Guide to Global Payroll Management - 2020 - D-150

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Guide to Global Payroll Management

2019

Instructions for Form 2555

Department of the Treasury
Internal Revenue Service

Foreign Earned Income

Section references are to the Internal Revenue
Code unless otherwise noted.

Future Developments

For the latest information about
developments related to Form 2555 and
its instructions, such as legislation
enacted after they were published, go to
IRS.gov/Form2555.

What's New

Form 2555-EZ. Beginning with tax year
2019, all taxpayers will be required to use
the Form 2555 to claim the foreign earned
income exclusion. The Form 2555-EZ will
no longer be available to make the
election to exclude foreign earned income
and the foreign housing cost amount.
Exclusion amount. For 2019, the
maximum exclusion amount has
increased to $105,900.

Reminders

Tax home for individuals serving in a
combat zone. Certain individuals serving
in a combat zone in support of the U.S.
Armed Forces may nonetheless establish
a tax home in the foreign country of the
combat zone. For more information, see
Tax home test under Who Qualifies, later.

General Instructions

Don't include on Form 1040 or
1040-SR, line 17 (Federal income
CAUTION tax withheld), any taxes an
employer withheld from your pay and paid
to the foreign country's tax authority
instead of to the U.S. Treasury.

Purpose of Form

If you qualify, you can use Form 2555 to
figure your foreign earned income
exclusion and your housing exclusion or
deduction. You cannot exclude or deduct
more than your foreign earned income for
the year.

General Information

If you are a U.S. citizen or a U.S. resident
alien living in a foreign country, you are
subject to the same U.S. income tax laws
that apply to citizens and resident aliens
living in the United States.

Note. Specific rules apply to determine if
you are a resident or nonresident alien of
the United States. See Pub. 519.
Sep 27, 2019

D-150

Foreign country. A foreign country is
any territory under the sovereignty of a
government other than that of the United
States.
The term "foreign country" includes the
country's territorial waters and airspace,
but not international waters and the
airspace above them. It also includes the
seabed and subsoil of those submarine
areas adjacent to the country's territorial
waters over which it has exclusive rights
under international law to explore and
exploit the natural resources.
The term "foreign country" doesn't
include U.S. possessions or territories. It
doesn't include the Antarctic region.

Who Qualifies

You qualify for the tax benefits available to
taxpayers who have foreign earned
income if both of the following apply.
* You meet the tax home test (discussed
later).
* You meet either the bona fide residence
test or the physical presence test
(discussed later).
Note. Income from working abroad as an
employee of the U.S. Government does
not qualify for either of the exclusions or
the housing deduction. Don't file Form
2555.

Tax home test. To meet this test, your
tax home must be in a foreign country, or
countries (see Foreign country, earlier),
throughout your period of bona fide
residence or physical presence,
whichever applies. For this purpose, your
period of physical presence is the 330 full
days during which you were present in a
foreign country, or countries, not the 12
consecutive months during which those
days occurred.

Note. If you did not live 330 full days in a
foreign country, or countries, during a
12-month period, you are not entitled to
claim the foreign earned income
exclusion. The 330 qualifying days do not
have to be consecutive.
Your tax home is your regular or
principal place of business, employment,
or post of duty, regardless of where you
maintain your family residence. If you don't
have a regular or principal place of
business because of the nature of your
trade or business, your tax home is your
regular place of abode (the place where
you regularly live).
Cat. No. 11901A

You aren't considered to have a tax
home in a foreign country for any period
during which your abode is in the United
States, unless you are serving in support
of the U.S. Armed Forces in an area
designated as a combat zone. See
Service in a combat zone, later.
Otherwise, if your abode is in the United
States, you will not meet the tax home test
and cannot claim the foreign earned
income exclusion.
The location of your abode is based on
where you maintain your family, economic,
and personal ties. Your abode is not
necessarily in the United States merely
because you maintain a dwelling in the
United States, whether or not your spouse
and dependents use the dwelling. Your
abode is not necessarily in the United
States while you are temporarily in the
United States. However, these factors can
contribute to your having an abode in the
United States.
Example. You are employed on an
offshore oil rig in the territorial waters of a
foreign country and work a 28-day on/
28-day off schedule. You return to your
family residence in the United States
during your off periods. You are
considered to have an abode in the United
States and don't meet the tax home test.
You can't claim either of the exclusions or
the housing deduction.
Service in a combat zone. Citizens
or residents of the United States serving in
an area designated by the President of the
United States by Executive order as a
combat zone for purposes of section 112
in support of the U.S. Armed Forces can
qualify as having a tax home in a foreign
country, even if they have an abode within
the United States. For a list of IRS
recognized combat zones, go to IRS.gov/
Newsroom/Combat-Zones.

Travel to Cuba

Generally, if you were in Cuba in violation
of U.S. travel restrictions, the following
rules apply.
* Any time spent in Cuba can't be
counted in determining if you qualify under
the bona fide residence or physical
presence test.
* Any income earned in Cuba isn't
considered foreign earned income.
* Any housing expenses in Cuba (or
housing expenses for your spouse or
dependents in another country while you

Guide to Global Payroll Management - 2020

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