IRS Form 2555, Foreign Earned Income
U.S. taxpayers living abroad use Form 2555 to claim the foreign earned income exclusion and housing exclusion or deduction.
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About IRS Form 2555
Form 2555 is used by U.S. citizens and resident aliens who live and work abroad to figure the foreign earned income exclusion and the foreign housing exclusion or deduction. These benefits can reduce the amount of foreign earned income subject to U.S. tax.
To qualify, you must have foreign earned income, your tax home must be in a foreign country, and you must meet either the bona fide residence test or the physical presence test. The form walks through these tests and the calculation of the exclusion.
The exclusion amount is limited and adjusted each year, and it applies only to earned income, not to items like dividends or pensions. The foreign earned income exclusion and the foreign tax credit have different rules, so follow the official instructions to decide what fits your situation.
Who needs to complete it
- U.S. citizens who live and work in a foreign country.
- Resident aliens working abroad who meet the qualifying tests.
- Taxpayers claiming the foreign earned income exclusion.
- People claiming the foreign housing exclusion or deduction.
How to fill out IRS Form 2555
- 1Enter your name, foreign address, and occupation.
- 2Identify your tax home and the dates it was in a foreign country.
- 3Determine whether you qualify under the bona fide residence test or the physical presence test and complete that part.
- 4Report your foreign earned income for the year.
- 5Figure the foreign earned income exclusion based on your qualifying period.
- 6Complete the housing amount section if you are claiming the housing exclusion or deduction.
- 7Carry the results to your Form 1040 as directed.
- 8Follow the official line-by-line instructions to ensure the tests and limits are applied correctly.
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Frequently asked questions
What tests must I meet to use Form 2555?
You must have a tax home in a foreign country and meet either the bona fide residence test or the physical presence test. The form and instructions explain each test.
Is there a limit on the foreign earned income exclusion?
Yes. The maximum exclusion is set each year and adjusted for inflation. It applies only to earned income, not to unearned income like interest or dividends.
Can I claim both the exclusion and the foreign tax credit?
You cannot take a foreign tax credit for taxes on income you exclude. Compare the exclusion and the foreign tax credit using the official instructions to decide which is better for you.