Last Updated : January 14, 2009
  AutoEfile Home  Sitemap  Contact us   Print this page  Bookmark this page
Call for Support : 732.606.4476 7326988881 - SUPPORT
2555

Form 2555

Foreign Earned Income Exclusion

Purpose of the form:

  • The taxpayer may use this form if he elects to exclude a limited amount of the foreign earned income of a Qualifying U.S citizen or a U.S citizen alien living in a foreign country.
  • Refer the instructions for Qualifying tests for using this form on Form 2555.
  • The maximum amount of foreign earned income that may be excluded is limited to $82400 for tax year 2006.
  • Refer publication 54 for more information about tax home, the Bonafide residence test, the physical presence test, the foreign earned income exclusion and the housing exclusion and deduction.

General Instructions:

  • Part –I is for general information, and it is to be completed by all taxpayers.
  • Part-II is to be completed if the taxpayer qualifies using the bonafide residence test.
  • Part-III is to be completed if the taxpayer qualifies using the physical presence test.
  • From part-II and Part-III only 1 will be applicable to the taxpayer. He cannot fill in both the parts.

 Part – I – General Information:

  • Complete part-I of the form as it  contains general information of the taxpayer regarding the taxpayer’s foreign address , post of duty , occupation , employer and employer address etc,
  • Check the appropriate boxes and answer the various questions as applicable.

Part – II – Taxpayer’s qualifying under Bonafide Residence Test

To meet the bona fide residence test, you must be one of the following:

  • A U.S. citizen who is a bona fide resident of a foreign country, or countries, for an uninterrupted period that includes an entire tax year (January 1–December 31, if you file a calendar year return) or

  • A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country, or countries, for an uninterrupted period that includes an entire tax year (January 1–December 31, if you file a calendar year return). See Pub. 901, U.S. Tax Treaties, for a list of countries with which the United States has an income tax treaty in effect.

For more information of bonafide test refer the instructions. s

The taxpayer should follow the below instructions to complete part-II if applicable:

  • If the taxpayer qualifies for bonafide test, enter the dates the bonafide residence began and ended.
  • Check the appropriate boxes and answer the various questions as applicable.
  • First read the instructions of the particular line and if applicable give the information.
  • One basic condition which checks that you qualify or not is line 13. if the taxpayer answered to line 13a as YES and NO to line 13b then the taxpayer do not qualify a bonafide residence test . So he need not complete part-II.

Part – III – Taxpayer’s qualifying under Physical Presence  Test

To meet physical presence test, you must be one of the following :

  • The taxpayer must be a U.S citizen or resident alien who is physically present in a foreign country. or countries , for at least 330 full days  during any period of 12 months in a row. A full day means the 24- hour period that starts at midnight.

  • TO figure the minimum of 330 full days presence, add all separate periods the taxpayer was present in a foreign country during the 12-month period shown on the line 16. The 330 full days can be interrupted by periods when the taxpayer was travelling over international waters or are otherwise not in a foreign country.

                       For more information of physical test  refer the instructions.

  • First read the instructions of the particular line and if applicable give the information.

Part – IV – All Taxpayer’s

  • List all income including noncash income, you entered and actually or contractually received for services performed in a foreign country.
  • Report amounts in US dollars using the exchange rates in affect when the income was received. These amounts should already have been included in income on Form 1040.

Line 19:

  • Enter wages, salaries, professional fees, and other compensation received for personal services performed in a foreign country during the period for which the taxpayer meets the tax home test and either the bona fide residence test or the physical presence test. Also, include non-cash income (such as a home or car) and allowances or reimbursements.
  • Do not include pension and annuity income (including social security and railroad retirement benefits treated as social security), interest, ordinary dividends, capital gains, alimony, etc.
  • For more information refer instructions of Form 2555.

