Critical Issues Earned Income Exclusion - Was $70,000, going up to $80,000 Physical Presence Test and Bona Fide Resident Test Exclusion of Foreign Housing Costs Exclusion of Meals and Lodging Foreign Tax Credit Earned Income Exclusion In 1997, qualified expatriates could exclude up to $70,000 of foreign earned income (salaries, wages or professional fees). This exclusion increases $2,000 per year until the year 2002 when the exclusion will be $80,000. In order to obtain the benefits of the exclusion, you must meet the Physical Presence Test or the Bona Fide Resident Test and file a timely Physical Presence Test Under the Physical Presence Test, you must be physically present in a foreign country for 330 full days (24 hour days) out of 12 consecutive months. Excess days in the U.S. for work, vacation or family illness, or travel on the "high seas" can cause you to fail the 330 day test. Bona Fide Resident Test You meet the Bona Fide Resident Test if you are a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year (usually a calendar year). Exclusion of Foreign Housing Costs In addition to the earned income exclusion, you can also claim an exclusion for your housing if you qualify under either the Bona Fide Resident Test or the Physical Presence Test. The total of your qualified housing expenses less about $9,400 (about $26 per qualifying day) is the amount of your exclusion. Meal and Lodging Exclusion The value of meals and lodging provided to you and your family by your employer at no charge is excluded under certain circumstances. Generally, they are excluded if furnished on the business premises of the employer or for the convenience of the employer. Also, the value of housing in certain foreign camps is excluded from your income. Foreign Tax Credit U.S. citizens must pay taxes on their worldwide income. If the income you earn in a foreign country is taxed in a foreign county and by the United States, then you may be able to claim a tax credit for income taxes paid to the foreign country. If the United States does not tax the income (for example, the $70,000-$80,000 exclusion), then there is no double taxation and no foreign tax credit. Home | Critical Issues | Secured Services | Meet Your CPA Links of Interest | Free Services | Contact Me Edward A. Melia, Attorney, C.P.A. 916-441-2006 (Office) 916-447-0415 (Fax) 888-Melia-Ed (Toll Free) ed@edmelia.com (E-mail) Mailing Address P.O. Box 254510 Sacramento, CA 95885-4510 Office Address 1830 15th Street,  Suite 100 Sacramento, CA 95814 Copyright ©1999, 2000 USExpatriates. Edward A. Melia. Sacramento business accounting firm specializing in United States expatriates' tax return preparation. Services include individual and corporate tax accounting.