Foreign Earned Income – Determining the Source of Earned Income for Expats
Is My Earned Income Foreign Earned Income?
A common question that we see from both our clients and readers of the Tax Samaritan newsletter is whether their earned income (generally wages or self-employment income) is considered foreign earned income eligible for the foreign earned income exclusion or U.S.-source income not eligible for the exclusion.
The answer is based on the source of the earned income. In other words, where the services are performed for which the income was received – in most cases, where you were sitting or standing when the income was earned.
Foreign earned income is income you receive for working in a foreign country. You were “sitting or standing” in the foreign country when the work was performed. This is true even if the income was earned in Geneva, Switzerland and is paid directly to your bank account in the United States and your employer is located in Las Vegas. This differs from some tax regimes, such as in Europe, where the location of the bank where the income is received is of importance. For U.S. taxes, where the income is received or the location of the bank is not relevant for determining whether the income is foreign earned income only the location of where the work was performed.
It is important to note that international waters and international airspace do not count as a foreign country. So being outside the United States is not the same as being in a foreign country. Earned income while performing services in international waters or international airspace will not be excluded using the foreign earned income exclusion.
As a client of Tax Samaritan, we can assist you with determining whether your foreign earned income will qualify for the foreign earned income exclusion.
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Tax Samaritan is a team of Enrolled Agents with over 25 years of experience focusing on US tax preparation and representation. We maintain this tax blog where all articles are written by Enrolled Agents. Our main objective is to educate US taxpayers on their tax responsibilities and the selection of a tax professional. Our articles are also designed to help taxpayers looking to self prepare, providing specific tips and pitfalls to avoid.
When looking for a tax professional, choose carefully. We recommend that you generally want to hire an Enrolled Agent, such as Tax Samaritan or other professional licensed to practice before the IRS, such as a CPA or attorney. If you are a US taxpayer overseas, we further recommend that you seek a professional who is experienced in expat tax preparation (most tax professionals have limited to no experience with expat taxes).
Randall Brody is an enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics.
Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.
All About Randall Brody
Randall is the Founder of Tax Samaritan, a boutique firm specializing in the preparation of taxes and the resolution of tax problems for Americans living abroad, as well as the other unique tax issues that apply to taxpayers. Here, they help taxpayers save money on their tax returns.