The foreign earned income exclusion is a provision under U.S. tax law that allows U.S. citizens and resident aliens to exclude a certain amount of income from their taxes if they meet certain conditions. This exclusion applies to income earned from working outside of the United States, and its intended purpose is to reduce the tax burden on individuals who are working abroad.
To qualify for the foreign earned income exclusion, the individual must meet one of two tests, the "bona fide residence test" or the "physical presence test". The bona fide residence test is met when the individual has been a resident of a foreign country for an uninterrupted period of time, which includes a tax year. The physical presence test is met when the individual is physically present in a foreign country or countries for at least 330 full days during a 12-month period.
The amount of income that can be excluded from taxes under the foreign earned income exclusion changes year to year, but in general it has been adjusted annually with inflation. For the tax year of 2021, the foreign earned income exclusion amount is $107,600.
It's worth noting that The foreign earned income exclusion does not apply to all types of income, such as capital gains, interest, and dividends, and it may have some restrictions on certain types of employment or businesses. Also, It may also have some implications on state taxes, Social Security taxes and other tax treaties that may apply to your situation, so it's advisable to consult with a tax professional before making decisions related to the foreign earned income exclusion.
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