Reporting Foreign Earned Income

Reporting Foreign Earned Income

Reporting Foreign Earned Income refers to the process by which U.S. taxpayers who earn income from sources outside the United States disclose this income on their tax return.

U.S. citizens and resident aliens are required to report their worldwide income, including income earned in foreign countries. To do so, taxpayers must complete Form 2555, which allows eligible individuals to claim the Foreign Earned Income Exclusion or the Foreign Housing Exclusion.

The Foreign Earned Income Exclusion permits qualifying individuals to exclude a certain amount of their foreign earnings from U.S. taxation, provided they meet specific criteria such as the Bona Fide Residence Test or the Physical Presence Test. For example, in tax year 2023, the maximum exclusion amount is $120,000.

Taxpayers must also ensure compliance with additional reporting requirements, such as Foreign Bank Account Report (FBAR) if they hold foreign financial accounts with a total value exceeding $10,000 at any point during the year.