Department of the Treasury

Internal Revenue Service

Publication 593

(Rev. January 2010)

Cat. No. 46595Q

Tax Highlights

for U.S. Citizens

and Residents

Going Abroad

Get forms and other information

faster and easier by:

Internet www.irs.gov

Jan 22, 2010
Introduction

This publication discusses in general terms some provisions of U.S. federal income tax law that apply to U.S.

citizens and resident aliens who live or work abroad and

who expect to receive income from foreign sources.

As a U.S. citizen or resident alien, your worldwide

income generally is subject to U.S. income tax regardless of where you are living. You are subject to the same

income tax return filing requirements that apply to U.S.

citizens or resident aliens living in the United States.

However, several income tax benefits might apply if

you meet certain requirements while living abroad. You

may be able to exclude from your income a limited

amount of your foreign earned income. You also may be

able either to exclude or to deduct from gross income

your housing amount (defined later). To claim these

benefits, you must file a tax return and attach Form 2555,

Foreign Earned Income. If you are claiming the foreign

earned income exclusion only, you may be able to use

the shorter Form 2555-EZ, Foreign Earned Income Exclusion, rather than Form 2555.

You may be able to claim a tax credit or an itemized

deduction on your U.S. return for the foreign income

taxes that you pay. Also, under tax treaties or conventions that the United States has with many foreign countries, you may be able to reduce your foreign tax liability.

Publications 54, Tax Guide for U.S. Citizens and

Resident Aliens Abroad; 514, Foreign Tax Credit for

Individuals; and 901, U.S. Tax Treaties, discuss in detail

the treatment of your foreign income, the foreign tax

credit, and the general tax treaty benefits available to

you.

See How To Get Tax Help at the end of this publication for information about getting publications and forms.

Filing Information

The U.S. filing requirements for U.S. citizens and resident aliens in foreign countries are generally the same as

those for citizens and residents living in the United

States.

Who must file. Your age, filing status, gross income,

and whether you can be claimed as a dependent by

another taxpayer determine whether you must file a U.S.

federal income tax return. To determine if you meet the

gross income requirement for filing purposes, you must

include all income you receive from foreign sources as

well as your U.S. income. This is true even if:

• The income is paid in foreign currency,

• The foreign country imposes an income tax on that

income, or

• The income is excludable under the foreign earned

income exclusion, discussed later.

Self-employed persons. You must file a U.S. income tax return if you had $400 or more of net earnings

Page 2 Publication 593 (January 2010)
from self-employment, regardless of your age. Net earnings from self-employment include income earned both

in a foreign country and in the United States.

Generally, you must pay self-employment tax on your

self-employment income even if it is earned in a foreign

country and is excludable as foreign earned income in

figuring your income tax.

Foreign bank and financial accounts. If you had

any financial interest in, or signature or other authority

over, a bank account, securities account, or other financial account in a foreign country at any time during the tax

year, you may have to complete Treasury Department

Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, and file it with the Department of the

Treasury at the address listed on the form. You need not

file this form if the combined assets in the account(s) are

$10,000 or less during the entire year, or if the assets are

with a U.S. military banking facility operated by a U.S.

financial institution.

You can get Form TD F 90-22.1 from the offices listed

at the end of this publication or through the IRS website

at www.irs.gov.

Estate and gift taxes. Under certain conditions, you

may have to file a federal estate or gift tax return. For

more information, see Publication 950, Introduction to

Estate and Gift Taxes.

When to file. If your tax year is the calendar year, the

due date for filing your income tax return is usually April

15 of the following year.

Extensions of time to file. You are automatically

granted an extension to June 15 to file your return and

pay any tax due if you are a U.S. citizen or resident alien

and on the regular due date of your return:

• You are living outside the United States and Puerto

Rico and your main place of business or post of

duty is outside the United States and Puerto Rico,

or

• You are in military or naval service on duty outside

the United States and Puerto Rico.

You must pay interest on any unpaid tax from the regular

due date to the date you pay the tax.

You do not have to file a special form to receive this

extension. However, you must attach a statement to your

tax return explaining what situation qualified you for the

extension.

