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Vita Irs

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Vita Irs

Vita irs 4. Vita irs   Foreign Earned Income and Housing: Exclusion – Deduction Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Who Qualifies for the Exclusions and the Deduction? RequirementsTax Home in Foreign Country Bona Fide Residence Test Physical Presence Test Waiver of Time Requirements U. Vita irs S. Vita irs Travel Restrictions Foreign Earned Income Foreign Earned Income ExclusionLimit on Excludable Amount Choosing the Exclusion Foreign Housing Exclusion and DeductionHousing Amount Foreign Housing Exclusion Foreign Housing Deduction Married Couples Form 2555 and Form 2555-EZForm 2555-EZ Form 2555 Topics - This chapter discusses: Who qualifies for the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction, The requirements that must be met to claim either exclusion or the deduction, How to figure the foreign earned income exclusion, and How to figure the foreign housing exclusion and the foreign housing deduction. Vita irs Useful Items - You may want to see: Publication 519 U. Vita irs S. Vita irs Tax Guide for Aliens 570 Tax Guide for Individuals With Income from U. Vita irs S. Vita irs Possessions 596 Earned Income Credit (EIC) Form (and Instructions) 1040X Amended U. Vita irs S. Vita irs Individual Income Tax Return 2555 Foreign Earned Income 2555-EZ Foreign Earned Income Exclusion See chapter 7 for information about getting these publications and forms. Vita irs Who Qualifies for the Exclusions and the Deduction? If you meet certain requirements, you may qualify for the foreign earned income and foreign housing exclusions and the foreign housing deduction. Vita irs If you are a U. Vita irs S. Vita irs citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. Vita irs However, you may qualify to exclude from income up to $97,600 of your foreign earnings. Vita irs In addition, you can exclude or deduct certain foreign housing amounts. Vita irs See Foreign Earned Income Exclusion and Foreign Housing Exclusion and Deduction, later. Vita irs You also may be entitled to exclude from income the value of meals and lodging provided to you by your employer. Vita irs See Exclusion of Meals and Lodging, later. Vita irs Requirements To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must meet all three of the following requirements. Vita irs Your tax home must be in a foreign country. Vita irs You must have foreign earned income. Vita irs You must be one of the following. Vita irs A U. Vita irs S. Vita irs citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. Vita irs A U. Vita irs S. Vita irs resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. Vita irs A U. Vita irs S. Vita irs citizen or a U. Vita irs S. Vita irs resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months. Vita irs See Publication 519 to find out if you are a U. Vita irs S. Vita irs resident alien for tax purposes and whether you keep that alien status when you temporarily work abroad. Vita irs If you are a nonresident alien married to a U. Vita irs S. Vita irs citizen or resident alien, and both you and your spouse choose to treat you as a resident alien, you are a resident alien for tax purposes. Vita irs For information on making the choice, see the discussion in chapter 1 under Nonresident Alien Spouse Treated as a Resident . Vita irs Waiver of minimum time requirements. Vita irs   The minimum time requirements for bona fide residence and physical presence can be waived if you must leave a foreign country because of war, civil unrest, or similar adverse conditions in that country. Vita irs This is fully explained under Waiver of Time Requirements , later. Vita irs   See Figure 4-A and information in this chapter to determine if you are eligible to claim either exclusion or the deduction. Vita irs Tax Home in Foreign Country To qualify for the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, your tax home must be in a foreign country throughout your period of bona fide residence or physical presence abroad. Vita irs Bona fide residence and physical presence are explained later. Vita irs Tax Home Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. Vita irs Your tax home is the place where you are permanently or indefinitely engaged to work as an employee or self-employed individual. Vita irs Having a “tax home” in a given location does not necessarily mean that the given location is your residence or domicile for tax purposes. Vita irs If you do not have a regular or main place of business because of the nature of your work, your tax home may be the place where you regularly live. Vita irs If you have neither a regular or main place of business nor a place where you regularly live, you are considered an itinerant and your tax home is wherever you work. Vita irs You are not considered to have a tax home in a foreign country for any period in which your abode is in the United States. Vita irs However, your abode is not necessarily in the United States while you are temporarily in the United States. Vita irs Your abode is also not necessarily in the United States merely because you maintain a dwelling in the United States, whether or not your spouse or dependents use the dwelling. Vita irs “Abode” has been variously defined as one's home, habitation, residence, domicile, or place of dwelling. Vita irs It does not mean your principal place of business. Vita irs “Abode” has a domestic rather than a vocational meaning and does not mean the same as “tax home. Vita irs ” The location of your abode often will depend on where you maintain your economic, family, and personal ties. Vita irs Example 1. Vita irs You are employed on an offshore oil rig in the territorial waters of a foreign country and work a 28-day on/28-day off schedule. Vita irs You return to your family residence in the United States during your off periods. Vita irs You are considered to have an abode in the United States and do not satisfy the tax home test in the foreign country. Vita irs You cannot claim either of the exclusions or the housing deduction. Vita irs Example 2. Vita irs For several years, you were a marketing executive with a producer of machine tools in Toledo, Ohio. Vita irs In November of last year, your employer transferred you to London, England, for a minimum of 18 months to set up a sales operation for Europe. Vita irs Before you left, you distributed business cards showing your business and home addresses in London. Vita irs You kept ownership of your home in Toledo but rented it to another family. Vita irs You placed your car in storage. Vita irs In November of last year, you moved your spouse, children, furniture, and family pets to a home your employer rented for you in London. Vita irs Shortly after moving, you leased a car and you and your spouse got British driving licenses. Vita irs Your entire family got library cards for the local public library. Vita irs You and your spouse opened bank accounts with a London bank and secured consumer credit. Vita irs You joined a local business league and both you and your spouse became active in the neighborhood civic association and worked with a local charity. Vita irs Your abode is in London for the time you live there. Vita irs You satisfy the tax home test in the foreign country. Vita irs Please click here for the text description of the image. Vita irs Figure 4–A Can I Claim the Exclusion or Deduction? Temporary or Indefinite Assignment The location of your tax home often depends on whether your assignment is temporary or indefinite. Vita irs If you are temporarily absent from your tax home in the United States on business, you may be able to deduct your away-from-home expenses (for travel, meals, and lodging), but you would not qualify for the foreign earned income exclusion. Vita irs If your new work assignment is for an indefinite period, your new place of employment becomes your tax home and you would not be able to deduct any of the related expenses that you have in the general area of this new work assignment. Vita irs If your new tax home is in a foreign country and you meet the other requirements, your earnings may qualify for the foreign earned income exclusion. Vita irs If you expect your employment away from home in a single location to last, and it does last, for 1 year or less, it is temporary unless facts and circumstances indicate otherwise. Vita irs If you expect it to last for more than 1 year, it is indefinite. Vita irs If you expect it to last for 1 year or less, but at some later date you expect it to last longer than 1 year, it is temporary (in the absence of facts and circumstances indicating otherwise) until your expectation changes. Vita irs Once your expectation changes, it is indefinite. Vita irs Foreign Country To meet the bona fide residence test or the physical presence test, you must live in or be present in a foreign country. Vita irs A foreign country includes any territory under the sovereignty of a government other than that of the United States. Vita irs The term “foreign country” includes the country's airspace and territorial waters, but not international waters and the airspace above them. Vita irs It also includes the seabed and subsoil of those submarine areas adjacent to the country's territorial waters over which it has exclusive rights under international law to explore and exploit the natural resources. Vita irs The term “foreign country” does not include Antarctica or U. Vita irs S. Vita irs possessions such as Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, the U. Vita irs S. Vita irs Virgin Islands, and Johnston Island. Vita irs For purposes of the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction, the terms “foreign,” “abroad,” and “overseas” refer