If you live abroad or travel frequently, make sure you’re back in the United States and don’t give Uncle Sam more money than you need. The Foreign Income Deduction (FEIE) allows US taxpayers to exclude income of up to $ 112,000 ( 2022 figRe-— Every year Inflation adjusted) From taxation. Isn’t it too good and true? it’s not. However, you will need to jump over some hoops to qualify.
What is FEIE?
Income that is exempt from tax through FEIE must be “earned abroad”. That is, it does not have to be income paid by a non-US client or company. Rather, you need to earn while you are physically abroad. USA But don’t get excited yet. You cannot take two weeks off and claim deposits through FEIE during that time.
How to qualify for FEIE
You must also qualify for FEIE through either a physical presence test or a genuine residence test.
- Physical existence test: To qualify for FEIE on the Physical Presence Test, you must be physically present in a foreign country for at least 330 days during the 365-day period.
- Genuine residence test: To qualify for FEIE under a genuine residence test, you must be a foreign resident throughout the tax year.
Successful qualifications will be able to exclude income of up to $ 112,000 from federal taxes in 2022. This can save up to $ 17,608. Income exceeding the FEIE limit is taxed at the marginal tax rate of that income level.
How to claim FEIE
If you qualify or plan to qualify for FEIE, we recommend hiring an accountant who specializes in tax for digital nomads and expatriates. NomadTax We offer individual tax returns starting at $ 350 and also offer consulting services for nomads and foreigners with their own tax considerations.
If you want to do it yourself, you need to include it Form 2555 With your tax return. For Form 2555, you need to collect the following information:
- Which test do you use to qualify (physical presence or well-meaning residence)?
- Annual travel days (international and US)
- From 2555 the previous year (if applicable)
- Foreign income documents
Whether you have been a digital nomad for some time or have just begun a post-pandemic investigation Remote work option, FEIE is a great way to financially benefit from a location-independent lifestyle. Make sure you do it right, If you are subject to a physical presence test, count the number of days carefully. I don’t want to pay taxes and interest because I accidentally spent a day in the United States too much.
Best tax exclusion for travelers and foreigners
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