Is there tax free income for americans working abroad?
Question by Lion_HRT: Is there tax free income for americans working abroad?
If a healthcare worker working for a foreign company in Saudi Arabia, do they have to pay taxes on that income?
Best answer:
Answer by mathew
If you are a U S citizen you must file each year just the same as if you were living in the US. Before you file or talk to your CPA you should go to IRS.gov and review Publication 54.
You may be able to exclude as much as $ 80,000 from your income. The rules are complicated and yours will not the first CPA that does not understand them. The hardest part to understand is the requirements that include a calculation of the number of days you were in the foreign county. It requires 330 days in 12 consecutive months. Those 12 months need not be in the same calendar year nor do you need to be in the same country. For example you go to foreign country A on May 31, 2005 and earn nothing in that country while you are getting settled and looking for work. You find a job on December 1, 2005 with a US company in foreign country B starting January 1, 2006 and fly home to the US and celebrate for 30 days. From Jan. 1, 2006 to June1, 2006 you earn $ 75 K working in Foreign B country. June 2, 2006 you return to the US and get a job for $ 1,000 a month at McDonalds. If I got the math right you have $ 81,000 income in 2006. You file a 1040 in April just like every one but you include a form 2555 and exclude $ 75K as foreign income. Your total taxable income is $ 6,000 and you have no tax liability. You will get a refund of everything that you had withheld from either the foreign or US job. The rules are very complicated and there could be other issues like unearned income, which is not excluded. But the really big deal is the $ 80K exclusion, which really will be different as that is the 2005 figure. If you don’t know the rules you cannot count on your CPA knowing them. I would have no idea what if any impact this would have on your state income tax as I don’t know what state you live in. The following two links provide valuable information.
http://www.irs.gov/faqs/faq13-3.html…
http://www.irs.gov/pub/irs-pdf/f2555.pdf…
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