If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income and as such must file a U.S. return for all the years that you are residing abroad. If you meet certain requirements, you may qualify for the foreign earned income exclusion which can reduce or altogether eliminate your taxable earned income.
Foreign Earned Income Exclusion Requirements
- Must have foreign earned income
- Must have a tax home in a foreign country
- Must meet either the bona fide residence test or physical presence test
- Make a valid election to exclude foreign earned income
Income "Earned" from services performed outside the U.S. includes salaries, wages, commissions, bonuses, self-employment income. It does not include non-earned income or passive income such as investment income, social security, income earned as an employee of the U.S. government, income for services performed in international waters.
Self-employment Taxes: while you can exclude your self-employment income, but you will be subject to self-employment taxes (social security and Medicare taxes) unless the services were performed in a country that has a totalization agreement with the United States.
if you are U.S. citizen or resident (who is a citizen of a country with which the U.S. has a tax treaty with a non-discrimination clause) and a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year (generally January 1 through December 31). Click to know more
If you are a U.S. resident alien and a citizen of a foreign country without a tax treaty clause (explained above), you must use the physical presence test.