Department of the Treasury

Internal Revenue Service

Publication 593

(Rev. March 1998)

Cat. No. 46595Q

Tax Highlights

for U.S. Citizens

and Residents

Going Abroad

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Introduction

This publication discusses in general terms some provisions of the 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. Also, you are subject to the

same income tax return filing requirements that apply

to U.S. citizens or residents 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, on your U.S. return, be able to claim a tax

credit or an itemized deduction 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.

Students or professors who receive income from

teaching or while studying abroad should also get Publication 520, Scholarships and Fellowships. 

See How to Get More Information near 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, marital 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. It does not matter

that:

• The income is paid in foreign money, 

• The foreign country imposes an income tax on that

income, or

• The income is excludable under the foreign earned

income exclusion, discussed later.

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

from self-employment, regardless of your age. You

must pay self-employment tax on your selfemployment income even if it is earned in a foreign

country and is excludable as foreign earned income

in figuring your income tax. Net earnings from selfemployment include the income earned both in a foreign

country and in the United States.

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. If you are a U.S. citizen

or resident and both your tax home and your abode (the

place where you regularly live) are outside the United

States and Puerto Rico on the regular due date of your

return, or you are in military or naval service on duty

outside the United States and Puerto Rico, you are automatically granted an extension to June 15 to file your

return and pay any tax due. 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. You must, however, 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.

Individual Income Tax Return, with the Internal Revenue

Service Center in Philadelphia or your local IRS representative. 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 following situations apply

to you, you should file your return with the Internal

Revenue Service Center, Philadelphia, PA 19255-0002.

1) You claim the foreign earned income exclusion.

2) You claim the foreign housing exclusion or deduction.

3) You claim the exclusion of income for bona fide

residents of American Samoa.

4) You live in a foreign country or U.S. possession

and have no legal residence or principal place of

business in the United States.

All other taxpayers should see Publication 54 or the

instructions for Form 1040.

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)

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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 from the IRS

Forms Distribution Center, P.O. Box 25866, Richmond,

VA 23286-8107.

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.

You can also request additional information by

writing to:

Internal Revenue Service

Assistant Commissioner (International)

Estate Tax Group

CP:IN:D:C:EX:HQ:1114

950 L'Enfant Plaza South, S.W.

Washington, DC 20024.

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 your reasonable housing costs that are over a certain base amount. Generally, you will qualify for these

benefits if your tax home (defined below) 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:

1) A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes a complete tax year, or

2) 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

3) 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, does not necessarily mean that your abode is in

the United States. For details, see Publication 54.

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Foreign country. A foreign country, for this purpose,

means any territory under the sovereignty of a government other than that of the United States, including

territorial waters (determined under U.S. laws) and air

space. A foreign country also includes the seabed and

subsoil of those submarine areas which 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 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. You must, however, be

able to show that you reasonably could have expected

to meet the minimum time requirements if the adverse

conditions had not occurred. See Publication 54 for a

list of foreign countries that individuals have had to

leave due to these conditions.

Travel restrictions. If you violate U.S. travel restrictions, you will not be treated as being 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. Housing expenses that you incur 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.

Currently, these travel restrictions apply to Cuba,

Libya, and Iraq.

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 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. You cannot exclude pay you receive for services

performed abroad for Armed Forces exchanges, officers' messes, etc., operated by the U.S. Army, Navy,

or Air Force.

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.

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Amount excludable. If your tax home is in a foreign

country and you qualify under either the bona fide residence test or physical presence test for the entire tax

year, you can exclude your foreign income earned during the year up to the maximum amount shown in the

schedule below.

Beginning in 2008, the $80,000 amount will be adjusted

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.

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

allowable housing expenses for the tax year over a

base amount. 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 tax 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. You can also 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.

The base amount is 16% of the annual salary of a

GS-14, step 1, U.S. Government employee, 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 annual salary is determined on

January 1 of the year in which your tax year begins. You

figure the base amount on Form 2555.

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

entire housing amount from income if it is considered

paid for with employer-provided amounts. Employerprovided 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 selfemployment 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 is limited to the amount your

Year Maximum Exclusion

1997 $70,000

1998 $72,000

1999 $74,000

2000 $76,000

2001 $78,000

2002 and after $80,000

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foreign earned income for the tax year is more than the

excluded foreign earned income and housing amount.

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. 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 tax year. However,

if you revoke your choice for a tax year, you cannot

claim the exclusion again for your next 5 tax years

without the approval of the IRS. For more information

on revoking the exclusion, see Publication 54.

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:

1) 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,

2) Located as close as practicable in the area where

you work, and

3) 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 the income earned

abroad in the same way you pay the tax on income

earned in the United States. If you are an employee,

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.

