Foreign Earned Income

Today TaxMama hears from Mike in the Tax Parlor, who tells us “I started working overseas in Kuwait for a US company in March 2007. I am a USMC contractor planning on working this contract through September 2008. Will I be able to take advantage of the foreign earned income credit exclusion? And what is the current amount of the exclusion?”

Hi Mike,

Roger B. Adams, EA, our international tax expert, provides an answer.
http://irsexam.com/instructors.php#roger

Sorry Michael, if USMC stands for the United States Marine Corp. you are a government contractor and, as such, are not eligible to take the exclusion.

If, for some reason, you are not a government contractor, the exclusion amount is $82,400 plus the housing exclusion which varies between cities but whose base exclusion amount for 2006 was $13,184. (You subtract this from your housing expenses to arrive at the housing exclusion amount)

TaxMama adds, there may be other ways to reduce the impact of U.S. taxes on your compensation. For instance, per diem travel expenses may be higher than your housing allowance. Or the foreign tax credit can reclaim some of the foreign taxes you have to pay. If anyone knows, it is Roger. So schedule some time with him to do planning before tax season comes around and it’s too late.

Also, be sure to read IRS Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, all the way through. http://www.irs.gov/publications/p54/index.html

And remember, you’ll find answers to lots of questions about foreign earning income issues, and other tax information, free. Where? At TaxMama.com

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