Line 20:

  • On line 20a If the taxpayer engaged in an unincorporated trade or business in which both personal services and capital were material income-producing factors, a reasonable amount of compensation for personal services is considered earned income. The amount treated as earned income, however, may not be more than 30% of the share of the net profits from the trade or business after subtracting the deduction for one-half of self-employment tax.
  • If capital is not an income-producing factor and personal services produced the business income, the 30% rule does not apply. See IRS instructions for more information.
  • On line 20b Enter the amount from the partnership. Enter the partnership's name, address, and type of income.

Line 25:

Enter the value of meals and/or lodging provided by, or on behalf of, your employer that is excludable from your income under section 119. To be excludable, the meals and lodging must have been provided for your employer's convenience and on your employer's business premises. In addition, you must have been required to accept the lodging as a condition of your employment. If you lived in a camp provided by, or on behalf of, your employer, the camp may be considered part of your employer's business premises. See Exclusion of Meals and Lodging in Pub. 54 for details.

Part – VI – Taxpayer’s Claiming housing exclusion and / or deduction:

Line 28:

  • Qualified housing expenses for the tax year. Enter the total reasonable expenses paid or incurred during the tax year by you, or on your behalf, for your foreign housing and the housing of your spouse and dependents if they lived with you. You can also include the reasonable expenses of a second foreign household (defined below). Housing expenses are considered reasonable to the extent they are not lavish or extravagant under the circumstances.
  • Housing expenses include rent, utilities (other than telephone charges), real and personal property insurance, nonrefundable fees paid to obtain a lease, rental of furniture and accessories, residential parking, and household repairs. You can also include the fair rental value of housing provided by, or on behalf of, your employer if you have not excluded it on line 25.
  • Do not include deductible interest and taxes, any amount deductible by a tenant-stockholder in connection with cooperative housing, the cost of buying or improving a house, principal payments on a mortgage, or depreciation on the house. Also, do not include the cost of domestic labor, pay television, or the cost of buying furniture or accessories.

Line 29:

Enter the number of days in your qualifying period that fall within your 2006 tax year. Your qualifying period is the period during which you meet the tax home test and either the bona fide residence or the physical presence test. If you or your spouse received a nontaxable housing allowance as a military or civilian employee of the U.S. Government, see Pub. 54 for information on how that allowance may affect your housing exclusion or deduction.

Line 32:

Enter the amount the employer paid which is included in gross income such as wages, rent, reimbursement etc… For more detail, see IRS Instruction of form 2555.

Part – VII – Taxpayer’s claiming the foreign earned income Exclusion.

 If both you and your spouse qualify for, and choose to claim, the foreign earned income exclusion, the amount of the exclusion is figured separately for each of you. You each must complete Part VII of your separate Forms 2555. The amount of the exclusion is not affected by the income-splitting provisions of community property laws. The sum of the amounts figured separately for each of you is the total amount excluded on a joint return. The calculation of this part will be done automatic based on the information entered in the above parts.

Part – VIII – Taxpayer’s Claiming the Housing, Foreign Earned Income Exclusion OR Both

If you claim either of the exclusions, you cannot claim any deduction (including moving expenses), credit or exclusion that is definitely related to the excluded income. If only part of your foreign earned income is excluded, you must prorate such items based on the ratio that your excludable earned income bears to your total foreign earned income. See Pub. 54 for details on how to figure the amount allocable to the excluded income.
The exclusion under section 119 and the housing deduction are not considered definitely related to the excluded income.

Part-IX – Taxpayer’s claiming the housing deduction

  • If Line 31 is more than Line 34 and Line 27 is more than Line 41; complete this part to figure your housing deduction. Also, complete this part to figure your housing deduction carryover from 2005.
  • One-year carryover. If the amount on Line 46 is more than the amount on Line 47, you may carry the difference over to your 2005 tax year. If you cannot deduct the excess in 2007 because of the 2007 limit, you may not carry it over to any future tax year.

Supported States

Supported States

Federal CA CO CT GA
IL MD MI NC NM NJ
NY OH PA SC VT
     

Authorized IRS E-file Provider

Checkout with PayPal - FAST, EASY and SECURE