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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.

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. Withholding will apply unless

you choose exemption from withholding. You cannot

choose exemption unless you provide the payer of the

benefits with a residence address in the United States

or a U.S. possession or 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. If you are working abroad for a foreign

employer, you may have to pay estimated tax, since not

all foreign employers withhold U.S. tax from your wages.

Your estimated tax is 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.

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

A limited amount of the foreign income tax you pay can

be credited against your U.S. tax liability or deducted in

figuring taxable income on your U.S. income tax return.

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 must treat all foreign income

taxes in the same way. You generally cannot deduct

some foreign income taxes and take a credit for others.

Tax credit. If you choose to credit foreign taxes against

your tax liability, complete Form 1116, Foreign Tax

Credit, (Individual, Estate, Trust, or Nonresident Alien

Individual), 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 allocable to your taxable

income from sources outside the United States. So, if

you have no U.S. income tax liability, or if all your foreign income is excludable, you will not be able to claim

a foreign tax credit.

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If the foreign taxes you paid or incurred during the

year exceed the limit on your credit for the current year,

you can carry back the unused foreign taxes as credits

to the 2 previous tax years and then carry forward any

remaining unused foreign taxes to the next 5 tax years.

TIP

For tax years beginning after 1997, 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.

1) You are an individual.

2) Your only foreign source income for the tax year

is passive income (dividends, interest, royalties,

etc.) that is reported to you on a payee statement

(such as a Form 1099–DIV or 1099–INT).

3) Your qualified foreign taxes for the tax year are not

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

are reported on a payee statement.

4) You elect this procedure for the tax year.

CAUTION

! If you make this election, you cannot carryback

or carryover any unused foreign tax to or from

this tax 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.

How To Get More Information

You can get help from the IRS in several ways. The IRS

has combined special forms and instructions as well as

Publication 54 in Package 1040–7 for U.S. citizens and

residents living abroad. 

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You can get the package and additional assistance by writing to:

Internal Revenue Service

Assistant Commissioner (International)

Attn: CP:IN:D:CS

950 L'Enfant Plaza South, S.W.

Washington, DC 20024

During the filing period, you can also get the necessary federal income tax forms and publications from

U.S. embassies and consulates.

You can also call your nearest U.S. embassy or

consulate, or the IRS office numbers listed below, to find

out when and where assistance will be available. These

IRS telephone numbers include the country and city

codes required if you are outside the local dialing area.

If you have access to a personal computer and a

modem, you can also get many forms and publications

electronically. They are available through IRIS, the

Internal Revenue Information Services, on FedWorld, a

government bulletin board. IRIS is accessible directly

by calling 703–321–8020. On the Internet, you can

telnet to iris.irs.ustreas.gov or, for file transfer protocol

services, connect to ftp.irs.ustreas.gov. If you are using

the World Wide Web, connect to www.irs.ustreas.gov.

Within the United States. To order free publications

and forms, call 1–800–TAX-FORM (1–800–829–3676).

Your local library or post office also may have the items

you need.

For a list of free tax publications, order Publication

910, Guide to Free Tax Services. It also contains an

index of tax free topics and related publications and

describes other free tax information services available

from IRS, including tax education and assistance programs.

Tax questions. You can call the IRS with your tax

questions. Check your telephone book for the local

number, or you can call 1–800–829–1040.

TTY/TDD equipment. If you have access to

TTY/TDD equipment, you can call 1–800–829–4059 to

ask tax questions or to order forms and publications.

Evaluating the quality of our telephone services.

To ensure that IRS representatives give accurate,

courteous, and professional answers, we evaluate the

quality of our “800 number” telephone services in several ways.

• A second IRS representative sometimes monitors

live telephone calls. That person only evaluates the

IRS assistor and does not keep a record of any

taxpayer's name or tax identification number.

Bonn, Germany (49) (228) 339-2119

London, England (44) (171) 408-8077

Mexico City, Mexico (52) (5) 211-0042

Ext. 3557 or 3559

Nassau, Bahamas (800) 829–1040

or (809) 759–5100

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

Rome, Italy (39) (6) 4674-2560

Santiago, Chile (56) (2) 330–3424

Singapore (65) 476–9413

Sydney, Australia (61) (2) 9373-9194

Tokyo, Japan (81) (3) 3224-5466

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• We sometimes record telephone calls to evaluate

IRS assistors objectively. We hold these recordings

no longer than one week and use them only to

measure the quality of assistance.

• We value our customers' opinions. Throughout this

year, we will be surveying our customers for their

opinions on our service.

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