The physical presence test, one of the two tests that can be used to qualify for the foreign earned income exclusion.
To meet the physical presence test, you must be physically present in a foreign country or countries 330 full days during a period of 12 consecutive months.
There are four rules you should know when figuring the 12-month physical presence period:
1. Your 12-month period is not limited to a calendar year period (i.e. January 1 – December 31), it can begin with any day of the month. It ends the day before the same calendar day, 12 months later.
2. Your 12-month period must be made up of consecutive months. Any 12-month period can be used if the 330 days in a foreign country fall within that period.
3. You do not have to begin your 12-month period with your first full day you arrive or end with the day you leave, but rather you can choose the 12-month period that gives you the greatest exclusion.
4. 12-month periods can overlap one another and can differ from tax year to tax year.
The physical presence test is based only on how long you stay in a foreign country or countries. It does not depend on the kind of residence you establish, your intentions about returning to the United States, or the nature and purpose of your stay abroad. However, your intentions with regard to the nature and purpose of your stay abroad are relevant in determining whether you meet the tax home test.
Your tax home is the general areas of your main place of business, employment or post of duty, regardless of where you maintain your family home. If there is no regular place of business, your tax home is the place where you regularly live.
After you establish that your tax home is in a foreign country, plan your trips, whether vacations or business trips, to the United States accordingly. If you plan such trips without keeping the physical presence test in mind, you may lose out on qualifying for the major tax benefit for U.S. citizens living abroad.