Foreign Earned Income Tax Reporting

| January 12, 2011

How do American citizens working overseas report their foreign earned income to the IRS in time for the April 15th deadline? They start by completing the right IRS form.

Being out of the country is not a free pass for American citizens to avoid filing and paying taxes. Whether overseas or on American soil, Uncle Sam expects everyone to file income taxes.

Depending on the circumstances, citizens who are living and working overseas can report their overseas income using IRS Form 2555 (Foreign Earned Income form) or Form 2555-EZ*.

Here are a few filing tips for American citizens located overseas:

Determine Which IRS Form to Use, 2555 or 2555-EZ

To qualify for either form, the individual must be a United States citizen or US resident alien living in a foreign country. For individuals who own houses and/or are self-employed it is recommended to file using Form 2555 as both the housing deduction and self-employment income can be claimed with this form. However, those who do not wish to file the extended long form, Form 2555-EZ is the foreign earned income short form. To qualify to use form 2555EZ, individual earnings must be less than $85,700. Also, keep in mind that the short form does not allow for housing and self-employment income deductions.

Request or Download Form 2555/2555 EZ and Corresponding InstructionsForm 2555

Individuals can call the Internal Revenue service and request the appropriate form and instructions or, with Internet access can download Form 2555 and 2555EZ directly from the IRS website. Individuals who elect to download the forms must be sure to download the corresponding instructions, as the instructions are not included as a part of the downloaded form. Instructions can be downloaded here: 2555 and 2555-EZ.

Form 2555 instructions are 11 pages long and are rather involved. Unless the individual is familiar with these forms and have completed them before, it is best to hire a knowledgeable tax consultant or contact the IRS directly for assistance.

File Taxes by April 15th or Qualify for an Automatic Extension

Once the forms are completed, be sure to file the forms along with payment (if any) to the IRS by the April 15th tax deadline date.

One of the perks of being an American citizen overseas on the April 15th date is that the IRS grants an automatic two-month extension to file the appropriate forms and pay the tax liabilities owed. To take advantage of the automatic extension, however, an explanation statement confirming that the individual qualifies for the two-month extension must accompany the taxes. The automatic extension qualifications are expressly written out on the tax completion instructions under the section entitled “When to File.”

In addition to granting the automatic extension to file, the internal revenue service also grants a two-month extension in which to pay the taxes due. Be advised, however, that the extension does not prevent interest from accruing from the April 15th due date until the date the taxes are actually paid. Although there is no late fee per se, late filing individuals are subject to accrued interest charges.

*Note: These forms are filed in addition to the IRS Form 1040.

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Category: Taxes

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Felicia A. Williams is a wife, mother, freelance writer and owner of Tidbits and Stuff.

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