to areas outside the United States and those areas listed or described in the previous sentence. Vita irs American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands Residence or presence in a U. Vita irs S. Vita irs possession does not qualify you for the foreign earned income exclusion. Vita irs You may, however, qualify for an exclusion of your possession income on your U. Vita irs S. Vita irs return. Vita irs American Samoa. Vita irs   There is a possession exclusion available to individuals who are bona fide residents of American Samoa for the entire tax year. Vita irs Gross income from sources within American Samoa may be eligible for this exclusion. Vita irs Income that is effectively connected with the conduct of a trade or business within American Samoa also may be eligible for this exclusion. Vita irs Use Form 4563, Exclusion of Income for Bona Fide Residents of American Samoa, to figure the exclusion. Vita irs Guam and the Commonwealth of the Northern Mariana Islands. Vita irs   An exclusion will be available to residents of Guam and the Commonwealth of the Northern Mariana Islands if, and when, new implementation agreements take effect between the United States and those possessions. Vita irs   For more information, see Publication 570. Vita irs Puerto Rico and U. Vita irs S. Vita irs Virgin Islands Residents of Puerto Rico and the U. Vita irs S. Vita irs Virgin Islands cannot claim the foreign earned income exclusion or the foreign housing exclusion. Vita irs Puerto Rico. Vita irs   Generally, if you are a U. Vita irs S. Vita irs citizen who is a bona fide resident of Puerto Rico for the entire tax year, you are not subject to U. Vita irs S. Vita irs tax on income from Puerto Rican sources. Vita irs This does not include amounts paid for services performed as an employee of the United States. Vita irs However, you are subject to U. Vita irs S. Vita irs tax on your income from sources outside Puerto Rico. Vita irs In figuring your U. Vita irs S. Vita irs tax, you cannot deduct expenses allocable to income not subject to tax. Vita irs Bona Fide Residence Test You meet the bona fide residence test if you are a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. Vita irs You can use the bona fide residence test to qualify for the exclusions and the deduction only if you are either: A U. Vita irs S. Vita irs citizen, or A U. Vita irs S. Vita irs resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect. Vita irs You do not automatically acquire bona fide resident status merely by living in a foreign country or countries for 1 year. Vita irs If you go to a foreign country to work on a particular job for a specified period of time, you ordinarily will not be regarded as a bona fide resident of that country even though you work there for 1 tax year or longer. Vita irs The length of your stay and the nature of your job are only two of the factors to be considered in determining whether you meet the bona fide residence test. Vita irs Bona fide residence. Vita irs   To meet the bona fide residence test, you must have established a bona fide residence in a foreign country. Vita irs   Your bona fide residence is not necessarily the same as your domicile. Vita irs Your domicile is your permanent home, the place to which you always return or intend to return. Vita irs Example. Vita irs You could have your domicile in Cleveland, Ohio, and a bona fide residence in Edinburgh, Scotland, if you intend to return eventually to Cleveland. Vita irs The fact that you go to Scotland does not automatically make Scotland your bona fide residence. Vita irs If you go there as a tourist, or on a short business trip, and return to the United States, you have not established bona fide residence in Scotland. Vita irs But if you go to Scotland to work for an indefinite or extended period and you set up permanent quarters there for yourself and your family, you probably have established a bona fide residence in a foreign country, even though you intend to return eventually to the United States. Vita irs You are clearly not a resident of Scotland in the first instance. Vita irs However, in the second, you are a resident because your stay in Scotland appears to be permanent. Vita irs If your residency is not as clearly defined as either of these illustrations, it may be more difficult to decide whether you have established a bona fide residence. Vita irs Determination. Vita irs   Questions of bona fide residence are determined according to each individual case, taking into account factors such as your intention, the purpose of your trip, and the nature and length of your stay abroad. Vita irs   To meet the bona fide residence test, you must show the Internal Revenue Service (IRS) that you have been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. Vita irs The IRS decides whether you are a bona fide resident of a foreign country largely on the basis of facts you report on Form 2555. Vita irs IRS cannot make this determination until you file Form 2555. Vita irs Statement to foreign authorities. Vita irs   You are not considered a bona fide resident of a foreign country if you make a statement to the authorities of that country that you are not a resident of that country, and the authorities: Hold that you are not subject to their income tax laws as a resident, or Have not made a final decision on your status. Vita irs Special agreements and treaties. Vita irs   An income tax exemption provided in a treaty or other international agreement will not in itself prevent you from being a bona fide resident of a foreign country. Vita irs Whether a treaty prevents you from becoming a bona fide resident of a foreign country is determined under all provisions of the treaty, including specific provisions relating to residence or privileges and immunities. Vita irs Example 1. Vita irs You are a U. Vita irs S. Vita irs citizen employed in the United Kingdom by a U. Vita irs S. Vita irs employer under contract with the U. Vita irs S. Vita irs Armed Forces. Vita irs You are not subject to the North Atlantic Treaty Status of Forces Agreement. Vita irs You may be a bona fide resident of the United Kingdom. Vita irs Example 2. Vita irs You are a U. Vita irs S. Vita irs citizen in the United Kingdom who qualifies as an “employee” of an armed service or as a member of a “civilian component” under the North Atlantic Treaty Status of Forces Agreement. Vita irs You are not a bona fide resident of the United Kingdom. Vita irs Example 3. Vita irs You are a U. Vita irs S. Vita irs citizen employed in Japan by a U. Vita irs S. Vita irs employer under contract with the U. Vita irs S. Vita irs Armed Forces. Vita irs You are subject to the agreement of the Treaty of Mutual Cooperation and Security between the United States and Japan. Vita irs Being subject to the agreement does not make you a bona fide resident of Japan. Vita irs Example 4. Vita irs You are a U. Vita irs S. Vita irs citizen employed as an “official” by the United Nations in Switzerland. Vita irs You are exempt from Swiss taxation on the salary or wages paid to you by the United Nations. Vita irs This does not prevent you from being a bona fide resident of Switzerland. Vita irs Effect of voting by absentee ballot. Vita irs   If you are a U. Vita irs S. Vita irs citizen living abroad, you can vote by absentee ballot in any election held in the United States without risking your status as a bona fide resident of a foreign country. Vita irs   However, if you give information to the local election officials about the nature and length of your stay abroad that does not match the information you give for the bona fide residence test, the information given in connection with absentee voting will be considered in determining your status, but will not necessarily be conclusive. Vita irs Uninterrupted period including entire tax year. Vita irs   To meet the bona fide residence test, you must reside in a foreign country or countries for an uninterrupted period that includes an entire tax year. Vita irs An entire tax year is from January 1 through December 31 for taxpayers who file their income tax returns on a calendar year basis. Vita irs   During the period of bona fide residence in a foreign country, you can leave the country for brief or temporary trips back to the United States or elsewhere for vacation or business. Vita irs To keep your status as a bona fide resident of a foreign country, you must have a clear intention of returning from such trips, without unreasonable delay, to your foreign residence or to a new bona fide residence in another foreign country. Vita irs Example 1. Vita irs You arrived with your family in Lisbon, Portugal, on November 1, 2011. Vita irs Your assignment is indefinite, and you intend to live there with your family until your company sends you to a new post. Vita irs You immediately established residence there. Vita irs You spent April of 2012 at a business conference in the United States. Vita irs Your family stayed in Lisbon. Vita irs Immediately following the conference, you returned to Lisbon and continued living there. Vita irs On January 1, 2013, you completed an uninterrupted period of residence for a full tax year (2012), and you meet the bona fide residence test. Vita irs Example 2. Vita irs Assume the same facts as in Example 1, except that you transferred back to the United States on December 13, 2012. Vita irs You would not meet the bona fide residence test because your bona fide residence in the foreign country, although it lasted more than a year, did not include a full tax year. Vita irs You may, however, qualify for the foreign earned income exclusion or the housing exclusion or deduction under the physical presence test (discussed later). Vita irs Bona fide resident for part of a year. Vita