{"id":7286,"date":"2016-11-04T08:14:39","date_gmt":"2016-11-04T12:14:39","guid":{"rendered":"http:\/\/www.escapeartist.com\/?p=7286"},"modified":"2020-08-19T13:51:54","modified_gmt":"2020-08-19T17:51:54","slug":"2017-foreign-earned-income-exclusion","status":"publish","type":"post","link":"https:\/\/www.escapeartist.com\/blog\/2017-foreign-earned-income-exclusion\/","title":{"rendered":"2017 Foreign Earned Income Exclusion"},"content":{"rendered":"

The 2017 Foreign Earned Income Exclusion has increased to $102,100, up from $101,300 for tax year 2016. This means that a husband and wife can make up to $204,200 of <\/span>earned<\/span> income using the 2017 Foreign Earned Income Exclusion and pay zero <\/span>Federal<\/span> income<\/span> tax. \u00a0<\/span><\/p>\n

To qualify for the 2017 FEIE, you must be out of the U.S. for 330 out of 365 days, or living abroad as a legal resident of a foreign country. If taking the exclusion as a resident of a foreign country, you might spend 3 to 5 months a year in the U.S., but never 6 months. <\/span><\/p>\n

For more on how to calculate the 330 days for the 2017 Foreign Earned Income Exclusion, see: <\/span>Changes to the FEIE Physical Presence Test Travel Days<\/span><\/p>\n

For information on how to prorate the FEIE over two years, see: <\/span>How to Prorate the Foreign Earned Income Exclusion<\/span><\/p>\n

All income earned while you\u2019re in the United States is <\/span>U.S. source income<\/span>. The FEIE does not apply to U.S. source income. If you spend 4 months in the U.S., seems likely that only 2\/3rds of your total income will qualify for the Exclusion.<\/span><\/p>\n

Earned<\/span> income is profits from your business paid as salary, or wages from work as an employee of someone else. Earned income does not include capital gains, dividends, investment returns, royalties, rents, or any other form of passive income. <\/span><\/p>\n

The 2017 Foreign Earned Income Exclusion applies to <\/span>Federal<\/span> income taxes. It doesn\u2019t apply to State taxes or other Federal taxes, such as self employment or payroll taxes. <\/span><\/p>\n

Some states have a version of the Foreign Earned Income Exclusion and some do not. For example, California will tax 100% of your worldwide income unless you move out of the state and are no longer a CA tax resident. <\/span><\/p>\n

To cut out California, you must move out of the State for the foreseeable future. If you plan to return to California in a year or two, you\u2019re probably a CA resident while abroad. States place a lot of weight on your \u201cintent,\u201d which makes them a challenge. <\/span><\/p>\n

It\u2019s possible that by qualifying for the 2017 Foreign Earned Income Exclusion, you\u2019ll also eliminate State taxes. It\u2019s also possible to qualify for the FEIE for Federal purposes but pay State tax\u2026 such as someone who works abroad for one year and then returns home to California\u2026 or someone who works abroad while their spouse and children live in California. \u00a0<\/span><\/p>\n

The 2017 Foreign Earned Income Exclusion applies Federal earned <\/span>income<\/span> taxes. The most important tax which is not a tax on income is payroll \/ self employment tax. <\/span><\/p>\n

If you\u2019re working for yourself, or as an independent contractor, you\u2019ll pay self employment tax on 100% of your net profit. The FEIE does not reduce self employment tax, which is 15%. <\/span><\/p>\n

For example, someone earning $100,000 as a travel writer while qualifying for the 2017 FEIE, will pay zero Federal income tax. They will get to pay about $15,000 in self employment tax. <\/span><\/p>\n

If that same writer is working abroad for a U.S. corporation, they\u2019ll pay about 7.5% in payroll taxes and their employer will pay 7.5% in employment taxes.<\/span><\/p>\n