What Is the Physical Presence Test?
The physical presence test is a tool used by the Internal Revenue Service (IRS) to determine whether a taxpayer qualifies for the foreign earned income exclusion when filing their taxes.
The test requires that a person be physically present in a foreign country or countries for at least 330 full days during a consecutive 12 months. The 330 days during which the person is abroad do not need to be consecutive.
- If you are a U.S. citizen or resident alien who spends more than 330 days living in a foreign country, you may be eligible to exclude the money you earn in that country from your U.S. taxes.
- That exclusion, called the Foreign Earned Income Exclusion, is available if you pass the physical presence test.
- The physical presence test is a measure of how many days (330 is the minimum) you spent in a foreign country or (from the other perspective) outside of the U.S.
How the Physical Presence Test Works
The physical presence test allows taxpayers to exclude a certain amount of their foreign earned income. If you are a U.S. citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. However, you may qualify to exclude your foreign earnings from income up to an amount that is adjusted annually for inflation: $103,900 for 2018, $105,900 for 2019, and $107,600 for 2020.
People who qualify for this exclusion are also likely to qualify for the foreign housing deduction, which can also save them money on their taxes.
The foreign income exclusion is available to both citizens and resident aliens of the U.S. According to the tax code, a person’s reason for being abroad is irrelevant to this test. However, family emergencies, illness and employer directive do not suffice as reasons to allow for the exclusion if one of those reasons 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 330 days.
A person may travel between foreign countries during their time abroad. Any time spent within the United States while in transit, such as during a layover between flights, does not count against the person’s 330 days, as long as the period of time within the U.S. is less than 24 hours.
Exceptions to the Rule
If a person’s presence in a foreign country violates U.S. law, the government will not view them as physically present in that country for the time in which they violated the law. Any income earned within that country while violating U.S. law is not considered foreign earned income by the IRS.
The minimum time requirement may also be waived if the taxpayer must leave a foreign country due to war, civil unrest, or another condition that makes the country significantly unsafe or unlivable. If the taxpayer can demonstrate that they could have and would have reasonably met the requirements of the physical presence test if not for the adverse conditions, and that they had a tax home in that country and were a bona fide resident of the country at the time, they may still qualify for the exclusion.
Pay received as military or civilian income while stationed abroad is not considered foreign earned income by the U.S. government.