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Form 1040 V Payment Voucher

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Form 1040 V Payment Voucher

Form 1040 v payment voucher 6. Form 1040 v payment voucher   Tip Income Table of Contents Introduction Useful Items - You may want to see: Keeping a Daily Tip RecordElectronic tip record. Form 1040 v payment voucher Reporting Tips to Your EmployerElectronic tip statement. Form 1040 v payment voucher Final report. Form 1040 v payment voucher Reporting Tips on Your Tax Return Allocated Tips Introduction This chapter is for employees who receive tips. Form 1040 v payment voucher All tips you receive are income and are subject to federal income tax. Form 1040 v payment voucher You must include in gross income all tips you receive directly, charged tips paid to you by your employer, and your share of any tips you receive under a tip-splitting or tip-pooling arrangement. Form 1040 v payment voucher The value of noncash tips, such as tickets, passes, or other items of value, is also income and subject to tax. Form 1040 v payment voucher Reporting your tip income correctly is not difficult. Form 1040 v payment voucher You must do three things. Form 1040 v payment voucher Keep a daily tip record. Form 1040 v payment voucher Report tips to your employer. Form 1040 v payment voucher Report all your tips on your income tax return. Form 1040 v payment voucher  This chapter will explain these three things and show you what to do on your tax return if you have not done the first two. Form 1040 v payment voucher This chapter will also show you how to treat allocated tips. Form 1040 v payment voucher For information on special tip programs and agreements, see Publication 531. Form 1040 v payment voucher Useful Items - You may want to see: Publication 531 Reporting Tip Income 1244 Employee's Daily Record of Tips and Report to Employer Form (and Instructions) 4137 Social Security and Medicare Tax on Unreported Tip Income 4070 Employee's Report of Tips to Employer Keeping a Daily Tip Record Why keep a daily tip record. Form 1040 v payment voucher   You must keep a daily tip record so you can: Report your tips accurately to your employer, Report your tips accurately on your tax return, and Prove your tip income if your return is ever questioned. Form 1040 v payment voucher How to keep a daily tip record. Form 1040 v payment voucher   There are two ways to keep a daily tip record. Form 1040 v payment voucher You can either: Write information about your tips in a tip diary, or Keep copies of documents that show your tips, such as restaurant bills and credit or debit card charge slips. Form 1040 v payment voucher You should keep your daily tip record with your tax or other personal records. Form 1040 v payment voucher You must keep your records for as long as they are important for administration of the federal tax law. Form 1040 v payment voucher For information on how long to keep records, see How long to keep records in chapter 1. Form 1040 v payment voucher    If you keep a tip diary, you can use Form 4070A, Employee's Daily Record of Tips. Form 1040 v payment voucher To get Form 4070A, ask the Internal Revenue Service (IRS) or your employer for Publication 1244. Form 1040 v payment voucher Also, Publication 1244 is available online at www. Form 1040 v payment voucher irs. Form 1040 v payment voucher gov/pub/irs-pdf/p1244. Form 1040 v payment voucher pdf. Form 1040 v payment voucher Publication 1244 includes a 1-year supply of Form 4070A. Form 1040 v payment voucher Each day, write in the information asked for on the form. Form 1040 v payment voucher   In addition to the information asked for on Form 4070A, you also need to keep a record of the date and value of any noncash tips you get, such as tickets, passes, or other items of value. Form 1040 v payment voucher Although you do not report these tips to your employer, you must report them on your tax return. Form 1040 v payment voucher   If you do not use Form 4070A, start your records by writing your name, your employer's name, and the name of the business (if it is different from your employer's name). Form 1040 v payment voucher Then, each workday, write the date and the following information. Form 1040 v payment voucher Cash tips you get directly from customers or from other employees. Form 1040 v payment voucher Tips from credit and debit card charge customers that your employer pays you. Form 1040 v payment voucher The value of any noncash tips you get, such as tickets, passes, or other items of value. Form 1040 v payment voucher The amount of tips you paid out to other employees through tip pools or tip splitting, or other arrangements, and the names of the employees to whom you paid the tips. Form 1040 v payment voucher Electronic tip record. Form 1040 v payment voucher   You can use an electronic system provided by your employer to record your daily tips. Form 1040 v payment voucher If you do, you must receive and keep a paper copy of this record. Form 1040 v payment voucher Service charges. Form 1040 v payment voucher    Do not write in your tip diary the amount of any service charge that your employer adds to a customer's bill and then pays to you and treats as wages. Form 1040 v payment voucher This is part of your wages, not a tip. Form 1040 v payment voucher See examples below. Form 1040 v payment voucher Example 1. Form 1040 v payment voucher Good Food Restaurant adds an 18% charge to the bill for parties of 6 or more customers. Form 1040 v payment voucher Jane’s bill for food and beverages for her party of 8 includes an amount on the tip line equal to 18% of the charges for food and beverages, and the total includes this amount. Form 1040 v payment voucher Because Jane did not have an unrestricted right to determine the amount on the “tip line,” the 18% charge is considered a service charge. Form 1040 v payment voucher Do not include the 18% charge in your tip diary. Form 1040 v payment voucher Service charges that are paid to you are considered wages, not tips. Form 1040 v payment voucher Example 2. Form 1040 v payment voucher Good Food Restaurant also includes sample calculations of tip amounts at the bottom of its bills for food and beverages provided to customers. Form 1040 v payment voucher David’s bill includes a blank “tip line,” with sample tip calculations of 15%, 18%, and 20% of his charges for food and beverages at the bottom of the bill beneath the signature line. Form 1040 v payment voucher Because David is free to enter any amount on the “tip line” or leave it blank, any amount he includes is considered a tip. Form 1040 v payment voucher Be sure to include this amount in your tip diary. Form 1040 v payment voucher Reporting Tips to Your Employer Why report tips to your employer. Form 1040 v payment voucher   You must report tips to your employer so that: Your employer can withhold federal income tax and social security, Medicare, Additional Medicare, or railroad retirement taxes, Your employer can report the correct amount of your earnings to the Social Security Administration or Railroad Retirement Board (which affects your benefits when you retire or if you become disabled, or your family's benefits if you die), and You can avoid the penalty for not reporting tips to your employer (explained later). Form 1040 v payment voucher What tips to report. Form 1040 v payment voucher   Report to your employer only cash, check, and debit and credit card tips you receive. Form 1040 v payment voucher   If your total tips for any 1 month from any one job are less than $20, do not report the tips for that month to that employer. Form 1040 v payment voucher   If you participate in a tip-splitting or tip-pooling arrangement, report only the tips you receive and retain. Form 1040 v payment voucher Do not report to your employer any portion of the tips you receive that you pass on to other employees. Form 1040 v payment voucher However, you must report tips you receive from other employees. Form 1040 v payment voucher    Do not report the value of any noncash tips, such as tickets or passes, to your employer. Form 1040 v payment voucher You do not pay social security, Medicare, Additional Medicare or railroad retirement taxes on these tips. Form 1040 v payment voucher How to report. Form 1040 v payment voucher    If your employer does not give you any other way to report tips, you can use Form 4070. Form 1040 v payment voucher Fill in the information asked for on the form, sign and date the form, and give it to your employer. Form 1040 v payment voucher To get a 1-year supply of the form, ask the IRS or your employer for Publication 1244. Form 1040 v payment voucher   If you do not use Form 4070, give your employer a statement with the following information. Form 1040 v payment voucher Your name, address, and social security number. Form 1040 v payment voucher Your employer's name, address, and business name (if it is different from your employer's name). Form 1040 v payment voucher The month (or the dates of any shorter period) in which you received tips. Form 1040 v payment voucher The total tips required to be reported for that period. Form 1040 v payment voucher You must sign and date the statement. Form 1040 v payment voucher Be sure to keep a copy with your tax or other personal records. Form 1040 v payment voucher   Your employer may require you to report your tips more than once a month. Form 1040 v payment voucher However, the statement cannot cover a period of more than 1 calendar month. Form 1040 v payment voucher Electronic tip statement. Form 1040 v payment voucher   Your employer can have you furnish your tip statements electronically. Form 1040 v payment voucher When to report. Form 1040 v payment voucher   Give your report for each month to your employer by the 10th of the next month. Form 1040 v payment voucher If the 10th falls on a Saturday, Sunday, or legal holiday, give your employer the report by the next day that is not a Saturday, Sunday, or legal holiday. Form 1040 v payment voucher Example. Form 1040 v payment voucher You must report your tips received in September 2014 by October 10, 2014. Form 1040 v payment voucher Final report. Form 1040 v payment voucher   If your employment ends during the month, you can report your tips when your employment ends. Form 1040 v payment voucher Penalty for not reporting tips. Form 1040 v payment voucher   If you do not report tips to your employer as required, you may be subject to a penalty equal to 50% of the social security, Medicare, and Additional Medicare taxes or railroad retirement tax you owe on the unreported tips. Form 1040 v payment voucher (For information about these taxes, see Reporting social security, Medicare, Additional Medicare, or railroad retirement taxes on tips not reported to your employer under Reporting Tips on Your Tax Return, later. Form 1040 v payment voucher ) The penalty amount is in addition to the taxes you owe. Form 1040 v payment voucher   You can avoid this penalty if you can show reasonable cause for not reporting the tips to your employer. Form 1040 v payment voucher To do so, attach a statement to your return explaining why you did not report them. Form 1040 v payment voucher Giving your employer money for taxes. Form 1040 v payment voucher   Your regular pay may not be enough for your employer to withhold all the taxes you owe on your regular pay plus your reported tips. Form 1040 v payment voucher If this happens, you can give your employer money until the close of the calendar year to pay the rest of the taxes. Form 1040 v payment voucher   If you do not give your employer enough money, your employer will apply your regular pay and any money you give in the following order. Form 1040 v payment voucher All taxes on your regular pay. Form 1040 v payment voucher Social security, Medicare, and Additional Medicare taxes or railroad retirement taxes on your reported tips. Form 1040 v payment voucher Federal, state, and local income taxes on your reported tips. Form 1040 v payment voucher    Any taxes that remain unpaid can be collected by your employer from your next paycheck. Form 1040 v payment