It may benefit you to file for an additional extension of

time to file. You may benefit if, on the due date for filing,

you have not yet met either the bona fide residence test

or the physical presence test, but you expect to qualify

after the automatic extension discussed above. To obtain

an additional extension, file Form 2350, Application for

Extension of Time To File U.S. Income Tax Return, with

the:

Department of the Treasury

Internal Revenue Service Center

Austin, TX 73301-0215

Publication 593 (January 2010) Page 3
Or, you can file Form 2350 with your local IRS

representative or other IRS employee. You must file

Form 2350 after the close of your tax year but before

the end of the first extension. If an additional extension

is granted, it will be to a date after you expect to meet

the time requirements for the bona fide residence or the

physical presence test.

Where to file. If any of the situations listed below apply

to you, you should file your return with the:

Department of the Treasury

Internal Revenue Service Center

Austin, TX 73301-0215

• You claim the foreign earned income exclusion.

• You claim the foreign housing exclusion or

deduction.

• You live in a foreign country or are a resident, for

tax purposes, of a foreign country.

If none of the above situations apply to you, see the

instructions for your income tax return.

Income Earned Abroad

You may qualify for an exclusion from tax of a limited

amount of income earned while working abroad. However, you must file a tax return to claim it. In general,

foreign earned income is income received for services

you perform in a foreign country. You also may be able to

claim an exclusion or a deduction from gross income for

a limited amount of your housing costs if your costs are

more than a base amount. Generally, you will qualify for

these benefits if your tax home (defined later) is in a

foreign country or countries throughout your period of

bona fide foreign residence or physical presence and you

are one of the following.

• A U.S. citizen who is a bona fide resident of a

foreign country or countries for an uninterrupted

period that includes an entire tax year,

• A U.S. resident alien who is a citizen or national of

a country with which the United States has an

income tax treaty in effect and who is a bona fide

resident of a foreign country or countries for an

uninterrupted period that includes an entire tax

year, or

• A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at

least 330 full days during any period of 12 consecutive months.

Tax home. Your tax home is the general area of your

main place of business, employment, or post of duty

where you are permanently or indefinitely engaged to

work. You are not considered to have a tax home in a

foreign country for any period during which your abode is

in the United States. However, being temporarily present

in the United States, or maintaining a dwelling there,

Page 4 Publication 593 (January 2010)
does not necessarily mean that your abode is in the

United States. For details, see Publication 54.

Foreign country. A foreign country, for this purpose,

means any territory under the sovereignty of a government other than that of the United States. It includes the

country’s territorial waters (determined under U.S. laws)

and air space, but not international waters and the airspace above them. A foreign country also includes the

seabed and subsoil of those submarine areas that are

adjacent to the territorial waters of the foreign country

and over which it has exclusive rights under international

law to explore and exploit natural resources. For this

purpose, U.S. possessions or territories and the Antarctic

region are not foreign countries.

Waiver of time requirements. You may not have to

meet the minimum time requirements for bona fide residence or physical presence if you have to leave the

foreign country because war, civil unrest, or similar adverse conditions in the country prevented you from conducting normal business. However, you must be able to

show that you reasonably could have expected to meet

the minimum time requirements if the adverse conditions

had not occurred.

A list of countries qualifying for the waiver is published

in the Internal Revenue Bulletin (IRB). You can read the

IRB on the Internet at www.irs.gov. Or, you can get a

copy of the list by writing to:

Internal Revenue Service

International Section

P.O. Box 920

Bensalem, PA 19020-8518

Travel restrictions. If you violate U.S. travel restrictions, you will not be treated as a bona fide resident of, or

physically present in, a foreign country for any day during

which you are present in a country in violation of the

restrictions. (These restrictions generally prohibit U.S.

citizens and residents from engaging in transactions related to travel to, from, or within certain countries.) Also,

income that you earn from sources within such a country

for services performed during a period of travel restrictions does not qualify as foreign earned income. Your

housing expenses within that country (or outside that

country for housing your spouse or dependents) while

you are in violation of travel restrictions cannot be included in figuring your foreign housing amount.

These travel restrictions currently apply only to Cuba.

However, if you performed services at the U.S. Naval

Base at Guantanamo Bay, these travel restrictions do not

apply.

Exclusion of Foreign Earned Income

If your tax home is in a foreign country and you meet

either the bona fide residence test or the physical presence test, you can choose to exclude from gross income

a limited amount of your foreign earned income. Your

Publication 593 (January 2010) Page 5
income must be for services performed in a foreign

country during your period of foreign residence or presence, whichever applies. You cannot, however, exclude

the pay you receive as an employee of the U.S. Government or its agencies.

