Foreign Earned Income Exclusion & US Tax Requirements

The foreign earned income exclusion is a significant tax benefit offered by the U.S. government to American expatriates living and working abroad, including those in the UK. This exclusion allows eligible expatriates to exclude a certain amount of their foreign-earned income from their U.S. federal income tax, thereby potentially reducing their tax liability.

Key Points:

Eligibility:

To qualify for the foreign earned income exclusion, an individual must meet specific criteria. These typically include residing in a foreign country (like the UK) for most of the tax year and having foreign-earned income. U.S. citizens, U.S. residents, and certain non-U.S. citizens may be eligible.

Exclusion Amount:

The specific exclusion amount is subject to change and is adjusted annually for inflation. It allows you to exclude a certain portion of your foreign-earned income from U.S. taxation. As of my knowledge cutoff date in September 2021, this exclusion amount was over $100,000.

Types of Income:

The foreign earned income exclusion can apply to various types of income, including salary, wages, self-employment income, and housing allowances.

Filing Requirements:

To take advantage of the foreign earned income exclusion, expatriates must meet specific requirements for filing, such as timely filing U.S. federal tax returns and possibly reporting their foreign bank accounts. Tax advisors like Xerxes Associates LLP can assist in ensuring proper compliance.

Impact on U.S.-UK Tax Treaty:

It’s important to note that the foreign earned income exclusion may impact your tax obligations in both the U.S. and the UK. The U.S.-UK tax treaty may come into play to prevent double taxation and to determine which country has primary taxing rights.

Advisory Services from Xerxes Associates LLP:

Firms like Xerxes Associates LLP specialise in providing tax advisory services to U.S. expatriates and can help individuals navigate the complexities of the foreign earned income exclusion, ensuring that they take full advantage of this tax benefit while maintaining compliance with both U.S. and UK tax laws.

In summary, the foreign earned income exclusion is a valuable tax benefit for U.S. expatriates living in the UK, allowing them to exclude a portion of their foreign-earned income from U.S. federal income tax. However, eligibility and compliance can be complex, making it crucial to seek guidance from experienced tax advisors like Xerxes Associates LLP to maximise these tax benefits while meeting all necessary requirements.

Contact us via www.xerxesllp.com or fill out our contact form to discuss your expat tax situation with us.

Read more here: Xerxes US Expats Living & Working in the UK Blog.

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