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August 25, 2009

What Is The Foreign Earned Income (FEI) Exclusion?

Q: What is the foreign earned income (FEI) exclusion?

A: Central to the tax rules for certain filers of US tax returns who live and work abroad is the ability to exclude up to $85,700 of earned income annually. Earned income that may be excluded means wages, salaries, professional fees, and other compensation received for personal services performed in a foreign country. It does not include pensions, annuities, social security, interest, dividends, capital gains, or alimony. The exclusion is available to both spouses on a joint return assuming both persons meet the qualifications. More details are available on the FEI information page.

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Q: If I am able to exclude all my income, why do I have to file?

A: A U.S. citizen or lawful resident alien is required to report worldwide income if you exceed the minimum filing requirements.

If your tax liability is zero there is no penalty for not filing, but you may risk eligibility for future exclusions or deductions by not filing a timely and accurate return.

Income filing requirements for dependent children are found at http://www.irs.gov/pub/irs-pdf/i1040gi.pdf (PDF, see page 7).

For these and other Frequently Asked Questions regarding taxes and the Internal Revenue Service (IRS), please visit our website at http://london.usembassy.gov/irs/irsfaq.htm.

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