The Foreign Earned Income Exclusion 2013 amount got a little bump up for inflation and managed to avoid the financial cliff. The Foreign Earned Income Exclusion 2013 amount is $97,600, up from $95,100 in 2012.
As an American citizen living overseas, you are subject to the same U.S. tax laws as a United States resident. One of the only personal tax benefits you get for living abroad is the Foreign Earned Income Exclusion. If you are out of the U.S. for 330 days, or are a resident of another country, you can exclude up to $97,600 of earned income from your U.S. personal return using the Foreign Earned Income Exclusion 2013 amount via Form 2555.
Note: My website has a number of resources explaining the Foreign Earned Income Exclusion 2013 amount and use. Please click here for an in-depth article on international taxation for Americans.
Earned income is active income and is defined as wages, salaries, commissions and professional fees. It does not include investment, rental, or other types of passive income.
If you earn more than the Foreign Earned Income Exclusion 2013 amount, you will pay Federal tax on the excess. However, if you are operating a business, or are self-employed, you may be able to eliminate this tax by using an offshore corporation and retaining earnings in the entity over and above the Foreign Earned Income Exclusion 2013 amount.
Note: Yes, the ability to retain earnings offshore also survived the fiscal cliff and will be the topic of a future article. For additional information, check out this article from Bloomberg.
Foreign Earned Income Exclusion 2013 and Prior
Historically, the Foreign Earned Income Exclusion has increased with inflation, with the exception of 2002 through 2005, when it was stuck at $80,000.
- Tax year 2013: $97,600
- Tax year 2012: $95,100
- Tax year 2011: $92,900
- Tax year 2010: $91,500
- Tax year 2009: $91,400
- Tax year 2008: $87,600
- Tax year 2007: $85,700
- Tax year 2006: $82,400
- Tax years 2002-2005: $80,000
- Tax year 2001: $78,000
- Tax year 2000: $76,000
- Tax year 1999: $74,000
- Tax year 1998: $72,000
Sources: IR-2012-78, Oct. 18, 2012 for the 2013 amount, Revenue Procedure 2011-52 (PDF) for the 2012 amount, Revenue Procedure 2010-40 (PDF) for the 2011 amount, Revenue Procedure 2009-50 (PDF) for the 2010 amount, Revenue Procedure 2008-66 (PDF) for the 2009 amount, Revenue Procedure 2007-66 (PDF) for 2008 amount, Revenue Procedure 2006-53 (PDF) for 2007 amount, Revenue Procedure 2006-51 (PDF) for 2006 amount, Internal Revenue Code Section 911 for the tax law concerning the foreign earned income exclusion.
Remember that the Foreign Earned Income Exclusion is a “use it or lose it” tax break. If you are living abroad, do not file your returns, and are audited, you may lose the Foreign Earned Income exclusion. This means that 100% of your worldwide income will be taxable in the US.
If you are delinquent on your U.S. tax filing obligations, catch up before the IRS gets a hold of you. For information on our Expat tax filing services, please call us at (619) 550-2743 or email firstname.lastname@example.org for a free and confidential consultation.