The following FAQs were extracted from Internal Revenue Service Publication 54: Tax Guide for U.S. Citizens and Resident Aliens Abroad. Where I have supplied additional information it has been shown thus: (CM: Additional information). All amounts are in U.S. dollars.
Q: My entire income qualifies for the foreign earned income exclusion. Must I file a tax return?
A: Generally yes. Every U.S. citizen or resident must file a U.S. income tax return unless total income without regard to the foreign earned income exclusion is below an amount based on filing status.
(CM: For 2003 the minimum filing threshold amounts are generally $7,800 for Single and $15,580 for Married Filing Joint if you are under 65 years of age.)
Q: I am a U.S. citizen and have no taxable income from the United States, but I have substantial income from a foreign employment. Am I required to file a U.S. income tax return?
A: Yes. All U.S. citizens and resident aliens, depending on the amount of the foreign source income, are subject to U.S. tax on their worldwide income. If you paid taxes to a foreign government on income from sources outside the United States, you may receive a foreign tax credit against your U.S. income tax liability for the foreign taxes paid.
Q: I am a U.S. citizen. I have lived abroad for a number of years and have only recently realized that I should have been filing U.S. income tax returns. How do I correct this oversight in not having filed returns for these years?
A: File the late returns as soon as possible, stating your reason for filing late. For advice on filing the returns you should contact either the IRS office serving your area or the IRS official who travels through your area (details can be obtained from your nearest U.S. consulate or Embassy). You can also write to the IRS, International Section, P.O. Box 920, Bensalem, PA 19020-8518
(CM: The IRS office in Singapore which closed in June of 2003 used to have a handout which stated: "If you have not filed returns for several years, or are currently not in compliance with these issues, IRS requires you to file a return for those years that are not on file, going back only for the past six years".)
Q: I qualify under the bona fide residence test. Does my foreign earned income (for purposes of taking the $80,000 exclusion) include my U.S. dividends and the interest I received on a foreign bank account?
A: No. The only income that qualifies for the $80,000 exclusion is foreign earned income (income from the performance of services abroad). Investment income is not earned income.
Q: My company pays my foreign income tax on my foreign earnings. Is this taxable compensation?
A: Yes. The amount is compensation for services performed. The tax paid by your company should be reported on line 7 of Form 1040 and in item 22(f) of Part IV, Form 2555.
Q: My U.S. employer pays my salary into my U.S. bank account. Is this income considered earned in the United States or is it considered foreign earned income?
A: If you performed the services to earn this salary outside the United States, your salary is considered earned abroad. It does not matter that you are paid by a U.S. employer or that your salary is deposited in a U.S. bank account in the United States. The source of salary, wages, commissions and other personal service income is the place where you perform the services.
Q: My wife and I are both employed, reside together, and file a joint return. We meet the qualifications for claiming the foreign earned income exclusion. Do we each figure a separate foreign earned income exclusion and foreign housing exclusion?
A: You figure your foreign earned income exclusion separately since you both have foreign earned income. The amount of the exclusion for each of you cannot exceed your separate foreign earned incomes. If you each have a housing amount, you can figure your housing exclusion either separately or jointly (see Pub 54, chapter 4 for a discussion on Married Couples Living Apart).
(CM: Since each taxpayer is allowed an $80,000 exclusion up to the amount of his/her foreign earned income, it is possible to claim exclusions of up to $160,000 in a joint return.)
For more FAQs, or for other information about tax for U.S. citizens or residents living abroad, see IRS Publication 54 Tax Guide for U.S. Citizens and Resident Aliens Abroad.