Is anyone out there an expert on the Foreign Earned Income Exclusion? Or at least more of an expert than I am? I’m trying to figure out if my understanding of how it works/applies to our situation for the 2022 tax year is correct.
Info:
Left the US with my spouse in August 2022. He earned foreign income from September-December 2022, but I did not. His annual income is well below the $112,000 limit for FEIE and is not taxed in our current country.
Because we moved mid-year, my understanding is that we wouldn’t qualify for FEIE our first year abroad if we had filed taxes in April, but if we requested a 6 month extension we could wait to file until >12 months after moving and potentially be eligible then, so we requested an extension and haven’t filed yet for 2022.
We need to spend at least 330 days out of a 365 day period outside the US to be eligible, with at least some part of those 365 days falling in 2022 - correct?
Assuming that’s true, I’ve already spent too long in the US this year to qualify but I think that’s okay because all I earned since moving was a small amount of self-employment income which I know I still need to pay taxes on.
Spouse spent 16 days in the US in December/January. He is planning to go back for another 2-3 weeks in August.
So, the real question is: is my understanding of everything correct that if spouse’s visit this summer is for less than 19 days (35 days in the US total), we won’t be taxed on whatever he earned since moving? But if he stays longer than than, it will all be subject to US taxes? So it’s kind of an all-or-nothing thing?
Edit: Forgot to add, we will be filing married filing jointly if that makes a difference.
I’m not sure about the extension loophole so I would have to investigate, but yes, as long as he spends fewer than 35 days in the us (which is very specific according to the irs based on flight times… being in the plane does not count as days abroad)
So yes you can use the foreign earned income exclusion up to $112,000 of income in 2022 and $120,000 in 2023 BUT you have to have a tax home in a foreign country… you cannot be on a contract with a specified end date where the IRS would assume you will return. You also can’t maintain a home in the us you will return to
Make some sense?
The FEIE does not apply to passive income like capital gains and royalties. Your self employment income, however, would qualify if it was earned abroad.
Technically he has a 2-year contract (2022-2024) but at this point we don’t have plans to return to the US when it ends. We have been using a relative’s address with banks and to receive mail, etc but I don’t think we would otherwise be considered to be maintaining a home…?
I think part of my confusion is that I see the FEIE touted so much both online and by other expats we know as like, a sure thing that you don’t have to pay taxes abroad but it actually seems really hard to qualify for!
Also I’ve been assuming that even filing jointly our eligibility would still be considered on an individual basis so if we’re looking to exempt just his income, then the physical presence test only applies to him… but maybe that’s wrong? This will also be our first year filing as married so I honestly don’t really know how that works either.
My experience is somewhat dated, but may be helpful.
We moved to China in February 2002, but did not sell our NY property until spring 2003. So we initially filed our 2002 federal and state returns without the FEIE, and then filed an amended return after the property sale was finalized and we cut our ties to NY – we did it this way because NY is notoriously difficult about holding on to people for tax purposes so we didn’t want to have any hassles.
Our situation was always potentially a bit dicey as our visa situation was complicated by China’s rules, but from 2003 (and 2002 in retrospect) to 2014 we considered ourselves to be bona fide residents of China and we always filed as such. Once you are bona fide tax residents in another country the 330 day rule does not apply – this made it possible for us to spend longer work and holiday periods in the US without losing the FEIE.
If I were in your shoes I would go ahead and file without the FEIE for 2022, and then do an amended return once your travel dates and residence status are clear.
We always maintained US driver’s licenses/accounts/voting registration and had US mail sent to us c/o my mom’s address.
This is really helpful and reassuring, thank you! And it is really good to know that we may not have to worry about the 330 days when filing for 2023 because that has been stressful.