Good news for those American’s living and working abroad. The Foreign Earned Income Exclusion in 2014 has been increased to $99,200. This means that you can exclude up to $99,200 in salary for 2014 on Federal income tax return if you are a resident of another country or are abroad for 330 out of 365 days.
- This article from 2014 contains some valuable information. For 2015 FEIE numbers, please see: FEIE 2015
If a husband and wife both qualify for the Foreign Earned Income Exclusion in 2014, they each may deduct up to $99,200 this year. That means a husband and wife team may earn up to $198,400 from their offshore corporation.
Unfortunately for retirees and investors, this exclusion only applies to earned income, which is income from a business or a salary. If you are drawing that salary from a corporation formed in the United States, social taxes will still apply. If you are operating a business without a corporation, then Self Employment Tax at 15% will still apply.
- Note that the exclusion applies to salary from any foreign corporation. It does not matter if you own the company or you work for someone else.
The Foreign Earned Income Exclusion for 2014 does not apply to passive investments or capital gains. If you are an American living and working abroad, the U.S. wants its cut of your investment profits. If pay taxes to another country (such as when you sell foreign real estate for a capital gain) you get a dollar for dollar credit and are not double taxed by America. For more information on foreign real estate transactions, see my article U.S. Tax Breaks for Offshore Real Estate.
This amount of $99,200 is the maximum exclusion you can qualify for. If you earn less than the exclusion, you may not carry forward the unused portion. For example, if your salary is $60,000 in 2014, you may only exclude $60,000. You may not carry over the balance of $39,000 to 2015.
If you earn more than $99,200, you must pay tax on the excess for the right to carry that U.S. passport. So, if you earn $299,200 in 2014, you will pay U.S. tax on $200,000 at about 38%, or $76,000. If you are operating a business through an offshore corporation, you might be able to retain earnings in that company and thereby defer U.S. tax. For more information, see: Eliminate U.S. Tax in 5 Steps with an Offshore Corporation.
- These draconian rules have caused Americans to dump their blue passports in record numbers.
Since 2006, the FEIE has been pegged to inflation, so we expect it to increase each year ever so slightly. The Foreign Earned Income Exclusion for 2014 increased by about 1.6% from 2013 and about 2.5% from 2012. So, we might expect an increase of 2% in 2015. Which is to say that the Foreign Earned Income Exclusion for 2015 might be about $101,184.
Here are Foreign Earned Income Exclusion amounts from 2014 back to 1998.
- Tax year 2014: $99,200
- 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
I hope you have found this article helpful. If you would like more information, I suggest you read start with the Tax Benefits of Going Offshore. Feel free to contact me at email@example.com with any questions or article requests. As always, you may leave questions in the comment section below and I will respond online.