Credits and deductions. If you claim the exclusion,

you cannot claim any credits or deductions that are

related to the excluded income. Thus, you cannot claim a

foreign tax credit or deduction for any foreign income tax

paid on the excluded income. Nor can you claim the

earned income credit if you claim the exclusion. Also, for

IRA purposes, the excluded income is not considered

compensation and, for figuring deductible contributions

when you are covered by an employer retirement plan,

the excluded income is included in your modified adjusted gross income.

Amount excludable. If your tax home is in a foreign

country and you qualify under either the bona fide residence test or the physical presence test for all of 2009,

you can exclude up to $91,400 of your foreign earned

income. The maximum amount you can exclude is adjusted annually for inflation.

If you qualify under either test for only part of the year,

you must reduce ratably the maximum amount based on

the number of days within the tax year you qualified

under one of the two tests.

Housing Amount

If your tax home is in a foreign country and you meet

either the bona fide residence test or the physical presence test, you may be able to claim an exclusion or a

deduction from gross income for a housing amount.

Your housing amount is the excess, if any, of your

allowable housing expenses for the year over a base

amount. The amount of allowable housing expenses is

limited.

Allowable housing expenses are the reasonable expenses (such as rent, utilities other than telephone

charges, and real and personal property insurance) paid

or incurred during the year by you, or on your behalf, for

your foreign housing and that of your spouse and dependents if they lived with you. You can include the rental

value of housing provided by your employer in return for

your services. Also, you can include the allowable housing expenses of a second foreign household for your

spouse and dependents if they did not live with you

because of dangerous, unhealthy, or otherwise adverse

living conditions at your tax home. Allowable housing

expenses do not include the cost of home purchase or

other capital items, wages of domestic servants, or deductible interest and taxes.

Your allowable housing expenses are limited to a

percentage of the maximum foreign earned income exclusion amount (discussed earlier under Amount excludable), figured on a daily basis, times the number of days

during the year that you meet the bona fide residence

test or the physical presence test. The percentage may

vary depending on the foreign country where your tax

Page 6 Publication 593 (January 2010)
home is located. For more information, see the Instructions for Form 2555.

The base amount is 16% of the maximum foreign

earned income exclusion amount, figured on a daily

basis, times the number of days during the year that you

meet the bona fide residence test or the physical presence test. For 2009, this amount is $40.07 per day

($14,624 per year).

You figure the limit on housing expenses and the

base amount on Form 2555.

Exclusion. You can exclude (up to the limits) your

entire housing amount from income if it is paid for with

employer-provided amounts. Employer-provided

amounts are any amounts paid to or for you by your

employer, including your salary, housing reimbursements, and the fair market value of pay given in the form

of goods and services. If you have no self-employment

income, your entire housing amount is considered paid

for with employer-provided amounts.

If you claim the exclusion, you cannot claim any

credits or deductions related to excluded income, including a credit or deduction for any foreign income tax paid

on the excluded income.

Deduction. If you are self-employed and your housing

amount is not provided by an employer, you can deduct it

in arriving at your adjusted gross income. However, the

deduction cannot be more than your foreign earned income for the year minus the total of your excluded foreign

earned income plus your housing exclusion.

Carryover. If you cannot deduct all of your housing

amount in a tax year because of the limit, you can carry

over the unused part to the following year only. If you

cannot deduct it in the following year, you cannot carry it

over to any other year. You deduct the carryover in

figuring adjusted gross income. The amount of carryover

you can deduct is limited to your foreign earned income

for the year of the carryover minus the total of your

foreign earned income exclusion, housing exclusion, and

housing deduction for that year.

Choosing the Exclusion(s)

You make separate choices to exclude foreign earned

income and/or to exclude or deduct your foreign housing

amount. You choose the housing exclusion or deduction

by completing the appropriate parts of Form 2555. You

cannot use Form 2555-EZ if you are claiming the housing

exclusion or deduction.

If you choose to take both the foreign housing exclusion and the foreign earned income exclusion, you must

figure your foreign housing exclusion first. Your foreign

earned income exclusion is then limited to the smaller of

(a) your annual exclusion limit or (b) the excess of your

foreign earned income over your foreign housing exclusion.

 Once you choose to exclude your foreign earned

income or housing amount, that choice remains in effect

for that year and all future years unless you revoke it. You

can revoke your choice for any year. However, if you

Publication 593 (January 2010) Page 7
revoke your choice for a year, you cannot claim the

exclusion again for your next 5 years without the approval of the IRS. For more information on revoking the

exclusion, see chapter 4 of Publication 54.