irs   Once you have established bona fide residence in a foreign country for an uninterrupted period that includes an entire tax year, you are a bona fide resident of that country for the period starting with the date you actually began the residence and ending with the date you abandon the foreign residence. Vita irs Your period of bona fide residence can include an entire tax year plus parts of 2 other tax years. Vita irs Example. Vita irs You were a bona fide resident of Singapore from March 1, 2011, through September 14, 2013. Vita irs On September 15, 2013, you returned to the United States. Vita irs Since you were a bona fide resident of a foreign country for all of 2012, you were also a bona fide resident of a foreign country from March 1, 2011, through the end of 2011 and from January 1, 2013, through September 14, 2013. Vita irs Reassignment. Vita irs   If you are assigned from one foreign post to another, you may or may not have a break in foreign residence between your assignments, depending on the circumstances. Vita irs Example 1. Vita irs You were a resident of Pakistan from October 1, 2012, through November 30, 2013. Vita irs On December 1, 2013, you and your family returned to the United States to wait for an assignment to another foreign country. Vita irs Your household goods also were returned to the United States. Vita irs Your foreign residence ended on November 30, 2013, and did not begin again until after you were assigned to another foreign country and physically entered that country. Vita irs Since you were not a bona fide resident of a foreign country for the entire tax year of 2012 or 2013 you do not meet the bona fide residence test in either year. Vita irs You may, however, qualify for the foreign earned income exclusion or the housing exclusion or deduction under the physical presence test, discussed later. Vita irs Example 2. Vita irs Assume the same facts as in Example 1, except that upon completion of your assignment in Pakistan you were given a new assignment to Turkey. Vita irs On December 1, 2013, you and your family returned to the United States for a month's vacation. Vita irs On January 2, 2014, you arrived in Turkey for your new assignment. Vita irs Because you did not interrupt your bona fide residence abroad, you meet the bona fide residence test. Vita irs Physical Presence Test You meet the physical presence test if you are physically present in a foreign country or countries 330 full days during a period of 12 consecutive months. Vita irs The 330 days do not have to be consecutive. Vita irs Any U. Vita irs S. Vita irs citizen or resident alien can use the physical presence test to qualify for the exclusions and the deduction. Vita irs The physical presence test is based only on how long you stay in a foreign country or countries. Vita irs This test does not depend on the kind of residence you establish, your intentions about returning, or the nature and purpose of your stay abroad. Vita irs 330 full days. Vita irs   Generally, to meet the physical presence test, you must be physically present in a foreign country or countries for at least 330 full days during a 12-month period. Vita irs You can count days you spent abroad for any reason. Vita irs You do not have to be in a foreign country only for employment purposes. Vita irs You can be on vacation. Vita irs   You do not meet the physical presence test if illness, family problems, a vacation, or your employer's orders cause you to be present for less than the required amount of time. Vita irs Exception. Vita irs   You can be physically present in a foreign country or countries for less than 330 full days and still meet the physical presence test if you are required to leave a country because of war or civil unrest. Vita irs See Waiver of Time Requirements, later. Vita irs Full day. Vita irs   A full day is a period of 24 consecutive hours, beginning at midnight. Vita irs Travel. Vita irs    When you leave the United States to go directly to a foreign country or when you return directly to the United States from a foreign country, the time you spend on or over international waters does not count toward the 330-day total. Vita irs Example. Vita irs You leave the United States for France by air on June 10. Vita irs You arrive in France at 9:00 a. Vita irs m. Vita irs on June 11. Vita irs Your first full day of physical presence in France is June 12. Vita irs Passing over foreign country. Vita irs   If, in traveling from the United States to a foreign country, you pass over a foreign country before midnight of the day you leave, the first day you can count toward the 330-day total is the day following the day you leave the United States. Vita irs Example. Vita irs You leave the United States by air at 9:30 a. Vita irs m. Vita irs on June 10 to travel to Kenya. Vita irs You pass over western Africa at 11:00 p. Vita irs m. Vita irs on June 10 and arrive in Kenya at 12:30 a. Vita irs m. Vita irs on June 11. Vita irs Your first full day in a foreign country is June 11. Vita irs Change of location. Vita irs   You can move about from one place to another in a foreign country or to another foreign country without losing full days. Vita irs If any part of your travel is not within any foreign country and takes less than 24 hours, you are considered to be in a foreign country during that part of travel. Vita irs Example 1. Vita irs You leave Ireland by air at 11:00 p. Vita irs m. Vita irs on July 6 and arrive in Sweden at 5:00 a. Vita irs m. Vita irs on July 7. Vita irs Your trip takes less than 24 hours and you lose no full days. Vita irs Example 2. Vita irs You leave Norway by ship at 10:00 p. Vita irs m. Vita irs on July 6 and arrive in Portugal at 6:00 a. Vita irs m. Vita irs on July 8. Vita irs Since your travel is not within a foreign country or countries and the trip takes more than 24 hours, you lose as full days July 6, 7, and 8. Vita irs If you remain in Portugal, your next full day in a foreign country is July 9. Vita irs In United States while in transit. Vita irs   If you are in transit between two points outside the United States and are physically present in the United States for less than 24 hours, you are not treated as present in the United States during the transit. Vita irs You are treated as traveling over areas not within any foreign country. Vita irs    Please click here for the text description of the image. Vita irs Figure 4-B How to figure the 12-month period. Vita irs   There are four rules you should know when figuring the 12-month period. Vita irs Your 12-month period can begin with any day of the month. Vita irs It ends the day before the same calendar day, 12 months later. Vita irs Your 12-month period must be made up of consecutive months. Vita irs Any 12-month period can be used if the 330 days in a foreign country fall within that period. Vita irs You do not have to begin your 12-month period with your first full day in a foreign country or end it with the day you leave. Vita irs You can choose the 12-month period that gives you the greatest exclusion. Vita irs In determining whether the 12-month period falls within a longer stay in the foreign country, 12-month periods can overlap one another. Vita irs Example 1. Vita irs You are a construction worker who works on and off in a foreign country over a 20-month period. Vita irs You might pick up the 330 full days in a 12-month period only during the middle months of the time you work in the foreign country because the first few and last few months of the 20-month period are broken up by long visits to the United States. Vita irs Example 2. Vita irs You work in New Zealand for a 20-month period from January 1, 2012, through August 31, 2013, except that you spend 28 days in February 2012 and 28 days in February 2013 on vacation in the United States. Vita irs You are present in New Zealand for at least 330 full days during each of the following two 12-month periods: January 1, 2012 – December 31, 2012 and September 1, 2012 – August 31, 2013. Vita irs By overlapping the 12-month periods in this way, you meet the physical presence test for the whole 20-month period. Vita irs See Figure 4-B, on the previous page. Vita irs Waiver of Time Requirements Both the bona fide residence test and the physical presence test contain minimum time requirements. Vita irs The minimum time requirements can be waived, however, if you must leave a foreign country because of war, civil unrest, or similar adverse conditions in that country. Vita irs You must be able to show that you reasonably could have expected to meet the minimum time requirements if not for the adverse conditions. Vita irs To qualify for the waiver, you must actually have your tax home in the foreign country and be a bona fide resident of, or be physically present in, the foreign country on or before the beginning date of the waiver. Vita irs Early in 2014, the IRS will publish in the Internal Revenue Bulletin a list of the only countries that qualify for the waiver for 2013 and the effective dates. Vita irs If you left one of the countries on or after the date listed for each country, you can meet the bona fide residence test or physical presence test for 2013 without meeting the minimum time requirement. Vita irs However, in figuring your exclusion, the number of your qualifying days of bona fide residence or physical presence includes only days of actual residence or presence within the country. Vita irs U. Vita irs S. Vita irs Travel Restrictions If you are present in a foreign country in violation of U. Vita irs S. Vita irs law, you will not be treated as a bona fide resident of a foreign country or as physically present in a foreign country while you are in violation of the law. Vita irs Income that you earn from sources within such a country for