voucher If withholding taxes remain uncollected at the end of the year, you may be subject to a penalty for underpayment of estimated taxes. Form 1040 v payment voucher See Publication 505, Tax Withholding and Estimated Tax, for more information. Form 1040 v payment voucher    Uncollected taxes. Form 1040 v payment voucher You must report on your tax return any social security and Medicare taxes or railroad retirement tax that remained uncollected at the end of 2013. Form 1040 v payment voucher These uncollected taxes will be shown on your 2013 Form W-2. Form 1040 v payment voucher See Reporting uncollected social security, Medicare, or railroad retirement taxes on tips reported to your employer under Reporting Tips on Your Tax Return, later. Form 1040 v payment voucher Reporting Tips on Your Tax Return How to report tips. Form 1040 v payment voucher    Report your tips with your wages on Form 1040, line 7; Form 1040A, line 7; or Form 1040EZ, line 1. Form 1040 v payment voucher What tips to report. Form 1040 v payment voucher   You must report all tips you received in 2013 on your tax return, including both cash tips and noncash tips. Form 1040 v payment voucher Any tips you reported to your employer for 2013 are included in the wages shown in box 1 of your Form W-2. Form 1040 v payment voucher Add to the amount in box 1 only the tips you did not report to your employer. Form 1040 v payment voucher    If you received $20 or more in cash and charge tips in a month and did not report all of those tips to your employer, see Reporting social security, Medicare, Additional Medicare, or railroad retirement taxes on tips not reported to your employer, later. Form 1040 v payment voucher    If you did not keep a daily tip record as required and an amount is shown in box 8 of your Form W-2, see Allocated Tips, later. Form 1040 v payment voucher   If you kept a daily tip record and reported tips to your employer as required under the rules explained earlier, add the following tips to the amount in box 1 of your Form W-2. Form 1040 v payment voucher Cash and charge tips you received that totaled less than $20 for any month. Form 1040 v payment voucher The value of noncash tips, such as tickets, passes, or other items of value. Form 1040 v payment voucher Example. Form 1040 v payment voucher Ben Smith began working at the Blue Ocean Restaurant (his only employer in 2013) on June 30 and received $10,000 in wages during the year. Form 1040 v payment voucher Ben kept a daily tip record showing that his tips for June were $18 and his tips for the rest of the year totaled $7,000. Form 1040 v payment voucher He was not required to report his June tips to his employer, but he reported all of the rest of his tips to his employer as required. Form 1040 v payment voucher Ben's Form W-2 from Blue Ocean Restaurant shows $17,000 ($10,000 wages plus $7,000 reported tips) in box 1. Form 1040 v payment voucher He adds the $18 unreported tips to that amount and reports $17,018 as wages on his tax return. Form 1040 v payment voucher Reporting social security, Medicare, Additional Medicare, or railroad retirement taxes on tips not reported to your employer. Form 1040 v payment voucher    If you received $20 or more in cash and charge tips in a month from any one job and did not report all of those tips to your employer, you must report the social security, Medicare, and Additional Medicare taxes on the unreported tips as additional tax on your return. Form 1040 v payment voucher To report these taxes, you must file a return even if you would not otherwise have to file. Form 1040 v payment voucher You must use Form 1040. Form 1040 v payment voucher (You cannot file Form 1040EZ or Form 1040A. Form 1040 v payment voucher )    Use Form 4137 to figure social security and Medicare taxes. Form 1040 v payment voucher Enter the tax on your return as instructed, and attach the completed Form 4137 to your return. Form 1040 v payment voucher Use Form 8959 to figure Additional Medicare Tax. Form 1040 v payment voucher    If you are subject to the Railroad Retirement Tax Act, you cannot use Form 4137 to pay railroad retirement tax on unreported tips. Form 1040 v payment voucher To get railroad retirement credit, you must report tips to your employer. Form 1040 v payment voucher Reporting uncollected social security, Medicare, or railroad retirement taxes on tips reported to your employer. Form 1040 v payment voucher   You may have uncollected taxes if your regular pay was not enough for your employer to withhold all the taxes you owe and you did not give your employer enough money to pay the rest of the taxes. Form 1040 v payment voucher For more information, see Giving your employer money for taxes , under Reporting Tips to Your Employer, earlier. Form 1040 v payment voucher   If your employer could not collect all the social security and Medicare taxes or railroad retirement tax you owe on tips reported for 2013, the uncollected taxes will be shown in box 12 of your Form W-2 (codes A and B). Form 1040 v payment voucher You must report these amounts as additional tax on your return. Form 1040 v payment voucher Unlike the uncollected portion of the regular (1. Form 1040 v payment voucher 45%) Medicare tax, the uncollected Additional Medicare Tax is not reported in box 12 of Form W-2 with code B. Form 1040 v payment voucher    To report these uncollected taxes, you must file a return even if you would not otherwise have to file. Form 1040 v payment voucher You must report these taxes on Form 1040, line 60. Form 1040 v payment voucher See the instructions for Form 1040, line 60. Form 1040 v payment voucher (You cannot file Form 1040EZ or Form 1040A. Form 1040 v payment voucher ) Allocated Tips If your employer allocated tips to you, they are shown separately in box 8 of your Form W-2. Form 1040 v payment voucher They are not included in box 1 with your wages and reported tips. Form 1040 v payment voucher If box 8 is blank, this discussion does not apply to you. Form 1040 v payment voucher What are allocated tips. Form 1040 v payment voucher   These are tips that your employer assigned to you in addition to the tips you reported to your employer for the year. Form 1040 v payment voucher Your employer will have done this only if: You worked in an establishment (restaurant, cocktail lounge, or similar business) that must allocate tips to employees, and The tips you reported to your employer were less than your share of 8% of food and drink sales. Form 1040 v payment voucher No income, social security, Medicare, Additional Medicare or railroad retirement taxes are withheld on allocated tips. Form 1040 v payment voucher How were your allocated tips figured. Form 1040 v payment voucher   The tips allocated to you are your share of an amount figured by subtracting the reported tips of all employees from 8% (or an approved lower rate) of food and drink sales (other than carryout sales and sales with a service charge of 10% or more). Form 1040 v payment voucher Your share of that amount was figured using either a method provided by an employer-employee agreement or a method provided by IRS regulations based on employees' sales or hours worked. Form 1040 v payment voucher For information about the exact allocation method used, ask your employer. Form 1040 v payment voucher Must you report your allocated tips on your tax return. Form 1040 v payment voucher   You must report all tips you received in 2013 on your tax return, including both cash tips and noncash tips. Form 1040 v payment voucher Any tips you reported to your employer for 2013 are included in the wages shown in box 1 of your Form W-2. Form 1040 v payment voucher Add to the amount in box 1 only the tips you did not report to your employer. Form 1040 v payment voucher This should include any allocated tips shown in box 8 on your Form(s) W-2, unless you have adequate records to show that you received less tips in the year than the allocated figures. Form 1040 v payment voucher   See What tips to report under Reporting Tips on Your Tax Return, and Keeping a Daily Tip Record , earlier. Form 1040 v payment voucher How to report allocated tips. Form 1040 v payment voucher   Report the amount in box 1 and the allocated tips in box 8 of your Form(s) W-2 as wages on Form 1040, line 7; Form 1040NR, line 8; or Form 1040NR-EZ, line 3. Form 1040 v payment voucher (You cannot file Form 1040A or Form 1040EZ when you have allocated tips. Form 1040 v payment voucher )    Because social security, Medicare, and Additional Medicare taxes were not withheld from the allocated tips, you must report those taxes as additional tax on your return. Form 1040 v payment voucher Complete Form 4137, and include the allocated tips on line 1 of the form. Form 1040 v payment voucher See Reporting social security, Medicare, Additional Medicare, or railroad retirement taxes on tips not reported to your employer under Reporting Tips on Your Tax Return, earlier. Form 1040 v payment voucher Prev  Up  Next   Home   More Online Publications
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The Form 1040 V Payment Voucher

Form 1040 v payment voucher 4. Form 1040 v payment voucher   Foreign Earned Income and Housing: Exclusion – Deduction Table of Contents Topics - This chapter discusses: Useful Items - You may want to see: Who Qualifies for the Exclusions and the Deduction? RequirementsTax Home in Foreign Country Bona Fide Residence Test Physical Presence Test Waiver of Time Requirements U. Form 1040 v payment voucher S. Form 1040 v payment voucher Travel Restrictions Foreign Earned Income Foreign Earned Income ExclusionLimit on Excludable Amount Choosing the Exclusion Foreign Housing Exclusion and DeductionHousing Amount Foreign Housing Exclusion Foreign Housing Deduction Married Couples Form 2555 and Form 2555-EZForm 2555-EZ Form 2555 Topics - This chapter discusses: Who qualifies for the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction, The requirements that must be met to claim either exclusion or the deduction, How to figure the foreign earned income exclusion, and How to figure the foreign housing exclusion and the foreign housing deduction. Form 1040 v payment voucher Useful Items - You may want to see: Publication 519 U. Form 1040 v payment voucher S. Form 1040 v payment voucher Tax Guide for Aliens 570 Tax Guide for Individuals With Income from U. Form 1040 v payment voucher S. Form 1040 v payment voucher Possessions 596 Earned Income Credit (EIC) Form (and Instructions) 1040X Amended U. Form 1040 v payment voucher S. Form 1040 v payment voucher Individual Income Tax Return 2555 Foreign Earned Income 2555-EZ Foreign Earned Income Exclusion See chapter 7 for information about getting these publications and forms. Form 1040 v payment voucher Who Qualifies for the Exclusions and the Deduction? If you meet certain requirements, you may qualify for the foreign earned income and foreign housing exclusions and the foreign housing deduction. Form 1040 v payment voucher If you are a U. Form 1040 v payment voucher S. Form 1040 v payment voucher citizen or a resident alien of the United States and you live abroad, you are taxed on your worldwide income. Form 1040 v payment voucher However, you may qualify to exclude from income up to $97,600 of your foreign earnings. Form 1040 v payment voucher In addition, you can exclude or deduct certain foreign housing amounts. Form 1040 v payment voucher See Foreign Earned Income Exclusion and Foreign Housing Exclusion and Deduction, later. Form 1040 v payment voucher You also may be entitled to exclude from income the value of meals and lodging provided to you by your employer. Form 1040 v payment voucher See Exclusion of Meals and Lodging, later. Form 1040 v payment voucher Requirements To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must meet all three of the following requirements. Form 1040 v payment voucher Your tax home must be in a foreign country. Form 1040 v payment voucher You must have foreign earned income. Form 1040 v payment voucher You must be one of the following. Form 1040 v payment voucher A U. Form 1040 v payment voucher S. Form 1040 v payment voucher citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. Form 1040 v payment voucher A U. Form 1040 v payment voucher S. Form 1040 v payment voucher resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. Form 1040 v payment voucher A U. Form 1040 v payment voucher S. Form 1040 v payment voucher citizen or a U. Form 1040 v payment voucher S. Form 1040 v payment voucher resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months. Form 1040 v payment voucher See Publication 519 to find out if you are a U. Form 1040 v payment voucher S. Form 1040 v payment voucher resident alien for tax purposes and whether you keep that alien status when you temporarily work abroad. Form 1040 v payment voucher If you are a nonresident alien married to a U. Form 1040 v payment voucher S. Form 1040 v payment voucher citizen or resident alien, and both you and your spouse choose to treat you as a resident alien, you are a resident alien for tax purposes. Form 1040 v payment voucher For information on making the choice, see the discussion in chapter 1 under Nonresident Alien Spouse Treated as a Resident . Form 1040 v payment voucher Waiver of minimum time requirements. Form 1040 v payment voucher   The minimum time requirements for bona fide residence and physical presence can be waived if you must leave a foreign country because of war, civil unrest, or similar adverse conditions in that country. Form 1040 v payment voucher This is fully explained under Waiver of Time Requirements , later. Form 1040 v payment voucher   See Figure 4-A and information in this chapter to determine if you are eligible to claim either exclusion or the deduction. Form 1040 v payment voucher Tax Home in Foreign Country To qualify for the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, your tax home must be in a foreign country throughout your period of bona fide residence or physical presence abroad. Form 1040 v payment voucher Bona fide residence and physical presence are explained later. Form 1040 v payment voucher Tax Home Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. Form 1040 v payment voucher Your tax home is the place where you are permanently or indefinitely engaged to work as an employee or self-employed individual. Form 1040 v payment voucher Having a “tax home” in a given location does not necessarily mean that the given location is your residence or domicile for tax purposes. Form 1040 v payment voucher If you do not have a regular or main place of business because of the nature of your work, your tax home may be the place where you regularly live. Form 1040 v payment voucher If you have neither a regular or main place of business nor a place where you regularly live, you are considered an itinerant and your tax home is wherever you work. Form 1040 v payment voucher You are not considered to have a tax home in a foreign country for any period in which your abode is in the United States. Form 1040 v payment voucher However, your abode is not necessarily in the United States while you are temporarily in the United States. Form 1040 v payment voucher Your abode is also not necessarily in the United States merely because you maintain a dwelling in the United States, whether or not your spouse or dependents use the dwelling. Form 1040 v payment voucher “Abode” has been variously defined as one's home, habitation, residence, domicile, or place of dwelling. Form 1040 v payment voucher It does not mean your principal place of business. Form 1040 v payment voucher “Abode” has a domestic rather than a vocational meaning and does not mean the same as “tax home. Form 1040 v payment voucher ” The location of your abode often will depend on where you maintain your economic, family, and personal ties. Form 1040 v payment voucher Example 1. Form 1040 v payment voucher You are employed on an offshore oil rig in the territorial waters of a foreign country and work a 28-day on/28-day off schedule. Form 1040 v payment voucher You return to your family residence in the United States during your off periods. Form 1040 v payment voucher You are considered to have an abode in the United States and do not satisfy the tax home test in the foreign country. Form 1040 v payment voucher You cannot claim either of the exclusions or the housing deduction. Form 1040 v payment voucher Example 2. Form 1040 v payment voucher For several years, you were a marketing executive with a producer of machine tools in Toledo, Ohio. Form 1040 v payment voucher In November of last year, your employer transferred you to London, England, for a minimum of 18 months to set up a sales operation for Europe. Form 1040 v payment voucher Before you left, you distributed business cards showing your business and home addresses in London. Form 1040 v payment voucher You kept ownership of your home in Toledo but rented it to another family. Form 1040 v payment voucher You placed your car in storage. Form 1040 v payment voucher In November of last year, you moved your spouse, children, furniture, and family pets to a home your employer rented for you in London. Form 1040 v payment voucher Shortly after moving, you leased a car and you and your spouse got British driving licenses. Form 1040 v payment voucher Your entire family got library cards for the local public library. Form 1040 v payment voucher You and your spouse opened bank accounts with a London bank and secured consumer credit. Form 1040 v payment voucher You joined a local business league and both you and your spouse became active in the neighborhood civic association and worked with a local charity. Form 1040 v payment voucher Your abode is in London for the time you live there. Form 1040 v payment voucher You satisfy the tax home test in the foreign country. Form 1040 v payment voucher Please click here for the text description of the image. Form 1040 v payment voucher Figure 4–A Can I Claim the Exclusion or Deduction? Temporary or Indefinite Assignment The location of your tax home often depends on whether your assignment is temporary or indefinite. Form 1040 v payment voucher If you are temporarily absent from your tax home in the United States on business, you may be able to deduct your away-from-home expenses (for travel, meals, and lodging), but you would not qualify for the foreign earned income exclusion. Form 1040 v payment voucher If your new work assignment is for an indefinite period, your new place of employment becomes your tax home and you would not be able to deduct any of the related expenses that you have in the general area of this new work assignment. Form 1040 v payment voucher If your new tax home is in a foreign country and you meet the other requirements, your earnings may qualify for the foreign earned income exclusion. Form 1040 v payment voucher If you expect your employment away from home in a single location to last, and it does last, for 1 year or less, it is temporary unless facts and circumstances indicate otherwise. Form 1040 v payment voucher If you expect it to last for more than 1 year, it is indefinite. Form 1040 v payment voucher If you expect it to last for 1 year or less, but at some later date you expect it to last longer than 1 year, it is temporary (in the absence of facts and circumstances indicating otherwise) until your expectation changes. Form 1040 v payment voucher Once your expectation changes, it is indefinite. Form 1040 v payment voucher Foreign Country To meet the bona fide residence test or the physical presence test, you must live in or be present in a foreign country. Form 1040 v payment voucher A foreign country includes any territory under the sovereignty of a government other than that of the United States. Form 1040 v payment voucher The term “foreign country” includes the country's airspace and territorial waters, but not international waters and the airspace above them. Form 1040 v payment voucher It also includes the seabed and subsoil of those submarine areas adjacent to the country's territorial waters over which it has exclusive rights under international law to explore and exploit the natural resources. Form 1040 v payment voucher The term “foreign country” does not include Antarctica or U. Form 1040 v payment voucher S. Form 1040 v payment voucher possessions such as Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, the U. Form 1040 v payment voucher S. Form 1040 v payment voucher Virgin Islands, and Johnston Island. Form 1040 v payment voucher For purposes of the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction, the terms “foreign,” “abroad,” and “overseas” refer to areas outside the United States and those areas listed or described in the previous sentence. Form 1040 v payment voucher American Samoa, Guam, and the Commonwealth of the Northern Mariana Islands Residence or presence in a U. Form 1040 v payment voucher S. Form 1040 v payment voucher possession does not qualify you for the foreign earned income exclusion. Form 1040 v payment voucher You may, however, qualify for an exclusion of your possession income on your U. Form 1040 v payment voucher S. Form 1040 v payment voucher return. Form 1040 v payment voucher American Samoa. Form 1040 v payment voucher   There is a possession exclusion available to individuals who are bona fide residents of American Samoa for the entire tax year. Form 1040 v payment voucher Gross income from sources within American Samoa may be eligible for this exclusion. Form 1040 v payment voucher Income that is effectively connected with the conduct of a trade or business within American Samoa also may be eligible for this exclusion. Form 1040 v payment voucher Use Form 4563, Exclusion of Income for Bona Fide Residents of American Samoa, to figure the exclusion. Form 1040 v payment voucher Guam and the Commonwealth of the Northern Mariana Islands. Form 1040 v payment voucher   An exclusion will be available to residents of Guam and the Commonwealth of the Northern Mariana Islands if, and when, new implementation agreements take effect between the United States and those possessions. Form 1040 v payment voucher   For more information, see Publication 570. Form 1040 v payment voucher Puerto Rico and U. Form 1040 v payment voucher S. Form 1040 v payment voucher Virgin Islands Residents of Puerto Rico and the U. Form 1040 v payment voucher S. Form 1040 v payment voucher Virgin Islands cannot claim the foreign earned income exclusion or the foreign housing exclusion. Form 1040 v payment voucher Puerto Rico. Form 1040 v payment voucher   Generally, if you are a U. Form 1040 v payment voucher S. Form 1040 v payment voucher citizen who is a bona fide resident of Puerto Rico for the entire tax year, you are not subject to U. Form 1040 v payment voucher S. Form 1040 v payment voucher tax on income from Puerto Rican sources. Form 1040 v payment voucher This does not include amounts paid for services performed as an employee of the United States. Form 1040 v payment voucher However, you are subject to U. Form 1040 v payment voucher S. Form 1040 v payment voucher tax on your income from sources outside Puerto Rico. Form 1040 v payment voucher In figuring your U. Form 1040 v payment voucher S. Form 1040 v payment voucher tax, you cannot deduct expenses allocable to income not subject to tax. Form 1040 v payment voucher Bona Fide Residence Test You meet the bona fide residence test if you are a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. Form 1040 v payment voucher You can use the bona fide residence test to qualify for the exclusions and the deduction only if you are either: A U. Form 1040 v payment voucher S. Form 1040 v payment voucher citizen, or A U. Form 1040 v payment voucher S. Form 1040 v payment voucher resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect. Form 1040 v payment voucher You do not automatically acquire bona fide resident status merely by living in a foreign country or countries for 1 year. Form 1040 v payment voucher If you go to a foreign country to work on a particular job for a specified period of time, you ordinarily will not be regarded as a bona fide resident of that country even though you work there for 1 tax year or longer. Form 1040 v payment voucher The length of your stay