Americans Working Abroad

U.S. taxes are complex for all Americans abroad, but this is especially true for those who are civilian contractors, as complexity increases dramatically.

The first challenge is the limitation of foreign earned income exclusion test choices to Physical Presence only.

In general, the nature of contractor employment terms does not allow using the Bona Fide residence test. Therefore, civilian contractors working abroad must watch time spent in the U.S. for work or personal reasons to secure the ability to exclude up to $100K from taxable income.

The second challenge is living on employer provided premises, which preclude them from using the Foreign Housing exclusion. The third reason is the absence of Foreign Tax Credit (FTC) as they almost never pay tax in the country of foreign employment. The biggest and most expensive challenge is they always file a state tax return unless their home of record is in tax-free U.S. state.

Frequently Asked Questions

1. I am a contractor in a combat zone and can’t file taxes on time - what can I do?

2. Can I still qualify for FEIE?

3. Do I have to file state taxes?

4. I spent 3 months in the U.S. on the special training in preparation for my upcoming deployment. That was job-related presence in the U.S. Can I still qualify for the foreign earned income exclusion?

5. My contract ended early because of job-related injury. I had to return to the U.S. after 10 months abroad to get treatment in a hospital. Can I claim partial foreign earned income exclusion based on the qualifying life event?

6. My wife and children live in the U.S. What filing status should I use for filing? If we file separately, can my wife claim who earns small salary claim the Earned Income Credit?

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