Foreign Earned Income

If you are a U.S. citizen or resident alien living abroad and you have foreign earned income, you may qualify for the “foreign earned income exclusion”. The “foreign earned income exclusion” is limited to a certain amount per IRS rules (as of 2023 the limit is $120,000), any excess amount is subject to taxation. However, even though foreign earned income could be exempt from federal income tax it will be subject to self-employment tax.

In addition to the foreign earned income exclusion, you may also claim the foreign housing exclusion and a foreign income tax credit. The foreign income tax credit is based on the excess foreign earned income over the excluded foreign earned income amount. The foreign income tax credit helps to avoid double taxation in the United States and the foreign country.

If you are considering taking advantage of these benefits, you may contact Torres Accounting Services CPAs and we will do our best to advise you on the foreign earned income exclusion.