A:

If you are a U.S. citizen or resident alien, your income (except for amounts exempt under federal law), including that which is earned outside the U.S., is usually subject to U.S. income tax.

This includes earned income and unearned income, such as:

However, if you meet certain requirements, you are eligible to exclude up to $100,800 of your foreign-earned income from your 2015 U.S. income taxes (it will rise to $101,300 for 2016). This is referred to as the foreign-earned income exclusion.

In order to be eligible for the foreign-earned income exclusion, you must meet the following three requirements:

  1. Your tax home must be in a foreign country. Your tax home is defined as the general area of your main place of employment, where you are permanently or indefinitely engaged to work as an employee or self-employed individual regardless of where you maintain your family home. Note: Your place of residence can be different from your tax home.
  2. You must have foreign-earned income.
  3. You must be either:

This is a high level description of this provision, and other rules apply that could affect your eligibility to claim the foreign-earned income exclusion. For details, see IRS Publication 54 at www.irs.gov. See also IRS publication 519 to find out if you qualify as a U.S. resident alien for tax purposes. These publications are also available or by calling the IRS at 800-829-3676.

To read more frequently asked tax questions, Are there special benefits for U.S. armed forces personnel?, Does everyone have to file a federal tax return?, How can I make sure I'm ready to file my taxes? and Common Tax Questions Answered.

If you feel you will be unable to file your tax return by the deadline, see Get A Six-Month Tax Extension.

Question answered by Denise Appleby, CISP, CRC, CRPS, CRSP, APA

RELATED FAQS
  1. Do I have to pay capital gains tax if I invest my equity into a new home?

    I have owned and lived in my home for 14 months. I want to sell it and move into a bigger home. Can I invest my equity into ... Read Answer >>
  2. I am a non-U.S. citizen living outside the U.S. and trading stocks through a U.S. ...

    The tax implications for a foreign investor will depend on whether that person is classified as a resident alien or a non-resident ... Read Answer >>
  3. Can the government tax your capital gains from other countries?

    Learn more about how capital gains earned in foreign countries are treated by the IRS. Discover examples of special tax situations ... Read Answer >>
  4. How can I lower my effective tax rate without lowering my income?

    Discover how to reduce your effective tax rate without losing income by maximizing adjustments and deductions, earning tax-free ... Read Answer >>
  5. Will I pay taxes on my Social Security payouts?

    Find out if you're one of the people who has to pay federal income taxes on the Social Security benefit you receive. Read Answer >>
  6. Does everyone have to file a federal tax return?

    This may come as a surprise to many individuals, but not everyone needs to file a federal tax return. According to the IRS, ... Read Answer >>
Related Articles
  1. Personal Finance

    How To Pay Taxes If You're Overseas

    Here is a step by step guide to paying taxes if you are a U.S. citizen living overseas.
  2. Investing

    What Taxes Do I Owe On Retirement Accounts Abroad?

    If you're a U.S. retiree, but previously worked abroad, here's what you need to know about taxes on foreign pensions and retirement accounts.
  3. Markets

    What is a Resident Alien?

    A resident alien is a foreigner who is a permanent resident of the country in which he or she resides but does not have citizenship.
  4. Personal Finance

    3 Common Tax Questions Answered

    We clarify some rules that often puzzle taxpayers.
  5. Personal Finance

    How Getting A Raise Affects Your Taxes

    Many people think they may actually make less overall because they are paying more taxes.
  6. Personal Finance

    Next Season, File Taxes On Your Own

    Master these fundamentals and you'll be doing your own taxes with minimal stress.
  7. Personal Finance

    Understanding Taxation Of Foreign Investments

    Technically, any gains from foreign investments owned by an American citizen are subject to tax by the company's home country as well as the IRS. However, the Foreign Tax Credit enables you to ...
  8. Personal Finance

    Breaking Down Taxes For Different Income Brackets

    Here is a useful rundown of how much you will pay in taxes based on your income.
  9. Personal Finance

    Confused About Estimated Tax Deadlines for 2016?

    If you run a business or have investment income, pay attention to this year's estimated tax deadlines. Here are the details, and what's new for 2016.
  10. Personal Finance

    The Ultimate Tax-Time Checklist

    Find out what information you need to pull together before filling out your return.
RELATED TERMS
  1. Resident Alien

    A foreigner who is a permanent resident of the country in which ...
  2. Bona Fide Foreign Resident

    Any resident of a foreign country that meets the IRS criteria ...
  3. IRS Publication 514

    A document published by the Internal Revenue Service that provides ...
  4. IRS Publication 513

    A document published by the Internal Revenue Service that details ...
  5. Income Tax

    A tax that governments impose on financial income generated by ...
  6. Nonresident Alien

    A non-U.S. citizen who doesn't pass the green card test or the ...
Hot Definitions
  1. Glass-Steagall Act

    An act the U.S. Congress passed in 1933 as the Banking Act, which prohibited commercial banks from participating in the investment ...
  2. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  3. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  4. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  5. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  6. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
Trading Center