Foreign Earned Income Exclusion

In 2011, if you had a tax home in a foreign country and you met either the bona fide residence test or the physical presence test, you may be able to claim a foreign earned income exclusion of up to $92,900 and a housing exclusion or deduction for certain reasonable qualified foreign housing costs.  U.S. government employees do not qualify for either the foreign earned income exclusion or the housing exclusion with respect to their government salaries.

For 2011, the housing exclusion and/or deduction floor increased to  $27,870. See page five of the Instructions for Form 2555 for further information.

The foreign earned income exclusion is claimed on either Form 2555 or Form 2555-EZ, and the foreign housing exclusion or deduction is claimed on Form 2555.  Use Form 2555 if you are self-employed and/or claim the foreign housing exclusion or deduction.  Use Form 2555-EZ if are a salaried employee and you do not claim the foreign housing exclusion.

Note: If you claim the foreign earned income exclusion and/or the housing exclusion or deduction, you must determine the tax on your non-excluded income using the tax rates that would have applied had you not claimed the exclusions by completing the Foreign Earned Income Tax Worksheet on page 36 of the Instructions for Form 1040.