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Combat-zone contract workers qualify for foreign earned income exclusion

Updated: May 24, 2019

U.S. citizens or resident aliens expats contractors or employees of contractors working abroad are subject to taxes on their worldwide income. Also, if you meet the minimum filing threshold amount, then you must prepare an income tax return. The contractors or employees of private companies supporting the U.S. Armed Forces in designated combat zones, may now qualify for the foreign earned income exclusion. I now see complication of your income tax return preparation process.

According to the IRS, "The Bipartisan Budget Act of 2018, enacted in February, changed the tax home requirement for eligible taxpayers, enabling them to claim the foreign earned income exclusion even if their “abode” is in the United States. The new law applies for tax year 2018 and subsequent years.

This means that these taxpayers, if eligible, will be able to claim the foreign earned income exclusion on their income tax return for 2018 when they file. Under the exclusion, taxpayers can choose to exclude their foreign earned income from gross income, up to a certain dollar amount. For tax year 2018, that foreign earned income exclusion dollar amount limit is $103,900.

The foreign earned income exclusion is not automatic. Eligible taxpayers must file a U.S. income tax return each year with either a Form 2555 or Form 2555-EZ attached. Foreign earned income is the income a taxpayer receives for performing personal services in a foreign country or countries during a period in which he or she meets both of the following requirements:

  • His or her tax home is in a foreign country, and

  • He or she meets either the bona fide residence test or the physical presence test.

Full details on these tests can be found in IRS Publication 54.

Under prior law, taxpayers who lived and worked in designated combat zones failed to qualify because they had an abode in the United States.

The new law makes it clear that contractors or employees of contractors providing support to U.S. Armed Forces in designated combat zones are eligible to claim the foreign earned income exclusion.

Taxpayers choosing the foreign earned income exclusion cannot take advantage of any other exclusion, deduction or credit related to the excluded income. This includes any expenses, losses or other items that would have been deductible had the exclusion not been claimed.

As in the past, the foreign earned income exclusion is not available to federal employees or members of the military. But service members in combat zones continue to qualify for the combat pay exclusion."

Past due Returns:

Contractors who are behind with their U.S income tax returns can catch up and utilize the current IRS amnesty program and avoid penalties. This program is called the Streamlined Filing Compliance Procedure. Whin Global can assist and makes it easy, convenient, and affordable to catch up.

Our experienced U.S. based accountants are specialized in U.S. Expat Tax Return Preparation and can walk you through the process which consist of:

  1. Filing past due returns for the most recent three years,

  2. Pay any taxes due (generally zero due to the exclusion of income or tax credits available to expats) plus interest

  3. Filing of FBAR for the most recent 6 years

  4. Certify that the noncompliance was due to non-willful conduct.

Cost of filing past due returns?

Contact your certified public accountant today or click the following pricing link to learn more about our Pricing.

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  • We provide simple processes and timely prepare accurate income tax returns and foreign financial report

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  • Our tax services are affordable and priced accordingly.

Time is valuable. Get what you need from where you are. We can do the tax work online via our secure cloud-based technologies or come to you. We are affordable, cloud based and paperless. Get in touch with your CPA at Whin Global for more information on all your U.S. expats tax services.

#Foreignearnedincomeexclusion #Combatzone