services performed during a period of violation does not qualify as foreign earned income. Vita irs Your housing expenses within that country (or outside that country for housing your spouse or dependents) while you are in violation of the law cannot be included in figuring your foreign housing amount. Vita irs For 2013, the only country to which travel restrictions applied was Cuba. Vita irs The restrictions applied for the entire year. Vita irs However, individuals working at the U. Vita irs S. Vita irs Naval Base at Guantanamo Bay in Cuba are not in violation of U. Vita irs S. Vita irs law. Vita irs Personal service income earned by individuals at the base is eligible for the foreign earned income exclusion provided the other requirements are met. Vita irs Foreign Earned Income To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must have foreign earned income. Vita irs Foreign earned income generally is income you receive for services you perform during a period in which you meet both of the following requirements. Vita irs Your tax home is in a foreign country. Vita irs You meet either the bona fide residence test or the physical presence test. Vita irs To determine whether your tax home is in a foreign country, see Tax Home in Foreign Country, earlier. Vita irs To determine whether you meet either the bona fide residence test or the physical presence test, see Bona Fide Residence Test and Physical Presence Test, earlier. Vita irs Foreign earned income does not include the following amounts. Vita irs The value of meals and lodging that you exclude from your income because the meals and lodging were furnished for the convenience of your employer. Vita irs Pension or annuity payments you receive, including social security benefits (see Pensions and annuities, later). Vita irs Pay you receive as an employee of the U. Vita irs S. Vita irs Government. Vita irs (See U. Vita irs S. Vita irs Government Employees, later. Vita irs ) Amounts you include in your income because of your employer's contributions to a nonexempt employee trust or to a nonqualified annuity contract. Vita irs Any unallowable moving expense deduction that you choose to recapture as explained under Moving Expense Attributable to Foreign Earnings in 2 Years in chapter 5. Vita irs Payments you receive after the end of the tax year following the tax year in which you performed the services that earned the income. Vita irs Earned income. Vita irs   This is pay for personal services performed, such as wages, salaries, or professional fees. Vita irs The list that follows classifies many types of income into three categories. Vita irs The column headed Variable Income lists income that may fall into either the earned income category, the unearned income category, or partly into both. Vita irs For more information on earned and unearned income, see Earned and Unearned Income, later. Vita irs Earned Income Unearned Income Variable Income Salaries and wages Dividends Business profits Commissions Interest Royalties Bonuses Capital gains Rents Professional fees Gambling winnings Scholarships and fellowships Tips Alimony     Social security benefits     Pensions     Annuities     In addition to the types of earned income listed, certain noncash income and allowances or reimbursements are considered earned income. Vita irs Noncash income. Vita irs   The fair market value of property or facilities provided to you by your employer in the form of lodging, meals, or use of a car is earned income. Vita irs Allowances or reimbursements. Vita irs   Earned income includes allowances or reimbursements you receive, such as the following amounts. Vita irs    Cost-of-living allowances. Vita irs Overseas differential. Vita irs Family allowance. Vita irs Reimbursement for education or education allowance. Vita irs Home leave allowance. Vita irs Quarters allowance. Vita irs Reimbursement for moving or moving allowance (unless excluded from income as discussed later in Reimbursement of employee expenses under Earned and Unearned Income). Vita irs Source of Earned Income The source of your earned income is the place where you perform the services for which you received the income. Vita irs Foreign earned income is income you receive for working in a foreign country. Vita irs Where or how you are paid has no effect on the source of the income. Vita irs For example, income you receive for work done in Austria is income from a foreign source even if the income is paid directly to your bank account in the United States and your employer is located in New York City. Vita irs Example. Vita irs You are a U. Vita irs S. Vita irs citizen, a bona fide resident of Canada, and working as a mining engineer. Vita irs Your salary is $76,800 per year. Vita irs You also receive a $6,000 cost-of-living allowance, and a $6,000 education allowance. Vita irs Your employment contract did not indicate that you were entitled to these allowances only while outside the United States. Vita irs Your total income is $88,800. Vita irs You work a 5-day week, Monday through Friday. Vita irs After subtracting your vacation, you have a total of 240 workdays in the year. Vita irs You worked in the United States during the year for 6 weeks (30 workdays). Vita irs The following shows how to figure the part of your income that is for work done in Canada during the year. Vita irs   Number of days worked in Canada during the year (210) × Total income ($88,800) = $77,700     Number of days of work during the year for which payment was made (240)   Your foreign source earned income is $77,700. Vita irs Earned and Unearned Income Earned income was defined earlier as pay for personal services performed. Vita irs Some types of income are not easily identified as earned or unearned income. Vita irs Some of these types of income are further explained here. Vita irs Income from a sole proprietorship or partnership. Vita irs   Income from a business in which capital investment is an important part of producing the income may be unearned income. Vita irs If you are a sole proprietor or partner and your personal services are also an important part of producing the income, the part of the income that represents the value of your personal services will be treated as earned income. Vita irs Capital a factor. Vita irs   If capital investment is an important part of producing income, no more than 30% of your share of the net profits of the business is earned income. Vita irs   If you have no net profits, the part of your gross profit that represents a reasonable allowance for personal services actually performed is considered earned income. Vita irs Because you do not have a net profit, the 30% limit does not apply. Vita irs Example 1. Vita irs You are a U. Vita irs S. Vita irs citizen and meet the bona fide residence test. Vita irs You invest in a partnership based in Cameroon that is engaged solely in selling merchandise outside the United States. Vita irs You perform no services for the partnership. Vita irs At the end of the tax year, your share of the net profits is $80,000. Vita irs The entire $80,000 is unearned income. Vita irs Example 2. Vita irs Assume that in Example 1 you spend time operating the business. Vita irs Your share of the net profits is $80,000; 30% of your share of the profits is $24,000. Vita irs If the value of your services for the year is $15,000, your earned income is limited to the value of your services, $15,000. Vita irs Capital not a factor. Vita irs   If capital is not an income-producing factor and personal services produce the business income, the 30% rule does not apply. Vita irs The entire amount of business income is earned income. Vita irs Example. Vita irs You and Lou Green are management consultants and operate as equal partners in performing services outside the United States. Vita irs Because capital is not an income- producing factor, all the income from the partnership is considered earned income. Vita irs Income from a corporation. Vita irs   The salary you receive from a corporation is earned income only if it represents a reasonable allowance as compensation for work you do for the corporation. Vita irs Any amount over what is considered a reasonable salary is unearned income. Vita irs Example 1. Vita irs You are a U. Vita irs S. Vita irs citizen and an officer and stockholder of a corporation in Honduras. Vita irs You perform no work or service of any kind for the corporation. Vita irs During the tax year you receive a $10,000 “salary” from the corporation. Vita irs The $10,000 clearly is not for personal services and is unearned income. Vita irs Example 2. Vita irs You are a U. Vita irs S. Vita irs citizen and work full time as secretary-treasurer of your corporation. Vita irs During the tax year you receive $100,000 as salary from the corporation. Vita irs If $80,000 is a reasonable allowance as pay for the work you did, then $80,000 is earned income. Vita irs Stock options. Vita irs   You may have earned income if you disposed of stock that you got by exercising a stock option granted to you under an employee stock purchase plan. Vita irs   If your gain on the disposition of stock you got by exercising an option is treated as capital gain, your gain is unearned income. Vita irs   However, if you disposed of the stock less than 2 years after you were granted the option or less than 1 year after you got the stock, part of the gain on the disposition may be earned income. Vita irs It is considered received in the year you disposed of the stock and earned in the year you performed the services for which you were granted the option. Vita irs Any part of the earned income that is due to work you did outside the United States is foreign earned income. Vita irs   See Publication 525, Taxable and Nontaxable Income, for a discussion