Publication 54 - Introductory Material


Future Developments

For the latest information about developments related to Publication 54, such as legislation enacted after it was published, go to www.irs.gov/pub54.

What's New

Exclusion amount. The maximum foreign earned income exclusion is adjusted annually for inflation. For 2013, the maximum exclusion has increased to $97,600. See Limit on Excludable Amount under Foreign Earned Income Exclusion in chapter 4.

Housing expenses — base amount. The computation of the base housing amount (line 32 of Form 2555) is tied to the maximum foreign earned income exclusion. The amount is 16 percent of the exclusion amount (computed on a daily basis), multiplied by the number of days in your qualifying period that fall within your 2013 tax year. For 2013, this amount is $42.78 per day ($15,616 per year). See Housing Amount under Foreign Housing Exclusion and Deduction in chapter 4.

Housing expenses — maximum amount. The amount of qualified housing expenses eligible for the housing exclusion and housing deduction has changed for some locations. See Limit on housing expenses under Foreign Housing Exclusion and Deduction in chapter 4.

Filing requirements. Generally, the amount of income you can receive before you must file an income tax return has increased. These amounts are shown in chapter 1 under Filing Requirements .

Self-employment tax rate. For 2013, the self-employment tax rate of 13.3% has increased to 15.3%. The maximum amount of net earnings from self-employment that is subject to the social security part of the self-employment tax has increased to $113,700. All net earnings are subject to the Medicare part of the tax. For more information, see chapter 3.

IRA limitations for 2013. . The 2013 contribution limit to an IRA has increased to $5,500 ($6,500 if age 50 or older). You may be able to take an IRA deduction if you were covered by a retirement plan and your 2013 modified adjusted gross income (AGI) is less than $69,000 ($115,000 if married filing jointly or a qualifying widow(er)). If your spouse was covered by a retirement plan, but you were not, you may be able to take an IRA deduction if your 2013 modified AGI is less than $188,000. See the Instructions for Form 1040 or the Instructions for Form 1040A for details and exceptions.

Reminders

Figuring tax on income not excluded. If you claim the foreign earned income exclusion, the housing exclusion, or both, you must figure the tax on your nonexcluded income using the tax rates that would have applied had you not claimed the exclusions. See the Instructions for Form 1040 and complete the Foreign Earned Income Tax Worksheet to figure the amount of tax to enter on Form 1040, line 44. If you must attach Form 6251 to your return, use the Foreign Earned Income Tax Worksheet provided in the Instructions for Form 6251.

Form 8938. If you had foreign financial assets in 2013, you may have to file Form 8938 with your return. See Form 8938 in chapter 1.

Change of address. If you change your home mailing address, notify the Internal Revenue Service using Form 8822, Change of Address. If you are changing your business address, use Form 8822-B, Change of Address or Responsible Party—Business.

Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.

Introduction

This publication discusses special tax rules for U.S. citizens and resident aliens who work abroad or who have income earned in foreign countries.

If you are a U.S. citizen or resident alien, your worldwide income generally is subject to U.S. income tax, regardless of where you are living. Also, you are subject to the same income tax filing requirements that apply to U.S. citizens or resident aliens living in the United States. Expatriation tax provisions apply to U.S. citizens who have renounced their citizenship and long-term residents who have ended their residency. These provisions are discussed in chapter 4 of Publication 519, U.S. Tax Guide for Aliens.

Resident alien.   A resident alien is an individual who is not a citizen or national of the United States and who meets either the green card test or the substantial presence test for the calendar year.
  1. Green card test. You are a U.S. resident if you were a lawful permanent resident of the United States at any time during the calendar year. This is known as the green card test because resident aliens hold immigrant visas (also known as green cards).

  2. Substantial presence test. You are considered a U.S. resident if you meet the substantial presence test for the calendar year. To meet this test, you must be physically present in the United States on at least:

    1. 31 days during the current calendar year, and

    2. A total of 183 days during the current year and the 2 preceding years, counting all the days of physical presence in the current year, but only 1/3 the number of days of presence in the first preceding year, and only 1/6 the number of days in the second preceding year.

Example.

You were physically present in the United States on 120 days in each of the years 2011, 2012, and 2013. To determine if you meet the substantial presence test for 2013, count the full 120 days of presence in 2013, 40 days in 2012 (1/3 of 120), and 20 days in 2011 (1/6 of 120). Because the total for the 3-year period is 180 days, you are not considered a resident under the substantial presence test for 2013.

  For more information on resident and nonresident status, the tests for residence, and the exceptions to them, see Publication 519.

Filing information.    Chapter 1 contains general filing information, such as:
  • Whether you must file a U.S. tax return,

  • When and where to file your return,

  • How to report your income if it is paid in foreign currency,

  • How to treat a nonresident alien spouse as a U.S. resident, and

  • Whether you must pay estimated tax.

Withholding tax.    Chapter 2 discusses the withholding of income, social security, and Medicare taxes from the pay of U.S. citizens and resident aliens.

Self-employment tax.    Chapter 3 discusses who must pay self-employment tax.

Foreign earned income exclusion and housing exclusion and deduction.    Chapter 4 discusses income tax benefits that apply if you meet certain requirements while living abroad. You may qualify to treat up to $97,600 of your income as not taxable by the United States. You also may be able to either deduct part of your housing expenses from your income or treat a limited amount of income used for housing expenses as not taxable by the United States. These benefits are called the foreign earned income exclusion and the foreign housing deduction and exclusion.

  To qualify for either of the exclusions or the deduction, you must have a tax home in a foreign country and earn income from personal services performed in a foreign country. These rules are explained in chapter 4.

  If you are going to exclude or deduct your income as discussed above, you must file Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion.

Exemptions, deductions, and credits.    Chapter 5 discusses exemptions, deductions, and credits you may be able to claim on your return. These are generally the same as if you were living in the United States. However, if you choose to exclude foreign earned income or housing amounts, you cannot deduct or exclude any item or take a credit for any item that is related to the amounts you exclude. Among the topics discussed in chapter 5 are:
  • Exemptions,

  • Contributions to foreign organizations,

  • Foreign moving expenses,

  • Contributions to individual retirement arrangements (IRAs), and

  • Foreign taxes.

Tax treaty benefits.    Chapter 6 discusses some benefits that are common to most tax treaties and explains how to get help if you think you are not receiving a treaty benefit to which you are entitled. It also explains how to get copies of tax treaties.

How to get tax help.    Chapter 7 is an explanation of how to get information and assistance from the IRS.

Questions and answers.   Frequently asked questions and answers to those questions are presented in the back of the publication.

Comments and suggestions.   We welcome your comments about this publication and your suggestions for future editions.

  You can write to us at the following address:

Internal Revenue Service 
Tax Forms and Publications Division 
1111 Constitution Ave. NW, IR-6526 
Washington, DC 20224

  We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.

  You can send us comments from www.irs.gov/formspubs/. Click on “More Information” and then on “Comment on Tax Forms and Publications.

  Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products.

Ordering forms and publications.   Visit www.irs.gov/formspubs/ to download forms and publications, call 1-800-829-3676, or write to the address below and receive a response within 10 days after your request is received.

Internal Revenue Service 
1201 N. Mitsubishi Motorway 
Bloomington, IL 61705-6613

Tax questions.   If you have a tax question, check the information available on IRS.gov or call 1-800-TAX–FORM (1-800-829-1040). We cannot answer tax questions sent to either of the above addresses.


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