The Foreign Earned Income Exclusion (FEIE) is a tax scheme available to US citizens and residents who live and work abroad. The scheme allows qualifying individuals to exclude a certain amount of their foreign-earned income from their US taxable income. This can result in significant tax savings for US citizens and residents who live and work abroad.
To qualify for the FEIE scheme, the individual must meet certain criteria. Firstly, the individual must have a tax home in a foreign country. This means that the individual must be living and working in a foreign country for a significant period of time, typically at least 330 days in a 12-month period.
Secondly, the individual must have a foreign-earned income. This refers to income that is earned from working in a foreign country, such as wages, salaries, and self-employment income. Investment income and passive income, such as rent and interest, do not qualify for the FEIE scheme.
Thirdly, the individual must be a US citizen or resident. This means that the individual must hold a valid US passport or a US green card, or must meet the substantial presence test. The substantial presence test is a set of criteria that determines whether an individual is considered a US resident for tax purposes.
Once the individual meets all of the criteria for the FEIE scheme, they can then claim the exclusion on their US tax return. The amount of the exclusion is subject to change each year, but for the tax year 2021, the exclusion is $107,600. This means that qualifying individuals can exclude up to $107,600 of their foreign-earned income from their US taxable income.
In addition to the FEIE scheme, qualifying individuals may also be eligible for the foreign tax credit. This is a tax credit that allows individuals to offset any foreign taxes paid on their foreign-earned income against their US tax liability. The foreign tax credit can be claimed in addition to the FEIE scheme, providing further tax savings for US citizens and residents who live and work abroad.
In conclusion, the Foreign Earned Income Exclusion (FEIE) is a tax scheme available to US citizens and residents who live and work abroad. The scheme allows qualifying individuals to exclude a certain amount of their foreign-earned income from their US taxable income, resulting in significant tax savings. To qualify for the FEIE scheme, the individual must have a tax home in a foreign country, have foreign-earned income, and be a US citizen or resident. Once the individual meets all of the criteria, they can claim the exclusion on their US tax return.
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