and the nature of your job are only two of the factors to be considered in determining whether you meet the bona fide residence test. Form 1040 v payment voucher Bona fide residence. Form 1040 v payment voucher   To meet the bona fide residence test, you must have established a bona fide residence in a foreign country. Form 1040 v payment voucher   Your bona fide residence is not necessarily the same as your domicile. Form 1040 v payment voucher Your domicile is your permanent home, the place to which you always return or intend to return. Form 1040 v payment voucher Example. Form 1040 v payment voucher You could have your domicile in Cleveland, Ohio, and a bona fide residence in Edinburgh, Scotland, if you intend to return eventually to Cleveland. Form 1040 v payment voucher The fact that you go to Scotland does not automatically make Scotland your bona fide residence. Form 1040 v payment voucher If you go there as a tourist, or on a short business trip, and return to the United States, you have not established bona fide residence in Scotland. Form 1040 v payment voucher But if you go to Scotland to work for an indefinite or extended period and you set up permanent quarters there for yourself and your family, you probably have established a bona fide residence in a foreign country, even though you intend to return eventually to the United States. Form 1040 v payment voucher You are clearly not a resident of Scotland in the first instance. Form 1040 v payment voucher However, in the second, you are a resident because your stay in Scotland appears to be permanent. Form 1040 v payment voucher If your residency is not as clearly defined as either of these illustrations, it may be more difficult to decide whether you have established a bona fide residence. Form 1040 v payment voucher Determination. Form 1040 v payment voucher   Questions of bona fide residence are determined according to each individual case, taking into account factors such as your intention, the purpose of your trip, and the nature and length of your stay abroad. Form 1040 v payment voucher   To meet the bona fide residence test, you must show the Internal Revenue Service (IRS) that you have been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. Form 1040 v payment voucher The IRS decides whether you are a bona fide resident of a foreign country largely on the basis of facts you report on Form 2555. Form 1040 v payment voucher IRS cannot make this determination until you file Form 2555. Form 1040 v payment voucher Statement to foreign authorities. Form 1040 v payment voucher   You are not considered a bona fide resident of a foreign country if you make a statement to the authorities of that country that you are not a resident of that country, and the authorities: Hold that you are not subject to their income tax laws as a resident, or Have not made a final decision on your status. Form 1040 v payment voucher Special agreements and treaties. Form 1040 v payment voucher   An income tax exemption provided in a treaty or other international agreement will not in itself prevent you from being a bona fide resident of a foreign country. Form 1040 v payment voucher Whether a treaty prevents you from becoming a bona fide resident of a foreign country is determined under all provisions of the treaty, including specific provisions relating to residence or privileges and immunities. Form 1040 v payment voucher Example 1. Form 1040 v payment voucher You are a U. Form 1040 v payment voucher S. Form 1040 v payment voucher citizen employed in the United Kingdom by a U. Form 1040 v payment voucher S. Form 1040 v payment voucher employer under contract with the U. Form 1040 v payment voucher S. Form 1040 v payment voucher Armed Forces. Form 1040 v payment voucher You are not subject to the North Atlantic Treaty Status of Forces Agreement. Form 1040 v payment voucher You may be a bona fide resident of the United Kingdom. Form 1040 v payment voucher Example 2. Form 1040 v payment voucher You are a U. Form 1040 v payment voucher S. Form 1040 v payment voucher citizen in the United Kingdom who qualifies as an “employee” of an armed service or as a member of a “civilian component” under the North Atlantic Treaty Status of Forces Agreement. Form 1040 v payment voucher You are not a bona fide resident of the United Kingdom. Form 1040 v payment voucher Example 3. Form 1040 v payment voucher You are a U. Form 1040 v payment voucher S. Form 1040 v payment voucher citizen employed in Japan by a U. Form 1040 v payment voucher S. Form 1040 v payment voucher employer under contract with the U. Form 1040 v payment voucher S. Form 1040 v payment voucher Armed Forces. Form 1040 v payment voucher You are subject to the agreement of the Treaty of Mutual Cooperation and Security between the United States and Japan. Form 1040 v payment voucher Being subject to the agreement does not make you a bona fide resident of Japan. Form 1040 v payment voucher Example 4. Form 1040 v payment voucher You are a U. Form 1040 v payment voucher S. Form 1040 v payment voucher citizen employed as an “official” by the United Nations in Switzerland. Form 1040 v payment voucher You are exempt from Swiss taxation on the salary or wages paid to you by the United Nations. Form 1040 v payment voucher This does not prevent you from being a bona fide resident of Switzerland. Form 1040 v payment voucher Effect of voting by absentee ballot. Form 1040 v payment voucher   If you are a U. Form 1040 v payment voucher S. Form 1040 v payment voucher citizen living abroad, you can vote by absentee ballot in any election held in the United States without risking your status as a bona fide resident of a foreign country. Form 1040 v payment voucher   However, if you give information to the local election officials about the nature and length of your stay abroad that does not match the information you give for the bona fide residence test, the information given in connection with absentee voting will be considered in determining your status, but will not necessarily be conclusive. Form 1040 v payment voucher Uninterrupted period including entire tax year. Form 1040 v payment voucher   To meet the bona fide residence test, you must reside in a foreign country or countries for an uninterrupted period that includes an entire tax year. Form 1040 v payment voucher An entire tax year is from January 1 through December 31 for taxpayers who file their income tax returns on a calendar year basis. Form 1040 v payment voucher   During the period of bona fide residence in a foreign country, you can leave the country for brief or temporary trips back to the United States or elsewhere for vacation or business. Form 1040 v payment voucher To keep your status as a bona fide resident of a foreign country, you must have a clear intention of returning from such trips, without unreasonable delay, to your foreign residence or to a new bona fide residence in another foreign country. Form 1040 v payment voucher Example 1. Form 1040 v payment voucher You arrived with your family in Lisbon, Portugal, on November 1, 2011. Form 1040 v payment voucher Your assignment is indefinite, and you intend to live there with your family until your company sends you to a new post. Form 1040 v payment voucher You immediately established residence there. Form 1040 v payment voucher You spent April of 2012 at a business conference in the United States. Form 1040 v payment voucher Your family stayed in Lisbon. Form 1040 v payment voucher Immediately following the conference, you returned to Lisbon and continued living there. Form 1040 v payment voucher On January 1, 2013, you completed an uninterrupted period of residence for a full tax year (2012), and you meet the bona fide residence test. Form 1040 v payment voucher Example 2. Form 1040 v payment voucher Assume the same facts as in Example 1, except that you transferred back to the United States on December 13, 2012. Form 1040 v payment voucher You would not meet the bona fide residence test because your bona fide residence in the foreign country, although it lasted more than a year, did not include a full tax year. Form 1040 v payment voucher You may, however, qualify for the foreign earned income exclusion or the housing exclusion or deduction under the physical presence test (discussed later). Form 1040 v payment voucher Bona fide resident for part of a year. Form 1040 v payment voucher   Once you have established bona fide residence in a foreign country for an uninterrupted period that includes an entire tax year, you are a bona fide resident of that country for the period starting with the date you actually began the residence and ending with the date you abandon the foreign residence. Form 1040 v payment voucher Your period of bona fide residence can include an entire tax year plus parts of 2 other tax years. Form 1040 v payment voucher Example. Form 1040 v payment voucher You were a bona fide resident of Singapore from March 1, 2011, through September 14, 2013. Form 1040 v payment voucher On September 15, 2013, you returned to the United States. Form 1040 v payment voucher Since you were a bona fide resident of a foreign country for all of 2012, you were also a bona fide resident of a foreign country from March 1, 2011, through the end of 2011 and from January 1, 2013, through September 14, 2013. Form 1040 v payment voucher Reassignment. Form 1040 v payment voucher   If you are assigned from one foreign post to another, you may or may not have a break in foreign residence between your assignments, depending on the circumstances. Form 1040 v payment voucher Example 1. Form 1040 v payment voucher You were a resident of Pakistan from October 1, 2012, through November 30, 2013. Form 1040 v payment voucher On December 1, 2013, you and your family returned to the United States to wait for an assignment to another foreign country. Form 1040 v payment voucher Your household goods also were returned to the United States. Form 1040 v payment voucher Your foreign residence ended on November 30, 2013, and did not begin again until after you were assigned to another foreign country and physically entered that country. Form 1040 v payment voucher Since you were not a bona fide resident of a foreign country for the entire tax year of 2012 or 2013 you do not meet the bona fide residence test in either year. Form 1040 v payment voucher You may, however, qualify for the foreign earned income exclusion or the housing exclusion or deduction under the physical presence test, discussed later. Form 1040 v payment voucher Example 2. Form 1040 v payment voucher Assume the same facts as in Example 1, except that upon completion of your assignment in Pakistan you were given a new assignment to Turkey. Form 1040 v payment voucher On December 1, 2013, you and your family returned to the United States for a month's vacation. Form 1040 v payment voucher On January 2, 2014, you arrived in Turkey for your new assignment. Form 1040 v payment voucher Because you did not interrupt your bona fide residence abroad, you meet the bona fide residence test. Form 1040 v payment voucher Physical Presence Test You meet the physical presence test if you are physically present in a foreign country or countries 330 full days during a period of 12 consecutive months. Form 1040 v payment voucher The 330 days do not have to be consecutive. Form 1040 v payment voucher Any U. Form 1040 v payment voucher S. Form 1040 v payment voucher citizen or resident alien can use the physical presence test to qualify for the exclusions and the deduction. Form 1040 v payment voucher The physical presence test is based only on how long you stay in a foreign country or countries. Form 1040 v payment voucher This test does not depend on the kind of residence you establish, your intentions about returning, or the nature and purpose of your stay abroad. Form 1040 v payment voucher 330 full days. Form 1040 v payment voucher   Generally, to meet the physical presence test, you must be physically present in a foreign country or countries for at least 330 full days during a 12-month period. Form 1040 v payment voucher You can count days you spent abroad for any