Married couples. If both you and your spouse are

eligible for the exclusion(s), see chapter 4 of Publication

54.

Tax on Income Not Excluded

If you claim the foreign earned income exclusion, the

housing exclusion, or both, you must figure the tax on

your nonexcluded income using the tax rates that would

have applied had you not claimed the exclusions. See

the instructions for Form 1040 and complete the Foreign

Earned Income Tax Worksheet. When figuring your alternative minimum tax on Form 6251, use the Foreign

Earned Income Tax Worksheet in the instructions for

Form 6251.

Exclusion of Employer-Provided Meals

and Lodging

If as a condition of employment you are required to live in

a camp in a foreign country that is provided by or for your

employer, you can exclude the value of any meals and

lodging furnished to you, your spouse, and your dependents. For this exclusion, a camp is lodging that is:

• Provided for your employer’s convenience because

the place where you work is in a remote area

where satisfactory housing is not available to you

on the open market within a reasonable commuting

distance,

• Located as close as practicable in the area where

you work, and

• Provided in a common area or enclave that is not

available to the public for lodging or accommodations and that normally houses at least 10 employees.

Tax Withholding

and Estimated Tax

Generally, you must pay U.S. tax on income earned

abroad in the same way you pay tax on income earned in

the United States. If you are an employee of a U.S.

company, your employer probably withholds income tax

from your pay. If income tax is not withheld or if not

enough tax is withheld, you might have to pay estimated

tax.

Withholding tax. You may be able to have your employer discontinue withholding income tax from all or a

part of your wages. You can do this if you expect to

qualify for the income exclusions under either the bona

fide residence test or the physical presence test. See

Publication 54 for information.

Page 8 Publication 593 (January 2010)
Withholding from pension payments. U.S. payers

of benefits from employer-deferred compensation plans

(such as employer pension, annuity, or profit-sharing

plans), individual retirement plans, and commercial annuities generally must withhold income tax from the payments or distributions. To claim exemption from

withholding, you must provide the payer of the benefits

with a residence address in the United States or a U.S.

possession unless you certify to the payer that you are

not a U.S. citizen or resident alien or someone who left

the United States to avoid tax.

For rules that apply to nonperiodic distributions from

qualified employer plans and tax-sheltered annuity

plans, get Publication 575, Pension and Annuity Income.

Estimated tax. Because foreign employers generally

do not withhold U.S. tax from your wages, you may have

to pay estimated tax if you are working abroad for a

foreign employer. Your estimated tax is generally the

total of your estimated income tax and self-employment

tax for the year minus your expected withholding for the

year.

When you estimate your gross income, do not include

the income that you expect to exclude. You can subtract

from income your estimated housing deduction in figuring your estimated tax liability. However, if the actual

exclusion or deduction is less than you expected, you

may be subject to a penalty on the underpayment.

If you qualify for the foreign earned income or

housing exclusions, see Publication 505 to estiCAUTION

mate your tax liability.

!

Use Form 1040-ES, Estimated Tax for Individuals, to

estimate your tax. The requirements for filing and paying

estimated tax are generally the same as those you would

follow if you were in the United States.

Foreign Income Taxes

In some cases, you can claim a credit or take a deduction

for foreign income tax you pay. It is usually to your

advantage to claim a credit for foreign taxes rather than

to deduct them. A credit reduces your U.S. tax liability,

and any excess can be carried back and carried forward

to other years. A deduction only reduces your taxable

income and can be taken only in the current year. You

generally cannot deduct some foreign income taxes and

take a credit for others.

Tax credit. If you choose to claim a credit for foreign

taxes, you generally must complete Form 1116, Foreign

Tax Credit (Individual, Estate, or Trust), and attach it to

your U.S. income tax return. Do not include the foreign

taxes paid or accrued as withheld income taxes on Form

1040.

Limit. Your credit cannot be more than the part of

your U.S. income tax liability based on your taxable

income from sources outside the United States. So, if

you have no U.S. income tax liability, or if all your foreign

Publication 593 (January 2010) Page 9
income is excludable, you will not be able to claim a

foreign tax credit.

If the foreign taxes you paid or incurred during the

year are more than the limit on your credit for the current

year, you can carry back the unused foreign taxes as

credits to the previous year and then carry forward any

remaining unused foreign taxes to the next 10 years.

