Form 673 guide (2026): Stop US tax withholding on foreign earned income
If you're a US citizen working abroad, you've probably noticed something frustrating: US federal income taxes being withheld from your paycheck every month, even though you live and work overseas.
Form 673 is the practical fix. By giving this form to your employer, you may be able to reduce – or stop – that withholding on qualifying foreign wages and keep more cash in your monthly paycheck, rather than waiting for a refund at tax time. The form goes directly to your employer, not the IRS, and you still claim the foreign earned income exclusion on Form 2555 when you file your return.
This guide covers what Form 673 is, who qualifies, how to fill it out step by step, and the current limits for the 2025 tax year (filed in 2026). It's a simple form, but a mistake can create headaches with the IRS – so it's worth getting right the first time.
What is Form 673?
Form 673 is a practical tool that can help US expats improve cash flow during the year. It is an IRS form that allows US citizens working abroad to claim an exemption from US federal income tax withholding on qualifying foreign-earned income.
What is Form 673 used for?
By submitting Form 673 to your employer, you can reduce or eliminate withholding on eligible foreign wages. This means you keep more of your income throughout the year instead of waiting for a refund when you file your tax return.
NOTE! Form 673 only applies to income earned from services performed outside of the United States. Income earned within the US is still subject to taxes and cannot be exempted through Form 673.
How Form 673 works
F673 works by notifying your employer that you intend to claim an exemption from federal income tax withholding on your foreign earned income and that you meet the eligibility requirements.
For tax year 2025, the maximum foreign earned income exclusion is $130,000 per qualifying person. For 2026, that limit rises to $132,900. This figure adjusts annually for inflation, so it's worth checking the current IRS guidelines before you file.
One distinction worth understanding clearly: Form 673 only handles the withholding side – it stops your employer from deducting US federal income tax from your paycheck while you're abroad. To officially claim the Foreign Earned Income Exclusion and finalize your tax relief, you still need to file Form 2555 with your annual tax return.
Finally, Form 673 covers federal income tax withholding only. State taxes may still apply depending on your state of residence.
Who qualifies for Form 673?
To qualify for Form 673, you must meet the following criteria:
- You are a US citizen.
- You are working abroad.
- You have wages for services performed outside the United States that may qualify as foreign earned income under section 911.
- You meet either the physical presence test or the bona fide residence test.
Important: Resident aliens may still qualify for the foreign earned income exclusion, but Form 673 itself is for US citizens only.
The physical presence test requires you to be physically present in a foreign country for at least 330 full days during a 12-month period. NB! The 330 days do not need to be consecutive and can be spread out over the course of a year.
The bona fide residence test depends on the facts of your situation, including whether you have established a bona fide residence in a foreign country and maintained a foreign tax home there – temporary trips back to the US do not automatically break the test.
NOTE! Meeting the requirements for Form 673 does not automatically exempt you from filing a tax return. You may still need to file a tax return, even if you are exempt from withholding taxes through F-673.
It is important to consult with a tax professional to determine your specific tax obligations.
How to fill out Form 673?
Form 673 has three parts. Use Form 673 to tell your employer that you expect to qualify for the foreign earned income exclusion and, if applicable, the foreign housing exclusion. The related foreign housing deduction applies to self-employment earnings and is claimed on Form 2555, not through employer wage withholding.
Let's take a look at how to fill out a 673 tax form:
Part I: Qualification Information for Foreign Earned Income Exclusion
In this section, you'll need to provide your personal and employment information, including:
- your name,
- social security number,
- employer's name,
- address.
Then, you'll need to indicate whether you qualify for the physical presence test or the bona fide residence test, which determines your eligibility for the Foreign Earned Income Exclusion.
For the physical presence test, you must have been physically present in a foreign country or countries for at least 330 full days during a 12-month period.
For the bona fide residence test, you must be a resident of a foreign country for an uninterrupted period that includes an entire tax year, and have established a bona fide residence in that country.
NOTE! Make sure to double-check your dates and eligibility criteria to ensure that you're filling out this section accurately.