reason. Form 1040 v payment voucher You do not have to be in a foreign country only for employment purposes. Form 1040 v payment voucher You can be on vacation. Form 1040 v payment voucher   You do not meet the physical presence test if illness, family problems, a vacation, or your employer's orders cause you to be present for less than the required amount of time. Form 1040 v payment voucher Exception. Form 1040 v payment voucher   You can be physically present in a foreign country or countries for less than 330 full days and still meet the physical presence test if you are required to leave a country because of war or civil unrest. Form 1040 v payment voucher See Waiver of Time Requirements, later. Form 1040 v payment voucher Full day. Form 1040 v payment voucher   A full day is a period of 24 consecutive hours, beginning at midnight. Form 1040 v payment voucher Travel. Form 1040 v payment voucher    When you leave the United States to go directly to a foreign country or when you return directly to the United States from a foreign country, the time you spend on or over international waters does not count toward the 330-day total. Form 1040 v payment voucher Example. Form 1040 v payment voucher You leave the United States for France by air on June 10. Form 1040 v payment voucher You arrive in France at 9:00 a. Form 1040 v payment voucher m. Form 1040 v payment voucher on June 11. Form 1040 v payment voucher Your first full day of physical presence in France is June 12. Form 1040 v payment voucher Passing over foreign country. Form 1040 v payment voucher   If, in traveling from the United States to a foreign country, you pass over a foreign country before midnight of the day you leave, the first day you can count toward the 330-day total is the day following the day you leave the United States. Form 1040 v payment voucher Example. Form 1040 v payment voucher You leave the United States by air at 9:30 a. Form 1040 v payment voucher m. Form 1040 v payment voucher on June 10 to travel to Kenya. Form 1040 v payment voucher You pass over western Africa at 11:00 p. Form 1040 v payment voucher m. Form 1040 v payment voucher on June 10 and arrive in Kenya at 12:30 a. Form 1040 v payment voucher m. Form 1040 v payment voucher on June 11. Form 1040 v payment voucher Your first full day in a foreign country is June 11. Form 1040 v payment voucher Change of location. Form 1040 v payment voucher   You can move about from one place to another in a foreign country or to another foreign country without losing full days. Form 1040 v payment voucher If any part of your travel is not within any foreign country and takes less than 24 hours, you are considered to be in a foreign country during that part of travel. Form 1040 v payment voucher Example 1. Form 1040 v payment voucher You leave Ireland by air at 11:00 p. Form 1040 v payment voucher m. Form 1040 v payment voucher on July 6 and arrive in Sweden at 5:00 a. Form 1040 v payment voucher m. Form 1040 v payment voucher on July 7. Form 1040 v payment voucher Your trip takes less than 24 hours and you lose no full days. Form 1040 v payment voucher Example 2. Form 1040 v payment voucher You leave Norway by ship at 10:00 p. Form 1040 v payment voucher m. Form 1040 v payment voucher on July 6 and arrive in Portugal at 6:00 a. Form 1040 v payment voucher m. Form 1040 v payment voucher on July 8. Form 1040 v payment voucher Since your travel is not within a foreign country or countries and the trip takes more than 24 hours, you lose as full days July 6, 7, and 8. Form 1040 v payment voucher If you remain in Portugal, your next full day in a foreign country is July 9. Form 1040 v payment voucher In United States while in transit. Form 1040 v payment voucher   If you are in transit between two points outside the United States and are physically present in the United States for less than 24 hours, you are not treated as present in the United States during the transit. Form 1040 v payment voucher You are treated as traveling over areas not within any foreign country. Form 1040 v payment voucher    Please click here for the text description of the image. Form 1040 v payment voucher Figure 4-B How to figure the 12-month period. Form 1040 v payment voucher   There are four rules you should know when figuring the 12-month period. Form 1040 v payment voucher Your 12-month period can begin with any day of the month. Form 1040 v payment voucher It ends the day before the same calendar day, 12 months later. Form 1040 v payment voucher Your 12-month period must be made up of consecutive months. Form 1040 v payment voucher Any 12-month period can be used if the 330 days in a foreign country fall within that period. Form 1040 v payment voucher You do not have to begin your 12-month period with your first full day in a foreign country or end it with the day you leave. Form 1040 v payment voucher You can choose the 12-month period that gives you the greatest exclusion. Form 1040 v payment voucher In determining whether the 12-month period falls within a longer stay in the foreign country, 12-month periods can overlap one another. Form 1040 v payment voucher Example 1. Form 1040 v payment voucher You are a construction worker who works on and off in a foreign country over a 20-month period. Form 1040 v payment voucher You might pick up the 330 full days in a 12-month period only during the middle months of the time you work in the foreign country because the first few and last few months of the 20-month period are broken up by long visits to the United States. Form 1040 v payment voucher Example 2. Form 1040 v payment voucher You work in New Zealand for a 20-month period from January 1, 2012, through August 31, 2013, except that you spend 28 days in February 2012 and 28 days in February 2013 on vacation in the United States. Form 1040 v payment voucher You are present in New Zealand for at least 330 full days during each of the following two 12-month periods: January 1, 2012 – December 31, 2012 and September 1, 2012 – August 31, 2013. Form 1040 v payment voucher By overlapping the 12-month periods in this way, you meet the physical presence test for the whole 20-month period. Form 1040 v payment voucher See Figure 4-B, on the previous page. Form 1040 v payment voucher Waiver of Time Requirements Both the bona fide residence test and the physical presence test contain minimum time requirements. Form 1040 v payment voucher The minimum time requirements can be waived, however, if you must leave a foreign country because of war, civil unrest, or similar adverse conditions in that country. Form 1040 v payment voucher You must be able to show that you reasonably could have expected to meet the minimum time requirements if not for the adverse conditions. Form 1040 v payment voucher To qualify for the waiver, you must actually have your tax home in the foreign country and be a bona fide resident of, or be physically present in, the foreign country on or before the beginning date of the waiver. Form 1040 v payment voucher Early in 2014, the IRS will publish in the Internal Revenue Bulletin a list of the only countries that qualify for the waiver for 2013 and the effective dates. Form 1040 v payment voucher If you left one of the countries on or after the date listed for each country, you can meet the bona fide residence test or physical presence test for 2013 without meeting the minimum time requirement. Form 1040 v payment voucher However, in figuring your exclusion, the number of your qualifying days of bona fide residence or physical presence includes only days of actual residence or presence within the country. Form 1040 v payment voucher U. Form 1040 v payment voucher S. Form 1040 v payment voucher Travel Restrictions If you are present in a foreign country in violation of U. Form 1040 v payment voucher S. Form 1040 v payment voucher law, you will not be treated as a bona fide resident of a foreign country or as physically present in a foreign country while you are in violation of the law. Form 1040 v payment voucher Income that you earn from sources within such a country for services performed during a period of violation does not qualify as foreign earned income. Form 1040 v payment voucher Your housing expenses within that country (or outside that country for housing your spouse or dependents) while you are in violation of the law cannot be included in figuring your foreign housing amount. Form 1040 v payment voucher For 2013, the only country to which travel restrictions applied was Cuba. Form 1040 v payment voucher The restrictions applied for the entire year. Form 1040 v payment voucher However, individuals working at the U. Form 1040 v payment voucher S. Form 1040 v payment voucher Naval Base at Guantanamo Bay in Cuba are not in violation of U. Form 1040 v payment voucher S. Form 1040 v payment voucher law. Form 1040 v payment voucher Personal service income earned by individuals at the base is eligible for the foreign earned income exclusion provided the other requirements are met. Form 1040 v payment voucher Foreign Earned Income To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must have foreign earned income. Form 1040 v payment voucher Foreign earned income generally is income you receive for services you perform during a period in which you meet both of the following requirements. Form 1040 v payment voucher Your tax home is in a foreign country. Form 1040 v payment voucher You meet either the bona fide residence test or the physical presence test. Form 1040 v payment voucher To determine whether your tax home is in a foreign country, see Tax Home in Foreign Country, earlier. Form 1040 v payment voucher To determine whether you meet either the bona fide residence test or the physical presence test, see Bona Fide Residence Test and Physical Presence Test, earlier. Form 1040 v payment voucher Foreign earned income does not include the following amounts. Form 1040 v payment voucher The value of meals and lodging that you exclude from your income because the meals and lodging were furnished for the convenience of your employer. Form 1040 v payment voucher Pension or annuity payments you receive, including social security benefits (see Pensions and annuities, later). Form 1040 v payment voucher Pay you receive as an employee of the U. Form 1040 v payment voucher S. Form 1040 v payment voucher Government. Form 1040 v payment voucher (See U. Form 1040 v payment voucher S. Form 1040 v payment voucher Government Employees, later. Form 1040 v payment voucher ) Amounts you include in your income because of your employer's contributions to a nonexempt employee trust or to a nonqualified annuity contract. Form 1040 v payment voucher Any unallowable moving expense deduction that you choose to recapture as explained under Moving Expense Attributable to Foreign Earnings in 2 Years in chapter 5. Form 1040 v payment voucher Payments you receive after the end of the tax year following the tax year in which you performed the services that earned the income. Form 1040 v payment voucher Earned income. Form 1040 v payment voucher   This is pay for personal services performed, such as wages, salaries, or professional fees. Form 1040 v payment voucher The list that follows classifies many types of income into three categories. Form 1040 v payment voucher The column headed Variable Income lists income that may fall into either the earned income category, the unearned income category, or partly into both. Form 1040 v payment voucher For more information on earned and unearned income, see Earned and Unearned Income, later. Form 1040 v payment voucher Earned Income Unearned Income Variable Income Salaries and wages Dividends Business profits Commissions Interest Royalties Bonuses Capital gains Rents Professional fees Gambling winnings Scholarships and fellowships Tips Alimony     Social security benefits     Pensions     Annuities     In addition to the types of earned income listed, certain noncash income and allowances or reimbursements are considered earned income. Form 1040 v payment voucher Noncash income. Form 1040 v payment voucher   The fair market value of property or facilities provided to you by