of the treatment of stock options. Vita irs Pensions and annuities. Vita irs    For purposes of the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction, amounts received as pensions or annuities are unearned income. Vita irs Royalties. Vita irs   Royalties from the leasing of oil and mineral lands and patents generally are a form of rent or dividends and are unearned income. Vita irs   Royalties received by a writer are earned income if they are received: For the transfer of property rights of the writer in the writer's product, or Under a contract to write a book or series of articles. Vita irs Rental income. Vita irs   Generally, rental income is unearned income. Vita irs If you perform personal services in connection with the production of rent, up to 30% of your net rental income can be considered earned income. Vita irs Example. Vita irs Larry Smith, a U. Vita irs S. Vita irs citizen living in Australia, owns and operates a rooming house in Sydney. Vita irs If he is operating the rooming house as a business that requires capital and personal services, he can consider up to 30% of net rental income as earned income. Vita irs On the other hand, if he just owns the rooming house and performs no personal services connected with its operation, except perhaps making minor repairs and collecting rents, none of his net income from the house is considered earned income. Vita irs It is all unearned income. Vita irs Professional fees. Vita irs   If you are engaged in a professional occupation (such as a doctor or lawyer), all fees received in the performance of these services are earned income. Vita irs Income of an artist. Vita irs   Income you receive from the sale of paintings you created is earned income. Vita irs Scholarships and fellowships. Vita irs   Any portion of a scholarship or fellowship grant that is paid to you for teaching, research or other services is considered earned income if you must include it in your gross income. Vita irs If the payer of the grant is required to provide you with a Form W-2, Wage and Tax Statement, these amounts will be listed as wages. Vita irs    Certain scholarship and fellowship income may be exempt under other provisions. Vita irs See Publication 970, Tax Benefits for Education, chapter 1. Vita irs Use of employer's property or facilities. Vita irs   If you receive fringe benefits in the form of the right to use your employer's property or facilities, the fair market value of that right is earned income. Vita irs Fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being required to buy or sell, and both having reasonable knowledge of all the necessary facts. Vita irs Example. Vita irs You are privately employed and live in Japan all year. Vita irs You are paid a salary of $6,000 a month. Vita irs You live rent-free in a house provided by your employer that has a fair rental value of $3,000 a month. Vita irs The house is not provided for your employer's convenience. Vita irs You report on the calendar-year, cash basis. Vita irs You received $72,000 salary from foreign sources plus $36,000 fair rental value of the house, or a total of $108,000 of earned income. Vita irs Reimbursement of employee expenses. Vita irs   If you are reimbursed under an accountable plan (defined below) for expenses you incur on your employer's behalf and you have adequately accounted to your employer for the expenses, do not include the reimbursement for those expenses in your earned income. Vita irs   The expenses for which you are reimbursed are not considered allocable (related) to your earned income. Vita irs If expenses and reimbursement are equal, there is nothing to allocate to excluded income. Vita irs If expenses are more than the reimbursement, the unreimbursed expenses are considered to have been incurred in producing earned income and must be divided between your excluded and included income in determining the amount of unreimbursed expenses you can deduct. Vita irs (See chapter 5. Vita irs ) If the reimbursement is more than the expenses, no expenses remain to be divided between excluded and included income and the excess reimbursement must be included in earned income. Vita irs   These rules do not apply to the following individuals. Vita irs Straight-commission salespersons. Vita irs Employees who have arrangements with their employers under which taxes are not withheld on a percentage of the commissions because the employers consider that percentage to be attributable to the employees' expenses. Vita irs Accountable plan. Vita irs   An accountable plan is a reimbursement or allowance arrangement that includes all three of the following rules. Vita irs The expenses covered under the plan must have a business connection. Vita irs The employee must adequately account to the employer for these expenses within a reasonable period of time. Vita irs The employee must return any excess reimbursement or allowance within a reasonable period of time. Vita irs Reimbursement of moving expenses. Vita irs   Reimbursement of moving expenses may be earned income. Vita irs You must include as earned income: Any reimbursements of, or payments for, nondeductible moving expenses, Reimbursements that are more than your deductible expenses and that you do not return to your employer, Any reimbursements made (or treated as made) under a nonaccountable plan (any plan that does not meet the rules listed above for an accountable plan), even if they are for deductible expenses, and Any reimbursement of moving expenses you deducted in an earlier year. Vita irs This section discusses reimbursements that must be included in earned income. Vita irs Publication 521, Moving Expenses, discusses additional rules that apply to moving expense deductions and reimbursements. Vita irs   The rules for determining when the reimbursement is considered earned or where the reimbursement is considered earned may differ somewhat from the general rules previously discussed. Vita irs   Although you receive the reimbursement in one tax year, it may be considered earned for services performed, or to be performed, in another tax year. Vita irs You must report the reimbursement as income on your return in the year you receive it, even if it is considered earned during a different year. Vita irs Move from U. Vita irs S. Vita irs to foreign country. Vita irs   If you move from the United States to a foreign country, your moving expense reimbursement is generally considered pay for future services to be performed at the new location. Vita irs The reimbursement is considered earned solely in the year of the move if you qualify for the exclusion for a period that includes at least 120 days during that tax year. Vita irs   If you are neither a bona fide resident of nor physically present in a foreign country or countries for a period that includes 120 days during the year of the move, a portion of the reimbursement is considered earned in the year of the move and a portion is considered earned in the year following the year of the move. Vita irs To figure the amount earned in the year of the move, multiply the reimbursement by a fraction. Vita irs The numerator (top number) is the number of days in your qualifying period that fall within the year of the move, and the denominator (bottom number) is the total number of days in the year of the move. Vita irs   The difference between the total reimbursement and the amount considered earned in the year of the move is the amount considered earned in the year following the year of the move. Vita irs The part earned in each year is figured as shown in the following example. Vita irs Example. Vita irs You are a U. Vita irs S. Vita irs citizen working in the United States. Vita irs You were told in October 2012 that you were being transferred to a foreign country. Vita irs You arrived in the foreign country on December 15, 2012, and you are a bona fide resident for the remainder of 2012 and all of 2013. Vita irs Your employer reimbursed you $2,000 in January 2013 for the part of the moving expense that you were not allowed to deduct. Vita irs Because you did not qualify for the exclusion under the bona fide residence test for at least 120 days in 2012 (the year of the move), the reimbursement is considered pay for services performed in the foreign country for both 2012 and 2013. Vita irs You figure the part of the reimbursement for services performed in the foreign country in 2012 by multiplying the total reimbursement by a fraction. Vita irs The fraction is the number of days during which you were a bona fide resident in 2012 (the year of the move) divided by 366. Vita irs The remaining part of the reimbursement is for services performed in the foreign country in 2013. Vita irs This computation is used only to determine when the reimbursement is considered earned. Vita irs You would include the amount of the reimbursement in income in 2013, the year you received it. Vita irs Move between foreign countries. Vita irs   If you move between foreign countries, any moving expense reimbursement that you must include in income will be considered earned in the year of the move if you qualify for the foreign earned income exclusion for a period that includes at least 120 days in the year of the move. Vita irs Move to U. Vita irs S. Vita irs   If you move to the United States, the moving expense reimbursement that you must include in income is generally considered to be U. Vita irs S. Vita irs source income. Vita irs   However, if under either an agreement between you and your employer or a statement of company policy that is reduced to writing before your move to the foreign country, your employer will reimburse you for your move back to the United States regardless of whether you continue to work for the employer, the includible reimbursement is