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IRS Expands FEIE Eligibility Due to Covid-19

IRS Expands FEIE Eligibility Due to Covid-19
Ines Zemelman, EA
26 April 2020

IRS adds waiver for 2020 Foreign Earned Income Exclusion (FEIE)

Due to COVID-19, the IRS is allowing taxpayers under certain conditions to meet requirements of the Foreign Earned Income Exclusion (FEIE). The IRS understands that many taxpayers, who had otherwise reasonably expected to remain abroad and meet FEIE requirements, had to return home to the US. As such, the IRS is expanding the range of qualifying events for FEIE during 2019 and 2020.

The qualifying period now includes time spent in the US between Dec 1, 2019 and Jul 15, 2020 for those who left China.

  • December 1, 2019 for the People’s Republic of China (excluding Hong Kong & Macau)
  • February 1, 2020 for all countries

The IRS normally allowed waivers for FEIE because of war, civil unrest, or similar adverse conditions. COVID-19 pandemic is now declared an adverse condition qualifying for a waiver of time to meet the physical presence test.

As above, the period for this exception will end on July 15, 2020. Certainly, the Treasury and IRS may choose to extend this time, but unknown at this juncture. This means that, if you left China between December 1, 2019 and July 15, 2020, you could still qualify as physically present or a bona fide resident—so long as you expected to meet the requirements if not for the COVID-19 Emergency.

 

 Example 

Mike Smith, US citizen, arrived in Singapore on Sept 1, 2019 under a job contract signed through Dec 2020, with possibility of extension.

Under normal conditions, the earliest time he would qualify for the foreign earned income exclusion is August 31, 2020.

Because of the COVID-19 pandemic, his employment ceased and he returned to the US on March 31, 2020. 

The taxpayer may claim the waiver of the physical presence requirements and take the Foreign Earned Income Exclusion (FEIE) for 7 months of work abroad. He can establish a reasonable expectation (job contract) that he would have met the physical presence test if not for COVID-19.

Ines Zemelman, EA
founder of Taxes for Expats