Part II: Estimated Housing Cost Amount for Foreign Housing Exclusion
If you're eligible for the foreign housing exclusion, you'll need to fill out Part II of Form 673.
In this section, you'll need to provide an estimate of your foreign housing expenses for the tax year, including rent, utilities, and other expenses.
Part III: Certification
The final part of Form 673 is the certification section, which simply requires your signature and the date of signing.
By signing the form, you're certifying that the information provided is true, accurate, and complete to the best of your knowledge and belief.
Tax form 673 example
Reading the instructions is one thing – seeing the form filled out makes everything click. Here's how a real-world scenario plays out.
Imagine John, a US citizen relocated by his US-based tech company to work in London, UK. He expects to earn $110,000 this year. Here is how John would fill out f673:
Part I: John enters his name, Social Security Number, and his employer's details. Since he moved to the UK permanently two years ago, he checks the box for the Bona Fide Residence Test, enters the date his residency began, and lists his London address.
Part II: John expects to pay $30,000 in rent and utilities this year. He enters this estimated amount in the housing cost section to claim the foreign housing exclusion.
Part III: John simply signs and dates the document.
Once completed, John gives Form 673 to his company's HR or payroll team. If the employer has good reason to believe he qualifies, it may reduce federal income tax withholding on the foreign wages covered by the exclusions.
Example of completed form 673
How to submit Form 673 to your employer
Before anything else: Tax Form 673 is never sent to the IRS. It goes directly to your employer's HR or payroll department. Sending it to the wrong place means your withholding continues unchanged.
Form 673 is completed for the tax year shown on the statement. Check with your employer's payroll team about whether they want a fresh form each year or only when your facts change.
The simplest approach is a hard copy delivered to HR or payroll. If your employer has an online portal or electronic submission system, a digital submission works just as well. Either way, follow your employer's specific guidelines to make sure the form is processed without delay.
What happens if you don't file Form 673
Form 673 is optional, not mandatory. If you choose not to file it, or if you don't yet meet the eligibility requirements, your employer will keep normal federal income tax withholding in place.
You may get a refund later if your withholding exceeds your final tax, but the foreign earned income exclusion is still claimed on Form 2555 with your return. There are no penalties for not filing Form 673 – it's a cash flow tool, not a legal obligation.
Consequences for filing Form 673 incorrectly
Filing Form 673 with errors can create real problems. Here's what to avoid:
- Claiming an exemption for income that doesn't qualify under the Physical Presence Test or Bona Fide Residence Test may result in additional taxes, interest, and penalties from the IRS.
- Claiming an exemption above the maximum allowable amount ($132,900 for 2026) can also trigger additional taxes, interest, and penalties.
- Providing inaccurate personal or employment details can delay processing or lead to incorrect withholding.
If you have any doubts about your eligibility or how to properly complete Form 673, consult a tax professional before you submit.
Bottom line
Form 673 is a valuable tool for US expats who meet the eligibility requirements. Fill it out correctly and submit it to your employer as soon as possible to keep more cash in your paycheck throughout the year.
FAQs on tax form 673 instructions
Tax form 673 is not mandatory, but can be beneficial for US expats eligible to reduce withholding on foreign-earned income. If you don't meet the eligibility requirements or opt not to file Form 673, you may still owe taxes on your foreign income.
Form 673 should be completed annually if you qualify for a withholding tax exemption on foreign-earned income. Submit it at the start of the year to avoid unnecessary withholding throughout the year.
The Physical Presence Test requires being in a foreign country for 330 full days within 12 months. The Bona Fide Residence Test requires uninterrupted residency in a foreign country for a full calendar year. The first focuses on time spent abroad; the second on establishing a permanent home there.
You may qualify for the foreign housing exclusion if your tax home is in a foreign country and you meet either the bona fide residence test or the physical presence test. If your housing costs are tied to self-employment income, you may instead qualify for the foreign housing deduction.
There is no legal requirement for an employer to accept Form 673. That said, most US-based employers will process it once you confirm your eligibility. If your employer's payroll or HR team is unfamiliar with the form, pointing them to the official IRS Form 673 instructions is usually enough to move things along.
