U.S. citizens living outside the United States have a continuing federal tax-filing obligation to the United States. According to the Internal Revenue Service, U.S. citizens and resident aliens who live abroad may have to file U.S. income tax returns. People with permanent U.S. resident status are subject to tax on their worldwide income just the same as U.S. citizens. Being out of the country does not change the U.S. resident status of U.S. citizens or of green card holders. They are still liable for filing U.S. tax returns and could end up with sizeable penalty and interest payments if they don't file and pay their taxes due.
However, the foreign earned income exclusion can provide some relief to taxpayers living and working in a foreign country. To qualify for the exclusion, they must have a tax home in a foreign country and be a resident of that country or meet a physical presence tax test.
Those who qualify can subtract up to $74,000 in 1999, for each taxpayer, of foreign earned income from their U.S. gross income. U.S. government employees are not eligible for the exclusion, but some independent contractors working for the U.S. government may qualify. The foreign earned income exclusion will be increased by $2,000 each year, reaching $80,000 in 2002 and thereafter.
To claim the exclusion, file Form 1040 and attach Form 2555, "Foreign Earned Income," or Form 2555EZ, "Foreign Earned Income Exclusion." Those who are late in filing may still be able to claim the exclusion for prior years, provided that they file before the IRS discovers their failure to elect the exclusion.
The necessary forms and IRS Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, are available on the IRS Web site, www.irs.gov, or by writing to the IRS Area Distribution Center, P.O. Box 85627, Richmond, VA 23285-5627, USA.
Courtesy of ARA Content, www.aracontent.com, e-mail: info@aracontent.com
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