U.S. Foreign Earned Income Exclusion for U.S. Expatriates

To take advantage of the U.S. Earned Income Exclusion for U.S. personals living abroad you must meet either the Bona Fide Residence Test or the Physical Presence Test.

Bona Fide Residence Test

To meet the bona fide residence, test the taxpayer must (1) be a U.S. citizen or a U.S. resident who is a citizen of a country with which the U.S. has a tax treaty with a nondiscrimination clause and (2) be a bona fide resident of a foreign country or countries for an uninterrupted period that includes one full tax year (generally January 1-December 31). U.S. resident aliens who are citizens of foreign countries without a tax treaty clause must use the physical presence test discussed in the next section. See the List of U.S. Income Tax Treaties for countries with which the U.S. has tax treaties.

Establishing bona fide residence is determined based on the facts and circumstances of each individual’s case. See the table at the bottom of the page outlining the factors used to determine Bona Fide Residency.

Physical Presence Test

Taxpayers meet the physical presence test if they are physically present in a foreign country or countries for 330 full 24-hour days in a period of 12 consecutive months. The days do not have to be consecutive, nor does the 12-month period need to begin on the first day of the month. The days can be for any reason, not only for employment purposes. Vacation days count.

A full day is a 24-hour period beginning at midnight. The following rules apply when determining whether a day counts as a full foreign day:

Travel to or from the U.S. over international waters is considered a U.S. day.

• Travel from the U.S. in which the taxpayer passes over a foreign country before midnight, the day after departure from the U.S., is considered a foreign day.
• Travel between foreign countries that takes less than 24 hours counts as a full foreign day.
• Travel between foreign countries that takes more than 24 hours counts as a U.S. day.
• Travel between foreign countries that includes a short stop in the U.S. (less than 24 hours) is considered a full foreign day.

Travel to a foreign country in violation of U.S. law will not count as a foreign day. Currently, the only restricted country is Cuba. However, Guantanamo Bay is not included in this restriction.