The form 2555 and expat tax exclusions are often misunderstood by expats. Common questions about this form include:
- What do I qualify for?
- How long can I stay in the U.S.?
- How much can I earn and not pay income tax?
I hope this video helps clarify some of the issues. I’ve included a transcript of the video below for your reference. If you have any questions, the comments are enabled and you can feel free to contact me at anytime for a free consultation.
This is Mike Mertz. And I’m talking to you from Cebu in the Philippines today. Today’s topic is 2555 so I thought I’d talk a little bit about that in this short video.
So, every expert knows a couple things when they come overseas and start to work. They know that you:
- get some kind of expat income exclusion,
- can work and earn up to certain amount on that now and you don’t have to pay US income tax on that amount.
Usually they don’t know the amount. They say under a $100,000, and usually they also think they don’t have to file if they make under that amount… which is completely wrong because the act of filing the return is how you actually claim the exclusion. So the IRS could possibly disallow the exclusion and make you file anyway if they audited you. The you would pay taxes on their foreign income just like you live in the U.S. even though you were making it overseas, if you didn’t claim that exclusion through a timely filed return.
So all expats also “knows” that you shouldn’t stay in the US over 30 days.
So those are the two things every expect usually knows about their US taxes, that they can earn under $100,000 and not pay income tax, and expats also know they should not stay in the US over 30 days.
I get expats saying: “I’m gonna stay in America for 30 days, am I gonna have a problem? How much tax do I have to pay?” This is kind of a lack of understanding.
You know your 2555 form in the tax return–which is where you claim the exclusion–has two ways to be considered an expat.
One is physical presence test and that’s what everybody’s talking about when they talk about under 30 days in the US, and you automatically qualify to be an expat if you don’t spend more than 30 days in the US.
There’s another test called Bona Fide Resident test. For the resident test there are some more questions on the 2555 that you have to answer, but you can still be and expat and spend 90 days in the US.
For example: What if you’re teacher and you work work nine months in korea and you go back to the US for three months in the summer and you come back to Korea and teach for nine months and keep doing the same thing.
Are you an expat?
Yes, you’re an expat!
You have to file and answer some more questions on this 2555 form.
Some other questions:
- Do you have a rented apartment?
- Do you have a contract?
- Do you have a work visa?
- When does the work visa expire?
- Is your family with you?
- Do you pay taxes in other countries?
So all these other questions are helping the IRS determine if your bullshitting them on whether you’re an expat or not and that you really work overseas and that you have a contract or that you’re sole proprietor and you’re really doing business, etc.
So, these are the two ways to qualify for expat income exclusion:
- Bona Fide Resident
- Physical Presence
I hope that’s helpful. Thanks.
Do you have any more questions about the 2555 or expat income exclusion? Ask them below!