Physical-Presence Test


DEFINITION of 'Physical-Presence Test'

Similar to the bona fide foreign residence test, the physical-presence test allows taxpayers to claim the foreign earned income exclusion. The test mandates that a taxpayer must be physically present in a foreign country for at least 330 full days out of the year in order to claim the exclusion. The days do not have to be consecutive and the test applies both to U.S. citizens and resident aliens.

BREAKING DOWN 'Physical-Presence Test'

The reason for being abroad is irrelevant to this test. However, a family emergency, illness or employer directive is not a sufficient reason to allow for the exclusion if it causes the taxpayer to be present in a foreign country for less than the required 330 days. Furthermore, a "day" is considered a full 24-hour period, so days of arrival and departure in a foreign country do not count toward the required time.

  1. IRS Publication 597

    A document published by the Internal Revenue Service (IRS) that ...
  2. 183-Day Rule

    The 183-day rule is part of the "substantial presence test" used ...
  3. Foreign Housing Exclusion And Deduction

    An allowance for taxpayers who live and work in a foreign country ...
  4. Home Office

    An office located inside the taxpayer's home that serves as the ...
  5. Bona Fide Foreign Resident

    Any resident of a foreign country that meets the IRS criteria ...
  6. Deduction

    Any item or expenditure subtracted from gross income to reduce ...
Related Articles
  1. Taxes

    Get A Tax Credit For Your Foreign Investments

    The foreign tax credit provides a break on investment income made and taxed in a foreign country.
  2. Taxes

    5 Tax Credits You Shouldn't Miss

    If you're not taking advantage of these deductions, you could be missing out on tax savings.
  3. Taxes

    Give Your Taxes Some Credit

    A few tax credits can greatly increase the amount of money you get back on your return.
  4. Taxes

    Here's How to Deduct Your Stock Losses From Your Tax Bill

    Learn the proper procedure for deducting stock investing losses, and get some tips on how to strategically take losses to lower your income tax bill.
  5. Taxes

    The 5 Countries Without Income Taxes

    Discover information on some of the best countries to consider relocating to that offer the financial benefit of charging no income tax.
  6. Fundamental Analysis

    7 Ways to Create a Tax-Efficient Portfolio

    Taxes may be a necessary evil, but that doesn't mean they can't be reduced. Here's a host of smart moves today's investors can make.
  7. Economics

    Explaining Fair Market Value

    Fair market value is the price at which a buyer and seller are willing to exchange a good.
  8. Taxes

    4 Reasons Why Delaware Is Considered a Tax Shelter

    Understand what a tax shelter is and how one is normally created. Learn about Delaware and the top five reasons why it's considered a tax shelter.
  9. Mutual Funds & ETFs

    How Tax-Efficient Is Your Mutual Fund?

    Learn about factors that influence the tax-efficiency of your mutual fund, how income from your investment is taxed and what to look for when choosing a fund.
  10. Mutual Funds & ETFs

    Understanding Taxes on Mutual Funds Dividends

    Learn about the basics of mutual fund dividend taxation, including how and why mutual funds pay dividends and when different tax rates apply to dividend income.
  1. Are Cafeteria plans taxable?

    Whether the benefits you receive through your employer-sponsored cafeteria plan are taxable depends entirely on which benefits ... Read Full Answer >>
  2. Why is Panama considered a tax haven?

    The Republic of Panama is considered one of the most well-established pure tax havens in the Caribbean due to extensive legislation ... Read Full Answer >>
  3. Do financial advisors prepare tax returns for clients?

    Financial advisors engage in a wide variety of financial areas, including tax return preparation and tax planning for their ... Read Full Answer >>
  4. How are variable annuities taxed at death?

    If the owner of a variable annuity dies before receiving full payment, his beneficiary must pay taxes on any earnings received. ... Read Full Answer >>
  5. How do I calculate insurance premium tax?

    In the United States, consumers do not pay any additional tax on health insurance premiums. However, your insurance premiums ... Read Full Answer >>
  6. How can I find tax-exempt mutual funds?

    Tax-exempt mutual funds can be found at many prominent investment firms. Most mutual funds offer a variety of investment ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  2. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  3. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  4. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  5. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  6. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!