to you, then you would benefit by filling out IRS Form 2555.

Does that reasoning and explanation make better sense to you now?

Hopefully it does, and thank you for asking this important question.

[kboucher0]

This is a similar question that I have as well. I worked and paid taxes from my income from Jan 1, 2017 until August 28th, 2017 (so 8 months of the year). Then moved and started working in Belgium receiving a salary (so foreign income, and taxes were taken out)  - but this is only 4 months of the 2017 tax year. I do not possibly qualify for the Physical Presence test or the Bona Fide Residence exemption yet. But Belgium and the US do have a tax treaty, and I should not be double taxed on this foreign income, so how does that get filed? Can Turbo tax help me file this?

[mesquitebean]

@kboucher0
You may or may not get any response in this old already-answered thread from last year.  It won't show up to the whole forum as needing help, and I haven't seen the original responder above posting this year.   If you don't get an answer, you should start your own new thread at the link below so it will show up to the whole forum as needing help.

When you go to the form at the link, the first box is for a summary of your question, like a title, and is limited to 170 characters..  Lower on the form you will come to another box with plenty of room to enter details.    This is a public Internet forum, so don't post any personal info.

<a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/new">https://ttlc.intuit.com/questions/new</a>

[steenblikrs]

This is an important question, if you are not able to answer it in this thread it will mean that many people will not actually get the real answer to the followup question, which clarifies the original question.  The clarified answer will at least determine weather I am or am not using TurboTax for my foreign tax issues.

Thanks for responding.

[mesquitebean]

@ steenblikrs 

This entire thread is a year or two old.   It was transferred into this new forum in early June along with all the other old threads when this new forum started.  Unfortunately they were all given the date as of the "transfer date" instead of the original posting date.   That's why my link above doesn't work since it links to a page in the old forum.

I'm going to ask someone familiar with international filing to assist you in this thread, but they are going to need to understand your situation.   So in the interest of time you need to explain your situation in full to lessen the amount of questions you'll need to be asked.

@pk  Are you please able to assist this user with a foreign income exclusion question when you are next in the forum?   Thanks!

[tagteam]

@pk [no simultaneous post warning!] 

[pk]

The treatment to ameliorate double taxation of foreign income, really depends on your longer term plans.  Let me explain :

(a) you as a US citizen/resident ( Green Card ) worked in the USA for 8 months  -- Jan 1st through Aug. 30th.. 2018

(b) you then moved to country A and worked for the rest of tax year , employed by a local subsidiary of your US employer  ( thus a local entity).

(c) You then move to country B and continue to work there for the rest of the following year 2019

In such a case  you will not pass the  Physical Presence Test till Aug 31st of 2019.  Hence  your best option  is to ask for an extension and file your 2018 return  ONLY after you pass the Physical Presence test.  Your test period is September 1st. 2018 through Aug 31st. 2019  ( you start counting the 365 days  from the first full day you are abroad - since you arrive on 31st. of August, that day does not count ).  This means you get to exclude  approx. 4 months  worth of  actual or  allowable maximum annual  limit  of foreign earned income.

In another case , same as above except  that on Jan 1st. 2019  you return to the USA and thus will not have a chance to meet the above exclusion scenario ( Physical Presence  Test.).  In such a case you file as normal your 2018 return, include your foreign income as foreign income ( not US sourced --W-2 ) and apply for foreign tax credit using form 1116.  Or you can use schedule -A and deduct the foreign tax under State & local Tax,  The problem with the former ( tax credit ) is that while the foreign tax credit is recognized  in full but only a portion is allowable ( based on a ratio of foreign income to world income )-- the un-allowed  portion of the credit  can be carried forward but to use it you still must have foreign income.  The issue with deduction is that the  2018 TCJA, limits the SALT to $10,000 and therefore may not be very useful.

Does this answer your query or do you need more help ?  If you need more focused  answer please provide more details of your situation  ( e.g your longer term plan, employer abroad, how paid, connection to USA etc. )

[TMP]

If you will be out of US for more than 330 days, and it is spread across two years, then file extensions/don't file your taxes until the 330 day time frame is met. Use those dates as your 12 month period. Your foreign income in the first year 4 months of employment (last 4 months of the year) would be the 4 months of that year divided by the number of days in the year, or 122 / 365 = 33.42%. 33.42% of the maximum foreign earnings exclusion would be your maximum for that year. So for 2017 the maximum was 102,100. Your maximum amount that could be excluded would be 102,100 x 33.42% = 34,121.  Your 12 month periods can overlap, so for the next year you could start at 1/1 or wherever to get you the most income excluded. You may want to Google Foreign Earned Income Exclusion-Physical Presence Test too. 

[randy2]

If you meet the 330 day test over two different calendar years, does that qualify ALL of the income earned in the second calendar year to be excluded, or does it only include the income earned in the months included in the 12 month period? Example: July 1 2018 to June 30 2019 meets the 330 day test, but the period January to December 2019 does NOT meet the 330 day test -- do they get the entire year excluded, or only January to June 30 excluded, and the other foreign income earned from July 1 2019 to December 31 2019 is taxed in the U.S?

[ThomasM125]

The maximum exclusion amount for 2019 is $105,900. If you are away for only a portion of the year, then you multiply that amount by the percentage of time you are away to determine the adjusted exclusion for that year.

So, if you were away for half of 2019, then you can exclude up to $52,950 of foreign income, which is half of the full amount. In the next year or previous year, you can then exclude the other half in that year.

[thefinneran]

My wife has been working overseas since May 1 2019, and will likely be there through October 31 2020 - a period of 18 months.

Can we claim overseas residency for her for:

1. The 2019 tax year by using 330 days from May 1 2019 - April 30 2020, and then also

2. The 2020 tax year by using 330 days from November 1 2019 - October 30 2020?

The income for which this applies will obviously only be applicable to one tax year or the other, but I recall reading somewhere that as long as the 330 day period was met and at least some of the time was in the tax year in question, the time period which justifies the 330 days for residency could overlap with another tax year's residency period?

Thank you,

[MaryK4]

Yes, the time frame can be a sliding scale- however, you can only exclude the income for the qualifying time period for the year.  In your case, you want to use the dates you have listed to get the maximum exlcusion.

@thefinneran

[Ducati1098]

I have a question. I think you have already answered it but I am a little confused. 

I am a US citizen. I started working abroad July 17th 2018. I continuously met the 330 day out of country and have been exempt from paying taxes. My employment may end either November 31st 2020 or March 30th 2021. Am I required to have 3 block years (12 month periods) to be tax exempt? If I only worked 2.5 years abroad or just came short of the 3 year mark, would I owe taxes? 

[pk]

@Ducati1098 from your post what I get is the following

(a) Arrived at a foreign country --- Jul/17/2018 ; returned to the USA 12/01/2020 ---- this would mean that your 12 month test periods ( for meeting the 330 days away out of 365 day year) are as follows---

1. 07/17/2018  till 07/16/2019 for excluding the  2018 foreign earned income;  

2. 01/01/2019  till 12/31/2019 for excluding all of 2019 foreign earned income;  

3.  11/29/2019 till 11/30/ 2020 for excluding all the  foreign earned income till 11/30/2020

(b) arrived  at a foreign country -- July 17th. 2018 ;  returned to USA  03/31/2020 -- this would mean

4. same as above for 2018, 2019 .  

5.  test period of  01/01/2020  till 12/31/2020 for excluding all foreign income earned  in 2020

6. test period of 03/31/2020 till 03/30/2021 for excluding all foreign earned income in 2021.

Does this answer your question?

stay safe 

pk