considered compensation for past services performed in the foreign country. Vita irs The includible reimbursement is considered earned in the year of the move if you qualify for the foreign earned income exclusion for a period that includes at least 120 days during that year. Vita irs Otherwise, you treat the includible reimbursement as received for services performed in the foreign country in the year of the move and the year immediately before the year of the move. Vita irs   See the discussion under Move from U. Vita irs S. Vita irs to foreign country , earlier, to figure the amount of the includible reimbursement considered earned in the year of the move. Vita irs The amount earned in the year before the year of the move is the difference between the total includible reimbursement and the amount earned in the year of the move. Vita irs Example. Vita irs You are a U. Vita irs S. Vita irs citizen employed in a foreign country. Vita irs You retired from employment with your employer on March 31, 2013, and returned to the United States after having been a bona fide resident of the foreign country for several years. Vita irs A written agreement with your employer entered into before you went abroad provided that you would be reimbursed for your move back to the United States. Vita irs In April 2013, your former employer reimbursed you $4,000 for the part of the cost of your move back to the United States that you were not allowed to deduct. Vita irs Because you were not a bona fide resident of a foreign country or countries for a period that included at least 120 days in 2013 (the year of the move), the includible reimbursement is considered pay for services performed in the foreign country for both 2013 and 2012. Vita irs You figure the part of the moving expense reimbursement for services performed in the foreign country for 2013 by multiplying the total includible reimbursement by a fraction. Vita irs The fraction is the number of days of foreign residence during the year (90) divided by the number of days in the year (365). Vita irs The remaining part of the includible reimbursement is for services performed in the foreign country in 2012. Vita irs You report the amount of the includible reimbursement in 2013, the year you received it. Vita irs    In this example, if you met the physical presence test for a period that included at least 120 days in 2013, the moving expense reimbursement would be considered earned entirely in the year of the move. Vita irs Storage expense reimbursements. Vita irs   If you are reimbursed for storage expenses, the reimbursement is for services you perform during the period of time for which the storage expenses are incurred. Vita irs U. Vita irs S. Vita irs Government Employees For purposes of the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction, foreign earned income does not include any amounts paid by the United States or any of its agencies to its employees. Vita irs This includes amounts paid from both appropriated and nonappropriated funds. Vita irs The following organizations (and other organizations similarly organized and operated under United States Army, Navy, or Air Force regulations) are integral parts of the Armed Forces, agencies, or instrumentalities of the United States. Vita irs United States Armed Forces exchanges. Vita irs Commissioned and noncommissioned officers' messes. Vita irs Armed Forces motion picture services. Vita irs Kindergartens on foreign Armed Forces installations. Vita irs Amounts paid by the United States or its agencies to persons who are not their employees may qualify for exclusion or deduction. Vita irs If you are a U. Vita irs S. Vita irs Government employee paid by a U. Vita irs S. Vita irs agency that assigned you to a foreign government to perform specific services for which the agency is reimbursed by the foreign government, your pay is from the U. Vita irs S. Vita irs Government and does not qualify for exclusion or deduction. Vita irs If you have questions about whether you are an employee or an independent contractor, get Publication 15-A, Employer's Supplemental Tax Guide. Vita irs American Institute in Taiwan. Vita irs   Amounts paid by the American Institute in Taiwan are not foreign earned income for purposes of the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction. Vita irs If you are an employee of the American Institute in Taiwan, allowances you receive are exempt from U. Vita irs S. Vita irs tax up to the amount that equals tax-exempt allowances received by civilian employees of the U. Vita irs S. Vita irs Government. Vita irs Allowances. Vita irs   Cost-of-living and foreign-area allowances paid under certain acts of Congress to U. Vita irs S. Vita irs civilian officers and employees stationed in Alaska and Hawaii or elsewhere outside the 48 contiguous states and the District of Columbia can be excluded from gross income. Vita irs Post differentials are wages that must be included in gross income, regardless of the act of Congress under which they are paid. Vita irs More information. Vita irs   Publication 516, U. Vita irs S. Vita irs Government Civilian Employees Stationed Abroad, has more information for U. Vita irs S. Vita irs Government employees abroad. Vita irs Exclusion of Meals and Lodging You do not include in your income the value of meals and lodging provided to you and your family by your employer at no charge if the following conditions are met. Vita irs The meals are furnished: On the business premises of your employer, and For the convenience of your employer. Vita irs The lodging is furnished: On the business premises of your employer, For the convenience of your employer, and As a condition of your employment. Vita irs If these conditions are met, do not include the value of the meals or lodging in your income, even if a law or your employment contract says that they are provided as compensation. Vita irs Amounts you do not include in income because of these rules are not foreign earned income. Vita irs If you receive a Form W-2, excludable amounts should not be included in the total reported in box 1 as wages. Vita irs Family. Vita irs   Your family, for this purpose, includes only your spouse and your dependents. Vita irs Lodging. Vita irs   The value of lodging includes the cost of heat, electricity, gas, water, sewer service, and similar items needed to make the lodging fit to live in. Vita irs Business premises of employer. Vita irs   Generally, the business premises of your employer is wherever you work. Vita irs For example, if you work as a housekeeper, meals and lodging provided in your employer's home are provided on the business premises of your employer. Vita irs Similarly, meals provided to cowhands while herding cattle on land leased or owned by their employer are considered provided on the premises of their employer. Vita irs Convenience of employer. Vita irs   Whether meals or lodging are provided for your employer's convenience must be determined from all the facts and circumstances. Vita irs Meals furnished at no charge are considered provided for your employer's convenience if there is a good business reason for providing them, other than to give you more pay. Vita irs   On the other hand, if your employer provides meals to you or your family as a means of giving you more pay, and there is no other business reason for providing them, their value is extra income to you because they are not furnished for the convenience of your employer. Vita irs Condition of employment. Vita irs   Lodging is provided as a condition of employment if you must accept the lodging to properly carry out the duties of your job. Vita irs You must accept lodging to properly carry out your duties if, for example, you must be available for duty at all times or you could not perform your duties if the lodging was not furnished. Vita irs Foreign camps. Vita irs   If the lodging is in a camp located in a foreign country, the camp is considered part of your employer's business premises. Vita irs The camp must be: Provided for your employer's convenience because the place where you work is in a remote area where satisfactory housing is not available to you on the open market within a reasonable commuting distance, Located as close as reasonably possible in the area where you work, and Provided in a common area or enclave that is not available to the general public for lodging or accommodations and that normally houses at least ten employees. Vita irs Foreign Earned Income Exclusion If your tax home is in a foreign country and you meet the bona fide residence test or the physical presence test, you can choose to exclude from your income a limited amount of your foreign earned income. Vita irs Foreign earned income was defined earlier in this chapter. Vita irs You also can choose to exclude from your income a foreign housing amount. Vita irs This is explained later under Foreign Housing Exclusion. Vita irs If you choose to exclude a foreign housing amount, you must figure the foreign housing exclusion before you figure the foreign earned income exclusion. Vita irs Your foreign earned income exclusion is limited to your foreign earned income minus your foreign housing exclusion. Vita irs If you choose to exclude foreign earned income, you cannot deduct, exclude, or claim a credit for any item that can be allocated to or charged against the excluded amounts. Vita irs This includes any expenses, losses, and other normally deductible items allocable to the excluded income. Vita irs For more information about deductions and credits, see chapter 5 . Vita irs Limit on Excludable Amount You may be able to exclude up to $97,600 of your foreign earned income in 2013. Vita irs You cannot exclude more than the smaller of: $97,600, or Your foreign earned income (discussed earlier) for the tax year minus your foreign housing exclusion (discussed later). Vita irs If both you and your spouse work abroad and each of you meets either the bona fide residence test or the physical presence test, you can each choose the foreign earned income exclusion. Vita irs You do not both need to meet the same test. Vita irs Together, you and your spouse can exclude as much as $195,200. Vita irs Paid in year following work. Vita irs   Generally, you are considered to have earned income in the year in which you do the work for which you receive the income, even if you work in one year but are not paid until the following year. Vita irs If you report your income on a cash basis, you report the income on your return for the year you receive it. Vita irs If you work one year, but are not paid for that work until the next year, the amount you can exclude in the year you are paid is the amount you could have excluded in the year you did the work if you had been paid in that year. Vita irs For an exception to this general rule, see Year-end payroll period, later. Vita irs Example. Vita irs You were a bona fide resident of Brazil for all of 2012 and 2013. Vita irs You report your income on the cash basis. Vita irs In 2012, you were paid $84,200 for work you did in Brazil during that year. Vita irs You excluded all of the $84,200 from your income in 2012. Vita irs In 2013, you were paid $117,300 for your work in Brazil. Vita irs $18,800 was for work you did in 2012 and $98,500 was for work you did in 2013. Vita irs You can exclude $10,900 of the $18,800 from your income in 2013. Vita irs This is the $95,100 maximum exclusion in 2012 minus the $84,200 actually excluded that year. Vita irs You must include the remaining $7,900 in income in 2013 because you could not have excluded that income in 2012 if you had received it that year. Vita irs You can exclude $97,600 of the $98,500 you were paid for work you did in 2013 from your 2013 income. Vita irs Your total foreign earned income exclusion for 2013 is $108,500 ($10,900 for work you did in 2012 and $97,600 for work you did in 2013). Vita irs You would include in your 2013 income $8,800 ($7,900 for the work you did in 2012 and $900 for the work you did in 2013). Vita irs Year-end payroll period. Vita irs   There is an exception to the general rule that income is considered earned in the year you do the work for which you receive the income. Vita irs If you are a cash-basis taxpayer, any salary or wage payment you receive after the end of the year in which you do the work for which you receive the pay is considered earned entirely in the year you receive it if all four of the following apply. Vita irs The period for which the payment is made is a normal payroll period of your employer that regularly applies to you. Vita irs The payroll period includes the last day of your tax year (December 31 if you figure your taxes on a calendar-year basis). Vita irs The payroll period is not longer than 16 days. Vita irs The payday comes at the same time in relation to the payroll period that it would normally come and it comes before the end of the next payroll period. Vita irs Example. Vita irs You are paid twice a month. Vita irs For the normal payroll period that begins on the first of the month and ends on the fifteenth of the month, you are paid on the sixteenth day of the month. Vita irs For the normal payroll period that begins on the sixteenth of the month and ends on the last day of the month, you are paid on the first day of the following month. Vita irs Because all of the above conditions are met, the pay you received on January 1, 2013, is considered earned in 2013. Vita irs Income earned over more than 1 year. Vita irs   Regardless of when you actually receive income, you must apply it to the year in which you earned it in figuring your excludable amount for that year. Vita irs For example, a bonus may be based on work you did over several years. Vita irs You determine the amount of the bonus that is considered earned in a particular year in two steps. Vita irs Divide the bonus by the number of calendar months in the period when you did the work that resulted in the bonus. Vita irs Multiply the result of (1) by the number of months you did the work during the year. Vita irs This is the amount that is subject to the exclusion limit for that tax year. Vita irs Income received more than 1 year after it was earned. Vita irs   You cannot exclude income you receive after the end of the year following the year you do the work to earn it. Vita irs Example. Vita irs   You were a bona fide resident of Sweden for 2011, 2012, and 2013. Vita irs You report your income on the cash basis. Vita irs In 2011, you were paid $69,000 for work you did in Sweden that year and in 2012 you were paid $74,000 for that year's work in Sweden. Vita irs You excluded all the income on your 2011 and 2012 returns. Vita irs   In 2013, you were paid $92,000; $82,000 for your work in Sweden during 2013, and $10,000 for work you did in Sweden in 2011. Vita irs You cannot exclude any of the $10,000 for work done in 2011 because you received it after the end of the year following the year in which you earned it. Vita irs You must include the $10,000 in income. Vita irs You can exclude all of the $82,000 received for work you did in 2013. Vita irs Community income. Vita irs   The maximum exclusion applies separately to the earnings of spouses. Vita irs Ignore any community property laws when you figure your limit on the foreign earned income exclusion. Vita irs Part-year exclusion. Vita irs   If the period for which you qualify for the foreign earned income exclusion includes only part of the year, you must adjust the maximum limit based on the number of qualifying days in the year. Vita irs The number of qualifying days is the number of days in the year within the period on which you both: Have your tax home in a foreign country, and Meet either the bona fide residence test or the physical presence test. Vita irs   For this purpose, you can count as qualifying days all days within a period of 12 consecutive months once you are physically present and have your tax home in a foreign country for 330 full days. Vita irs To figure your maximum exclusion, multiply the maximum excludable amount for the year by the number of your qualifying days in the year, and then divide the result by the number of days in the year. Vita irs Example. Vita irs You report your income on the calendar-year basis and you qualified for the foreign earned income exclusion under the bona fide residence test for 75 days in 2013. Vita irs You can exclude a maximum of 75/365 of $97,600, or $20,055, of your foreign earned income for 2013. Vita irs If you qualify under the bona fide residence test for all of 2014, you can exclude your foreign earned income up to the 2014 limit. Vita irs Physical presence test. Vita irs   Under the physical presence test, a 12-month period can be any period of 12 consecutive months that includes 330 full days. Vita irs If you qualify for the foreign earned income exclusion under the physical presence test for part of a year, it is important to carefully choose the 12-month period that will allow the maximum exclusion for that year. Vita irs Example. Vita irs You are physically present and have your tax home in a foreign country for a 16-month period from June 1, 2012, through September 30, 2013, except for 16 days in December 2012 when you were on vacation in the United States. Vita irs You figure the maximum exclusion for 2012 as follows. Vita irs Beginning with June 1, 2012, count forward 330 full days. Vita irs Do not count the 16 days you spent in the United States. Vita irs The 330th day, May 12, 2013, is the last day of a 12-month period. Vita irs Count backward 12 months from May 11, 2013, to find the first day of this 12-month period, May 12, 2012. Vita irs This 12-month period runs from May 12, 2012, through May 11, 2013. Vita irs Count the total days during 2012 that fall within this 12-month period. Vita irs This is 234 days (May 12, 2012 – December 31, 2012). Vita irs Multiply $95,100 (the maximum exclusion for 2012) by the fraction 234/366 to find your maximum exclusion for 2012 ($60,802). Vita irs You figure the maximum exclusion for 2013 in the opposite manner. Vita irs Beginning with your last full day, September 30, 2013, count backward 330 full days. Vita irs Do not count the 16 days you spent in the United States. Vita irs That day, October 20, 2012, is the first day of a 12-month period. Vita irs Count forward 12 months from October 20, 2012, to find the last day of this 12-month period, October 19, 2013. Vita irs This 12-month period runs from October 20, 2012, through October 19, 2013. Vita irs Count the total days during 2013 that fall within this 12-month period. Vita irs This is 292 days (January 1, 2013 – October 19, 2013). Vita irs Multiply $97,600, the maximum limit, by the fraction 292/365 to find your maximum exclusion for 2013 ($78,080). Vita irs Choosing the Exclusion The foreign earned income exclusion is voluntary. Vita irs You can choose the exclusion by completing the appropriate parts of Form 2555. Vita irs When You Can Choose the Exclusion Your initial choice of the exclusion on Form 2555 or Form 2555-EZ generally must be made with one of the following returns. Vita irs A return filed by the due date (including any extensions). Vita irs A return amending a timely-filed return. Vita irs Amended returns generally must be filed by the later of 3 years after the filing date of the original return or 2 years after the tax is paid. Vita irs A return filed within 1 year from the original due date of the return (determined without regard to any extensions). Vita irs Filing after the above periods. Vita irs   You can choose the exclusion on a return filed after the periods described above if you owe no federal income tax after taking into account the exclusion. Vita irs If you owe federal income tax after taking into account the exclusion, you can choose the exclusion on a return filed after the periods described earlier if you file before the IRS discovers that you failed to choose the exclusion. Vita irs Whether or not you owe federal income tax after taking the exclusion into account, if you file your return after the periods described earlier, you must type or legibly print at the top of the first page of the Form 1040 “Filed pursuant to section 1. Vita irs 911-7(a)(2)(i)(D). Vita irs ” If you owe federal income tax after taking into account the foreign earned income exclusion and the IRS discovered that you failed to choose the exclusion, you may still be able to choose the exclusion. Vita irs You must request a private letter ruling under Income Tax Regulation 301. Vita irs 9100-3 and Revenue Procedure 2013-1, 2013-1 I. Vita irs R. Vita irs B. Vita irs 1, available at www. Vita irs irs. Vita irs gov/irb/2013-01_IRB/ar06. Vita irs html. Vita irs Effect of Choosing the Exclusion Once you choose to exclude your foreign earned income, that choice remains in effect for that year and all later years unless you revoke it. Vita irs Foreign tax credit or deduction. Vita irs  