your employer in the form of lodging, meals, or use of a car is earned income. Form 1040 v payment voucher Allowances or reimbursements. Form 1040 v payment voucher   Earned income includes allowances or reimbursements you receive, such as the following amounts. Form 1040 v payment voucher    Cost-of-living allowances. Form 1040 v payment voucher Overseas differential. Form 1040 v payment voucher Family allowance. Form 1040 v payment voucher Reimbursement for education or education allowance. Form 1040 v payment voucher Home leave allowance. Form 1040 v payment voucher Quarters allowance. Form 1040 v payment voucher Reimbursement for moving or moving allowance (unless excluded from income as discussed later in Reimbursement of employee expenses under Earned and Unearned Income). Form 1040 v payment voucher Source of Earned Income The source of your earned income is the place where you perform the services for which you received the income. Form 1040 v payment voucher Foreign earned income is income you receive for working in a foreign country. Form 1040 v payment voucher Where or how you are paid has no effect on the source of the income. Form 1040 v payment voucher For example, income you receive for work done in Austria is income from a foreign source even if the income is paid directly to your bank account in the United States and your employer is located in New York City. Form 1040 v payment voucher Example. Form 1040 v payment voucher You are a U. Form 1040 v payment voucher S. Form 1040 v payment voucher citizen, a bona fide resident of Canada, and working as a mining engineer. Form 1040 v payment voucher Your salary is $76,800 per year. Form 1040 v payment voucher You also receive a $6,000 cost-of-living allowance, and a $6,000 education allowance. Form 1040 v payment voucher Your employment contract did not indicate that you were entitled to these allowances only while outside the United States. Form 1040 v payment voucher Your total income is $88,800. Form 1040 v payment voucher You work a 5-day week, Monday through Friday. Form 1040 v payment voucher After subtracting your vacation, you have a total of 240 workdays in the year. Form 1040 v payment voucher You worked in the United States during the year for 6 weeks (30 workdays). Form 1040 v payment voucher The following shows how to figure the part of your income that is for work done in Canada during the year. Form 1040 v payment voucher   Number of days worked in Canada during the year (210) × Total income ($88,800) = $77,700     Number of days of work during the year for which payment was made (240)   Your foreign source earned income is $77,700. Form 1040 v payment voucher Earned and Unearned Income Earned income was defined earlier as pay for personal services performed. Form 1040 v payment voucher Some types of income are not easily identified as earned or unearned income. Form 1040 v payment voucher Some of these types of income are further explained here. Form 1040 v payment voucher Income from a sole proprietorship or partnership. Form 1040 v payment voucher   Income from a business in which capital investment is an important part of producing the income may be unearned income. Form 1040 v payment voucher If you are a sole proprietor or partner and your personal services are also an important part of producing the income, the part of the income that represents the value of your personal services will be treated as earned income. Form 1040 v payment voucher Capital a factor. Form 1040 v payment voucher   If capital investment is an important part of producing income, no more than 30% of your share of the net profits of the business is earned income. Form 1040 v payment voucher   If you have no net profits, the part of your gross profit that represents a reasonable allowance for personal services actually performed is considered earned income. Form 1040 v payment voucher Because you do not have a net profit, the 30% limit does not apply. Form 1040 v payment voucher Example 1. Form 1040 v payment voucher You are a U. Form 1040 v payment voucher S. Form 1040 v payment voucher citizen and meet the bona fide residence test. Form 1040 v payment voucher You invest in a partnership based in Cameroon that is engaged solely in selling merchandise outside the United States. Form 1040 v payment voucher You perform no services for the partnership. Form 1040 v payment voucher At the end of the tax year, your share of the net profits is $80,000. Form 1040 v payment voucher The entire $80,000 is unearned income. Form 1040 v payment voucher Example 2. Form 1040 v payment voucher Assume that in Example 1 you spend time operating the business. Form 1040 v payment voucher Your share of the net profits is $80,000; 30% of your share of the profits is $24,000. Form 1040 v payment voucher If the value of your services for the year is $15,000, your earned income is limited to the value of your services, $15,000. Form 1040 v payment voucher Capital not a factor. Form 1040 v payment voucher   If capital is not an income-producing factor and personal services produce the business income, the 30% rule does not apply. Form 1040 v payment voucher The entire amount of business income is earned income. Form 1040 v payment voucher Example. Form 1040 v payment voucher You and Lou Green are management consultants and operate as equal partners in performing services outside the United States. Form 1040 v payment voucher Because capital is not an income- producing factor, all the income from the partnership is considered earned income. Form 1040 v payment voucher Income from a corporation. Form 1040 v payment voucher   The salary you receive from a corporation is earned income only if it represents a reasonable allowance as compensation for work you do for the corporation. Form 1040 v payment voucher Any amount over what is considered a reasonable salary is unearned income. Form 1040 v payment voucher Example 1. Form 1040 v payment voucher You are a U. Form 1040 v payment voucher S. Form 1040 v payment voucher citizen and an officer and stockholder of a corporation in Honduras. Form 1040 v payment voucher You perform no work or service of any kind for the corporation. Form 1040 v payment voucher During the tax year you receive a $10,000 “salary” from the corporation. Form 1040 v payment voucher The $10,000 clearly is not for personal services and is unearned income. Form 1040 v payment voucher Example 2. Form 1040 v payment voucher You are a U. Form 1040 v payment voucher S. Form 1040 v payment voucher citizen and work full time as secretary-treasurer of your corporation. Form 1040 v payment voucher During the tax year you receive $100,000 as salary from the corporation. Form 1040 v payment voucher If $80,000 is a reasonable allowance as pay for the work you did, then $80,000 is earned income. Form 1040 v payment voucher Stock options. Form 1040 v payment voucher   You may have earned income if you disposed of stock that you got by exercising a stock option granted to you under an employee stock purchase plan. Form 1040 v payment voucher   If your gain on the disposition of stock you got by exercising an option is treated as capital gain, your gain is unearned income. Form 1040 v payment voucher   However, if you disposed of the stock less than 2 years after you were granted the option or less than 1 year after you got the stock, part of the gain on the disposition may be earned income. Form 1040 v payment voucher It is considered received in the year you disposed of the stock and earned in the year you performed the services for which you were granted the option. Form 1040 v payment voucher Any part of the earned income that is due to work you did outside the United States is foreign earned income. Form 1040 v payment voucher   See Publication 525, Taxable and Nontaxable Income, for a discussion of the treatment of stock options. Form 1040 v payment voucher Pensions and annuities. Form 1040 v payment voucher    For purposes of the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction, amounts received as pensions or annuities are unearned income. Form 1040 v payment voucher Royalties. Form 1040 v payment voucher   Royalties from the leasing of oil and mineral lands and patents generally are a form of rent or dividends and are unearned income. Form 1040 v payment voucher   Royalties received by a writer are earned income if they are received: For the transfer of property rights of the writer in the writer's product, or Under a contract to write a book or series of articles. Form 1040 v payment voucher Rental income. Form 1040 v payment voucher   Generally, rental income is unearned income. Form 1040 v payment voucher If you perform personal services in connection with the production of rent, up to 30% of your net rental income can be considered earned income. Form 1040 v payment voucher Example. Form 1040 v payment voucher Larry Smith, a U. Form 1040 v payment voucher S. Form 1040 v payment voucher citizen living in Australia, owns and operates a rooming house in Sydney. Form 1040 v payment voucher If he is operating the rooming house as a business that requires capital and personal services, he can consider up to 30% of net rental income as earned income. Form 1040 v payment voucher On the other hand, if he just owns the rooming house and performs no personal services connected with its operation, except perhaps making minor repairs and collecting rents, none of his net income from the house is considered earned income. Form 1040 v payment voucher It is all unearned income. Form 1040 v payment voucher Professional fees. Form 1040 v payment voucher   If you are engaged in a professional occupation (such as a doctor or lawyer), all fees received in the performance of these services are earned income. Form 1040 v payment voucher Income of an artist. Form 1040 v payment voucher   Income you receive from the sale of paintings you created is earned income. Form 1040 v payment voucher Scholarships and fellowships. Form 1040 v payment voucher   Any portion of a scholarship or fellowship grant that is paid to you for teaching, research or other services is considered earned income if you must include it in your gross income. Form 1040 v payment voucher If the payer of the grant is required to provide you with a Form W-2, Wage and Tax Statement, these amounts will be listed as wages. Form 1040 v payment voucher    Certain scholarship and fellowship income may be exempt under other provisions. Form 1040 v payment voucher See Publication 970, Tax Benefits for Education, chapter 1. Form 1040 v payment voucher Use of employer's property or facilities. Form 1040 v payment voucher   If you receive fringe benefits in the form of the right to use your employer's property or facilities, the fair market value of that right is earned income. Form 1040 v payment voucher Fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being required to buy or sell, and both having reasonable knowledge of all the necessary facts. Form 1040 v payment voucher Example. Form 1040 v payment voucher You are privately employed and live in Japan all year. Form 1040 v payment voucher You are paid a salary of $6,000 a month. Form 1040 v payment voucher You live rent-free in a house provided by your employer that has a fair rental value of $3,000 a month. Form 1040 v payment voucher The house is not provided for your employer's convenience. Form 1040 v payment voucher You report on the calendar-year, cash basis. Form 1040 v payment voucher You received $72,000 salary from foreign sources plus $36,000 fair rental value of the house, or a total of $108,000 of earned income. Form 1040 v payment voucher Reimbursement of employee expenses. Form 1040 v payment voucher   If you are reimbursed under an accountable plan (defined below) for expenses you incur on your employer's behalf and you have adequately accounted to your employer for the expenses, do not include the reimbursement for those expenses in your earned income. Form 1040 v payment voucher   The expenses for which you are reimbursed are not considered allocable (related) to your earned income. Form 1040 v payment voucher If expenses and reimbursement are