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Americans Working Abroad

American citizens who live outside the U.S. are the largest share of our customers. Simply living abroad is challenging enough - but they must also contend with tax laws of both the U.S. and their resident country. Unlike other employees abroad, for those who are civilian contractors, complexity increases dramatically.

The first challenge is the limitation of foreign earned income exclusion test choices to Physical Presence only. The nature of their employment terms does not allow using the Bona Fide residence test. Therefore, civilian contractors working abroad must watch time spent in the U.S. for work or personal reasons to secure the ability to exclude up to $100K from taxable income. The second challenge is living on employer provided premises, which preclude them from using the Foreign Housing exclusion. The third reason is the absence of foreign tax credit as they almost never pay tax in the country of foreign employment. The biggest and most expensive challenge is they always file a state tax return unless their home of record is in tax-free U.S. state.

Like other Americans, civilian contractors are required to file an annual U.S. tax return regardless of where in the world they live. There are many tax breaks that reduce (and even completely eliminate) the U.S. tax liability. Some are available to civilian contractors, other are not due to specifics of their employment contract. However - it is very important to remain compliant (ie file your return on time) while you are abroad - as failing to do so may jeopardize your expat deductions. Location of deployment can make a difference too. Civilians serving in the areas designated by the Presidential executive order combat zone have additional rights compared to those who serve in other areas of the world.

We consider our primary job to remove the hassle of U.S. tax obligations so that our clients can focus on more fun things in their new country. We help clients in over 175 countries and are intimately familiar with the issues you face.

FAQ

1. I am a contractor in a combat zone and can’t file taxes on time - what can I do?

2. Can I still qualify for FEIE?

3. Do I have to file state taxes?

4. I spent 3 months in the U.S. on the special training in preparation for my upcoming deployment. That was job-related presence in the U.S. Can I still qualify for the foreign earned income exclusion?

5. My contract ended early because of job-related injury. I had to return to the U.S. after 10 months abroad to get treatment in a hospital. Can I claim partial foreign earned income exclusion based on the qualifying life event?

6. My wife and children live in the U.S. What filing status should I use for filing? If we file separately, can my wife claim who earns small salary claim the Earned Income Credit?


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