You will not be subject to this limit and may be

able to claim the credit without using Form 1116

if the following requirements are met.

TIP

• You are an individual.

• Your only foreign source income for the year is

passive category income (which includes most dividends, interest, and royalties) that is reported to

you on a payee statement (such as a Form

1099-DIV or 1099-INT).

• Your creditable foreign taxes for the year are not

more than $300 ($600 if filing a joint return) and

are reported on a payee statement.

• You elect this procedure for the year.

If you make this election, you cannot carry back

or carry over any unused foreign tax to or from

CAUTION

this year.

!

Foreign taxes paid on excluded income. You cannot claim a credit for foreign taxes paid on amounts

excluded from gross income under the foreign earned

income exclusion or the housing amount exclusion, discussed earlier.

Deduction. If you choose to deduct all foreign income

taxes on your U.S. income tax return, itemize the deduction on Schedule A (Form 1040). You cannot deduct

foreign taxes paid on income you exclude from your U.S.

income tax return.

More information. The foreign tax credit and deduction, their limits, and the carryback and carryover provisions are discussed in detail in Publication 514.

Tax Treaty Benefits

U.S. tax treaties or conventions with many foreign countries entitle U.S. residents to certain credits, deductions,

exemptions, and reduced foreign tax rates. In this way,

you may be able to pay less tax to those countries.

For example, most tax treaties allow U.S. residents to

exempt part or all of their income for personal services

from the treaty country’s income tax if they are in the

treaty country for a limited number of days.

Treaties also generally provide U.S. students, teachers, and trainees with special exemptions from the foreign treaty country’s income tax. Publication 901

contains detailed information on tax treaties and tells you

where you can get copies of them.

Page 10 Publication 593 (January 2010)
How To Get Tax Help

You can get help with unresolved tax issues, order free

publications and forms, ask tax questions, and get information from the IRS in several ways. By selecting the

method that is best for you, you will have quick and easy

access to tax help.

Contacting your Taxpayer Advocate. The Taxpayer

Advocate Service (TAS) is an independent organization

within the IRS whose employees assist taxpayers who

are experiencing economic harm, who are seeking help

in resolving problems with the IRS, or who believe that an

IRS system or procedure is not working as it should.

If you live outside of the United States, you can call

the Taxpayer Advocate at (787) 622-8940 in English or

(787) 622-8930 in Spanish. You can contact the Taxpayer Advocate at:

Internal Revenue Service

Taxpayer Advocate

P.O. Box 193479

San Juan, PR 00919-3479

Or, you can visit the website at www.irs.gov/advocate.

Free tax services. To find out what services are available, get Publication 910, IRS Guide to Free Tax Services. It contains lists of free tax information sources,

including publications, services, and free tax education

and assistance programs.

Internet. You can access the IRS website at

www.irs.gov 24 hours a day, 7 days a week to:

• E-file your return.

• Check the status of your refund.

• Download forms, instructions, and publications.

• Order IRS products online.

• Research your tax questions online.

• Search publications online by topic or keyword.

Phone. Many services are available by phone.

If you are outside the United States, taxpayer assistance is available at the following U.S Embassy, consulate, or IRS office.

Beijing, China (86) (10) 8531-4805

Frankfurt, Germany (49) (69) 7535-3834

London, England (44) (20) 7894-0476

Paris, France (33) (1) 4312-2555

Publication 593 (January 2010) Page 11
 Please contact the office for times when assistance

will be available. If you cannot get to one of these offices,

taxpayer assistance is available at (215) 516-2000 (not a

toll free call).

If you are in a U.S. territory (American Samoa, Guam,

Northern Mariana Islands, Puerto Rico, and U.S. Virgin

Islands) and have a tax question, you can call

1-800-829-1040.

If you are outside the United States during the filing

period (January to mid-June), you can get the necessary

federal tax forms and publications from most U.S. Embassies and consulates.

Also, during filing season, the IRS conducts an overseas taxpayer assistance program. To find out if IRS

personnel will be in your area, you should contact the

consular office at the nearest U.S. Embassy.

Mail. You can send your order for forms, instructions, and publications to the address below. You should receive a response within 10

days after your request is received.

Internal Revenue Service

1201 N. Mitsubishi Motorway

Bloomington, IL 61705-6613

Page 12 Publication 593 (January 2010)