equal, there is nothing to allocate to excluded income. Form 1040 v payment voucher If expenses are more than the reimbursement, the unreimbursed expenses are considered to have been incurred in producing earned income and must be divided between your excluded and included income in determining the amount of unreimbursed expenses you can deduct. Form 1040 v payment voucher (See chapter 5. Form 1040 v payment voucher ) If the reimbursement is more than the expenses, no expenses remain to be divided between excluded and included income and the excess reimbursement must be included in earned income. Form 1040 v payment voucher   These rules do not apply to the following individuals. Form 1040 v payment voucher Straight-commission salespersons. Form 1040 v payment voucher Employees who have arrangements with their employers under which taxes are not withheld on a percentage of the commissions because the employers consider that percentage to be attributable to the employees' expenses. Form 1040 v payment voucher Accountable plan. Form 1040 v payment voucher   An accountable plan is a reimbursement or allowance arrangement that includes all three of the following rules. Form 1040 v payment voucher The expenses covered under the plan must have a business connection. Form 1040 v payment voucher The employee must adequately account to the employer for these expenses within a reasonable period of time. Form 1040 v payment voucher The employee must return any excess reimbursement or allowance within a reasonable period of time. Form 1040 v payment voucher Reimbursement of moving expenses. Form 1040 v payment voucher   Reimbursement of moving expenses may be earned income. Form 1040 v payment voucher You must include as earned income: Any reimbursements of, or payments for, nondeductible moving expenses, Reimbursements that are more than your deductible expenses and that you do not return to your employer, Any reimbursements made (or treated as made) under a nonaccountable plan (any plan that does not meet the rules listed above for an accountable plan), even if they are for deductible expenses, and Any reimbursement of moving expenses you deducted in an earlier year. Form 1040 v payment voucher This section discusses reimbursements that must be included in earned income. Form 1040 v payment voucher Publication 521, Moving Expenses, discusses additional rules that apply to moving expense deductions and reimbursements. Form 1040 v payment voucher   The rules for determining when the reimbursement is considered earned or where the reimbursement is considered earned may differ somewhat from the general rules previously discussed. Form 1040 v payment voucher   Although you receive the reimbursement in one tax year, it may be considered earned for services performed, or to be performed, in another tax year. Form 1040 v payment voucher You must report the reimbursement as income on your return in the year you receive it, even if it is considered earned during a different year. Form 1040 v payment voucher Move from U. Form 1040 v payment voucher S. Form 1040 v payment voucher to foreign country. Form 1040 v payment voucher   If you move from the United States to a foreign country, your moving expense reimbursement is generally considered pay for future services to be performed at the new location. Form 1040 v payment voucher The reimbursement is considered earned solely in the year of the move if you qualify for the exclusion for a period that includes at least 120 days during that tax year. Form 1040 v payment voucher   If you are neither a bona fide resident of nor physically present in a foreign country or countries for a period that includes 120 days during the year of the move, a portion of the reimbursement is considered earned in the year of the move and a portion is considered earned in the year following the year of the move. Form 1040 v payment voucher To figure the amount earned in the year of the move, multiply the reimbursement by a fraction. Form 1040 v payment voucher The numerator (top number) is the number of days in your qualifying period that fall within the year of the move, and the denominator (bottom number) is the total number of days in the year of the move. Form 1040 v payment voucher   The difference between the total reimbursement and the amount considered earned in the year of the move is the amount considered earned in the year following the year of the move. Form 1040 v payment voucher The part earned in each year is figured as shown in the following example. Form 1040 v payment voucher Example. Form 1040 v payment voucher You are a U. Form 1040 v payment voucher S. Form 1040 v payment voucher citizen working in the United States. Form 1040 v payment voucher You were told in October 2012 that you were being transferred to a foreign country. Form 1040 v payment voucher You arrived in the foreign country on December 15, 2012, and you are a bona fide resident for the remainder of 2012 and all of 2013. Form 1040 v payment voucher Your employer reimbursed you $2,000 in January 2013 for the part of the moving expense that you were not allowed to deduct. Form 1040 v payment voucher Because you did not qualify for the exclusion under the bona fide residence test for at least 120 days in 2012 (the year of the move), the reimbursement is considered pay for services performed in the foreign country for both 2012 and 2013. Form 1040 v payment voucher You figure the part of the reimbursement for services performed in the foreign country in 2012 by multiplying the total reimbursement by a fraction. Form 1040 v payment voucher The fraction is the number of days during which you were a bona fide resident in 2012 (the year of the move) divided by 366. Form 1040 v payment voucher The remaining part of the reimbursement is for services performed in the foreign country in 2013. Form 1040 v payment voucher This computation is used only to determine when the reimbursement is considered earned. Form 1040 v payment voucher You would include the amount of the reimbursement in income in 2013, the year you received it. Form 1040 v payment voucher Move between foreign countries. Form 1040 v payment voucher   If you move between foreign countries, any moving expense reimbursement that you must include in income will be considered earned in the year of the move if you qualify for the foreign earned income exclusion for a period that includes at least 120 days in the year of the move. Form 1040 v payment voucher Move to U. Form 1040 v payment voucher S. Form 1040 v payment voucher   If you move to the United States, the moving expense reimbursement that you must include in income is generally considered to be U. Form 1040 v payment voucher S. Form 1040 v payment voucher source income. Form 1040 v payment voucher   However, if under either an agreement between you and your employer or a statement of company policy that is reduced to writing before your move to the foreign country, your employer will reimburse you for your move back to the United States regardless of whether you continue to work for the employer, the includible reimbursement is considered compensation for past services performed in the foreign country. Form 1040 v payment voucher The includible reimbursement is considered earned in the year of the move if you qualify for the foreign earned income exclusion for a period that includes at least 120 days during that year. Form 1040 v payment voucher Otherwise, you treat the includible reimbursement as received for services performed in the foreign country in the year of the move and the year immediately before the year of the move. Form 1040 v payment voucher   See the discussion under Move from U. Form 1040 v payment voucher S. Form 1040 v payment voucher to foreign country , earlier, to figure the amount of the includible reimbursement considered earned in the year of the move. Form 1040 v payment voucher The amount earned in the year before the year of the move is the difference between the total includible reimbursement and the amount earned in the year of the move. Form 1040 v payment voucher Example. Form 1040 v payment voucher You are a U. Form 1040 v payment voucher S. Form 1040 v payment voucher citizen employed in a foreign country. Form 1040 v payment voucher You retired from employment with your employer on March 31, 2013, and returned to the United States after having been a bona fide resident of the foreign country for several years. Form 1040 v payment voucher A written agreement with your employer entered into before you went abroad provided that you would be reimbursed for your move back to the United States. Form 1040 v payment voucher In April 2013, your former employer reimbursed you $4,000 for the part of the cost of your move back to the United States that you were not allowed to deduct. Form 1040 v payment voucher Because you were not a bona fide resident of a foreign country or countries for a period that included at least 120 days in 2013 (the year of the move), the includible reimbursement is considered pay for services performed in the foreign country for both 2013 and 2012. Form 1040 v payment voucher You figure the part of the moving expense reimbursement for services performed in the foreign country for 2013 by multiplying the total includible reimbursement by a fraction. Form 1040 v payment voucher The fraction is the number of days of foreign residence during the year (90) divided by the number of days in the year (365). Form 1040 v payment voucher The remaining part of the includible reimbursement is for services performed in the foreign country in 2012. Form 1040 v payment voucher You report the amount of the includible reimbursement in 2013, the year you received it. Form 1040 v payment voucher    In this example, if you met the physical presence test for a period that included at least 120 days in 2013, the moving expense reimbursement would be considered earned entirely in the year of the move. Form 1040 v payment voucher Storage expense reimbursements. Form 1040 v payment voucher   If you are reimbursed for storage expenses, the reimbursement is for services you perform during the period of time for which the storage expenses are incurred. Form 1040 v payment voucher U. Form 1040 v payment voucher S. Form 1040 v payment voucher Government Employees For purposes of the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction, foreign earned income does not include any amounts paid by the United States or any of its agencies to its employees. Form 1040 v payment voucher This includes amounts paid from both appropriated and nonappropriated funds. Form 1040 v payment voucher The following organizations (and other organizations similarly organized and operated under United States Army, Navy, or Air Force regulations) are integral parts of the Armed Forces, agencies, or instrumentalities of the United States. Form 1040 v payment voucher United States Armed Forces exchanges. Form 1040 v payment voucher Commissioned and noncommissioned officers' messes. Form 1040 v payment voucher Armed Forces motion picture services. Form 1040 v payment voucher Kindergartens on foreign Armed Forces installations. Form 1040 v payment voucher Amounts paid by the United States or its agencies to persons who are not their employees may qualify for exclusion or deduction. Form 1040 v payment voucher If you are a U. Form 1040 v payment voucher S. Form 1040 v payment voucher Government employee paid by a U. Form 1040 v payment voucher S. Form 1040 v payment voucher agency that assigned you to a foreign government to perform specific services for which the agency is reimbursed by the foreign government, your pay is from the U. Form 1040 v payment voucher S. Form 1040 v payment voucher Government and does not qualify for exclusion or deduction. Form 1040 v payment voucher If you have questions about whether you are an employee or an independent contractor, get Publication 15-A, Employer's Supplemental Tax Guide. Form 1040 v payment voucher American Institute in Taiwan. Form 1040 v payment voucher   Amounts paid by the American Institute in Taiwan are not foreign earned income for purposes of