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Vita irs Publication 575 - Introductory Material Table of Contents What's New Reminders IntroductionThe General Rule. Vita irs Individual retirement arrangements (IRAs). Vita irs Civil service retirement benefits. Vita irs Social security and equivalent tier 1 railroad retirement benefits. Vita irs Tax-sheltered annuity plans (403(b) plans). Vita irs Ordering forms and publications. Vita irs Tax questions. Vita irs Useful Items - You may want to see: What's New For purposes of the net investment income tax (NIIT), net investment income does not include distributions from a qualified retirement plan (for example, 401(a), 403(a), 403(b), 408, 408A, or 457(b) plans). Vita irs However, these distributions are taken into account when determining the modified adjusted gross income threshold. Vita irs Distributions from a nonqualified retirement plan are included in net investment income. Vita irs See Form 8960, Net Investment Income Tax - Individuals, Estates, and Trusts, and its instructions for more information. Vita irs Reminders Future developments. Vita irs  For the latest information about developments related to Publication 575, such as legislation enacted after it was published, go to www. Vita irs irs. Vita irs gov/pub575. Vita irs In-plan Roth rollovers. Vita irs   Starting in 2013, the American Taxpayer Relief Act of 2012 expanded the rules for in-plan Roth rollovers to include more taxpayers. Vita irs For more information, see In-plan Roth rollovers under Rollovers, discussed later. Vita irs Photographs of missing children. Vita irs  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Vita irs Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Vita irs You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Vita irs Introduction This publication discusses the tax treatment of distributions you receive from pension and annuity plans and also shows you how to report the income on your federal income tax return. Vita irs How these distributions are taxed depends on whether they are periodic payments (amounts received as an annuity) that are paid at regular intervals over several years or nonperiodic payments (amounts not received as an annuity). Vita irs What is covered in this publication?   This publication contains information that you need to understand the following topics. Vita irs How to figure the tax-free part of periodic payments under a pension or annuity plan, including using a simple worksheet for payments under a qualified plan. Vita irs How to figure the tax-free part of nonperiodic payments from qualified and nonqualified plans, and how to use the optional methods to figure the tax on lump-sum distributions from pension, stock bonus, and profit-sharing plans. Vita irs How to roll over certain distributions from a retirement plan into another retirement plan or IRA. Vita irs How to report disability payments, and how beneficiaries and survivors of employees and retirees must report benefits paid to them. Vita irs How to report railroad retirement benefits. Vita irs When additional taxes on certain distributions may apply (including the tax on early distributions and the tax on excess accumulation). Vita irs For additional information on how to report pension or annuity payments on your federal income tax return, be sure to review the instructions on the back of Copies B, C, and 2 of the Form 1099-R that you received and the instructions for Form 1040, lines 16a and 16b (Form 1040A, lines 12a and 12b or Form 1040NR, lines 17a and 17b). Vita irs A “corrected” Form 1099-R replaces the corresponding original Form 1099-R if the original Form 1099-R contained an error. Vita irs Make sure you use the amounts shown on the corrected Form 1099-R when reporting information on your tax return. Vita irs What is not covered in this publication?   The following topics are not discussed in this publication. Vita irs The General Rule. Vita irs   This is the method generally used to determine the tax treatment of pension and annuity income from nonqualified plans (including commercial annuities). Vita irs For a qualified plan, you generally cannot use the General Rule unless your annuity starting date is before November 19, 1996. Vita irs Although this publication will help you determine whether you can use the General Rule, it will not help you use it to determine the tax treatment of your pension or annuity income. Vita irs For that and other information on the General Rule, see Publication 939, General Rule for Pensions and Annuities. Vita irs Individual retirement arrangements (IRAs). Vita irs   Information on the tax treatment of amounts you receive from an IRA is in Publication 590, Individual Retirement Arrangements (IRAs). Vita irs Civil service retirement benefits. Vita irs   If you are retired from the federal government (regular, phased, or disability retirement) or are the survivor or beneficiary of a federal employee or retiree who died, get Publication 721, Tax Guide to U. Vita irs S. Vita irs Civil Service Retirement Benefits. Vita irs Publication 721 covers the tax treatment of federal retirement benefits, primarily those paid under the Civil Service Retirement System (CSRS) or the Federal Employees' Retirement System (FERS). Vita irs It also covers benefits paid from the Thrift Savings Plan (TSP). Vita irs Social security and equivalent tier 1 railroad retirement benefits. Vita irs   For information about the tax treatment of these benefits, see Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Vita irs However, this publication (575) covers the tax treatment of the non-social security equivalent benefit portion of tier 1 railroad retirement benefits, tier 2 benefits, vested dual benefits, and supplemental annuity benefits paid by the U. Vita irs S. Vita irs Railroad Retirement Board. Vita irs Tax-sheltered annuity plans (403(b) plans). Vita irs   If you work for a public school or certain tax-exempt organizations, you may be eligible to participate in a 403(b) retirement plan offered by your employer. Vita irs Although this publication covers the treatment of benefits under 403(b) plans and discusses in-plan Roth rollovers from 403(b) plans to designated Roth accounts, it does not cover other tax provisions that apply to these plans. Vita irs For that and other information on 403(b) plans, see Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans) For Employees of Public Schools and Certain Tax-Exempt Organizations. Vita irs Comments and suggestions. Vita irs   We welcome your comments about this publication and your suggestions for future editions. Vita irs   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Vita irs NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Vita irs Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Vita irs   You can send your comments from www. Vita irs irs. Vita irs gov/formspubs/. Vita irs Click on “More Information” and then on “Comment on Tax Forms and Publications. Vita irs ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Vita irs Ordering forms and publications. Vita irs   Visit www. Vita irs irs. Vita irs gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Vita irs Internal Revenue Service 1201 N. Vita irs Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Vita irs   If you have a tax question, check the information available on IRS. Vita irs gov or call 1-800-829-1040. Vita irs We cannot answer tax questions sent to either of the above addresses. Vita irs Useful Items - You may want to see: Publication 524 Credit for the Elderly or the Disabled 525 Taxable and Nontaxable Income 560 Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) 571 Tax-Sheltered Annuity Plans (403(b) Plans) For Employees of Public Schools and Certain Tax-Exempt Organizations 590 Individual Retirement Arrangements (IRAs) 721 Tax Guide to U. Vita irs S. Vita irs Civil Service Retirement Benefits 915 Social Security and Equivalent Railroad Retirement Benefits 939 General Rule for Pensions and Annuities Form (and Instructions) W-4P Withholding Certificate for Pension or Annuity Payments 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Vita irs 4972 Tax on Lump-Sum Distributions 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts See How To Get Tax Help near the end of this publication for information about getting publications and forms. Vita irs Prev  Up  Next   Home   More Online Publications