the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction. Form 1040 v payment voucher If you are an employee of the American Institute in Taiwan, allowances you receive are exempt from U. Form 1040 v payment voucher S. Form 1040 v payment voucher tax up to the amount that equals tax-exempt allowances received by civilian employees of the U. Form 1040 v payment voucher S. Form 1040 v payment voucher Government. Form 1040 v payment voucher Allowances. Form 1040 v payment voucher   Cost-of-living and foreign-area allowances paid under certain acts of Congress to U. Form 1040 v payment voucher S. Form 1040 v payment voucher civilian officers and employees stationed in Alaska and Hawaii or elsewhere outside the 48 contiguous states and the District of Columbia can be excluded from gross income. Form 1040 v payment voucher Post differentials are wages that must be included in gross income, regardless of the act of Congress under which they are paid. Form 1040 v payment voucher More information. Form 1040 v payment voucher   Publication 516, U. Form 1040 v payment voucher S. Form 1040 v payment voucher Government Civilian Employees Stationed Abroad, has more information for U. Form 1040 v payment voucher S. Form 1040 v payment voucher Government employees abroad. Form 1040 v payment voucher Exclusion of Meals and Lodging You do not include in your income the value of meals and lodging provided to you and your family by your employer at no charge if the following conditions are met. Form 1040 v payment voucher The meals are furnished: On the business premises of your employer, and For the convenience of your employer. Form 1040 v payment voucher The lodging is furnished: On the business premises of your employer, For the convenience of your employer, and As a condition of your employment. Form 1040 v payment voucher If these conditions are met, do not include the value of the meals or lodging in your income, even if a law or your employment contract says that they are provided as compensation. Form 1040 v payment voucher Amounts you do not include in income because of these rules are not foreign earned income. Form 1040 v payment voucher If you receive a Form W-2, excludable amounts should not be included in the total reported in box 1 as wages. Form 1040 v payment voucher Family. Form 1040 v payment voucher   Your family, for this purpose, includes only your spouse and your dependents. Form 1040 v payment voucher Lodging. Form 1040 v payment voucher   The value of lodging includes the cost of heat, electricity, gas, water, sewer service, and similar items needed to make the lodging fit to live in. Form 1040 v payment voucher Business premises of employer. Form 1040 v payment voucher   Generally, the business premises of your employer is wherever you work. Form 1040 v payment voucher For example, if you work as a housekeeper, meals and lodging provided in your employer's home are provided on the business premises of your employer. Form 1040 v payment voucher Similarly, meals provided to cowhands while herding cattle on land leased or owned by their employer are considered provided on the premises of their employer. Form 1040 v payment voucher Convenience of employer. Form 1040 v payment voucher   Whether meals or lodging are provided for your employer's convenience must be determined from all the facts and circumstances. Form 1040 v payment voucher Meals furnished at no charge are considered provided for your employer's convenience if there is a good business reason for providing them, other than to give you more pay. Form 1040 v payment voucher   On the other hand, if your employer provides meals to you or your family as a means of giving you more pay, and there is no other business reason for providing them, their value is extra income to you because they are not furnished for the convenience of your employer. Form 1040 v payment voucher Condition of employment. Form 1040 v payment voucher   Lodging is provided as a condition of employment if you must accept the lodging to properly carry out the duties of your job. Form 1040 v payment voucher You must accept lodging to properly carry out your duties if, for example, you must be available for duty at all times or you could not perform your duties if the lodging was not furnished. Form 1040 v payment voucher Foreign camps. Form 1040 v payment voucher   If the lodging is in a camp located in a foreign country, the camp is considered part of your employer's business premises. Form 1040 v payment voucher The camp must be: Provided for your employer's convenience because the place where you work is in a remote area where satisfactory housing is not available to you on the open market within a reasonable commuting distance, Located as close as reasonably possible in the area where you work, and Provided in a common area or enclave that is not available to the general public for lodging or accommodations and that normally houses at least ten employees. Form 1040 v payment voucher Foreign Earned Income Exclusion If your tax home is in a foreign country and you meet the bona fide residence test or the physical presence test, you can choose to exclude from your income a limited amount of your foreign earned income. Form 1040 v payment voucher Foreign earned income was defined earlier in this chapter. Form 1040 v payment voucher You also can choose to exclude from your income a foreign housing amount. Form 1040 v payment voucher This is explained later under Foreign Housing Exclusion. Form 1040 v payment voucher If you choose to exclude a foreign housing amount, you must figure the foreign housing exclusion before you figure the foreign earned income exclusion. Form 1040 v payment voucher Your foreign earned income exclusion is limited to your foreign earned income minus your foreign housing exclusion. Form 1040 v payment voucher If you choose to exclude foreign earned income, you cannot deduct, exclude, or claim a credit for any item that can be allocated to or charged against the excluded amounts. Form 1040 v payment voucher This includes any expenses, losses, and other normally deductible items allocable to the excluded income. Form 1040 v payment voucher For more information about deductions and credits, see chapter 5 . Form 1040 v payment voucher Limit on Excludable Amount You may be able to exclude up to $97,600 of your foreign earned income in 2013. Form 1040 v payment voucher You cannot exclude more than the smaller of: $97,600, or Your foreign earned income (discussed earlier) for the tax year minus your foreign housing exclusion (discussed later). Form 1040 v payment voucher If both you and your spouse work abroad and each of you meets either the bona fide residence test or the physical presence test, you can each choose the foreign earned income exclusion. Form 1040 v payment voucher You do not both need to meet the same test. Form 1040 v payment voucher Together, you and your spouse can exclude as much as $195,200. Form 1040 v payment voucher Paid in year following work. Form 1040 v payment voucher   Generally, you are considered to have earned income in the year in which you do the work for which you receive the income, even if you work in one year but are not paid until the following year. Form 1040 v payment voucher If you report your income on a cash basis, you report the income on your return for the year you receive it. Form 1040 v payment voucher If you work one year, but are not paid for that work until the next year, the amount you can exclude in the year you are paid is the amount you could have excluded in the year you did the work if you had been paid in that year. Form 1040 v payment voucher For an exception to this general rule, see Year-end payroll period, later. Form 1040 v payment voucher Example. Form 1040 v payment voucher You were a bona fide resident of Brazil for all of 2012 and 2013. Form 1040 v payment voucher You report your income on the cash basis. Form 1040 v payment voucher In 2012, you were paid $84,200 for work you did in Brazil during that year. Form 1040 v payment voucher You excluded all of the $84,200 from your income in 2012. Form 1040 v payment voucher In 2013, you were paid $117,300 for your work in Brazil. Form 1040 v payment voucher $18,800 was for work you did in 2012 and $98,500 was for work you did in 2013. Form 1040 v payment voucher You can exclude $10,900 of the $18,800 from your income in 2013. Form 1040 v payment voucher This is the $95,100 maximum exclusion in 2012 minus the $84,200 actually excluded that year. Form 1040 v payment voucher You must include the remaining $7,900 in income in 2013 because you could not have excluded that income in 2012 if you had received it that year. Form 1040 v payment voucher You can exclude $97,600 of the $98,500 you were paid for work you did in 2013 from your 2013 income. Form 1040 v payment voucher Your total foreign earned income exclusion for 2013 is $108,500 ($10,900 for work you did in 2012 and $97,600 for work you did in 2013). Form 1040 v payment voucher You would include in your 2013 income $8,800 ($7,900 for the work you did in 2012 and $900 for the work you did in 2013). Form 1040 v payment voucher Year-end payroll period. Form 1040 v payment voucher   There is an exception to the general rule that income is considered earned in the year you do the work for which you receive the income. Form 1040 v payment voucher If you are a cash-basis taxpayer, any salary or wage payment you receive after the end of the year in which you do the work for which you receive the pay is considered earned entirely in the year you receive it if all four of the following apply. Form 1040 v payment voucher The period for which the payment is made is a normal payroll period of your employer that regularly applies to you. Form 1040 v payment voucher The payroll period includes the last day of your tax year (December 31 if you figure your taxes on a calendar-year basis). Form 1040 v payment voucher The payroll period is not longer than 16 days. Form 1040 v payment voucher The payday comes at the same time in relation to the payroll period that it would normally come and it comes before the end of the next payroll period. Form 1040 v payment voucher Example. Form 1040 v payment voucher You are paid twice a month. Form 1040 v payment voucher For the normal payroll period that begins on the first of the month and ends on the fifteenth of the month, you are paid on the sixteenth day of the month. Form 1040 v payment voucher For the normal payroll period that begins on the sixteenth of the month and ends on the last day of the month, you are paid on the first day of the following month. Form 1040 v payment voucher Because all of the above conditions are met, the pay you received on January 1, 2013, is considered earned in 2013. Form 1040 v payment voucher Income earned over more than 1 year. Form 1040 v payment voucher   Regardless of when you actually receive income, you must apply it to the year in which you earned it in figuring your excludable amount for that year. Form 1040 v payment voucher For example, a bonus may be based on work you did over several years. Form 1040 v payment voucher You determine the amount of the bonus that is considered earned in a particular year in two steps. Form 1040 v payment voucher Divide the bonus by the number of calendar months in the period when you did the work that resulted in the bonus. Form 1040 v payment voucher Multiply the result of (1) by the number of months you did the work during the year. Form 1040 v payment voucher This is the amount that is subject to the exclusion limit for that tax year. Form 1040 v payment voucher Income received more than 1 year after it was earned. Form 1040 v payment voucher   You cannot exclude income you receive after the end of the year following the year you do the work to earn it. Form 1040 v payment voucher Example. Form 1040 v payment voucher   You were a bona fide resident of Sweden for 2011, 2012, and 2013. Form 1040 v payment voucher You report your income on the cash basis. Form 1040 v payment voucher In 2011, you were paid $69,000 for work you did in Sweden that year and in 2012 you were paid $74,000 for that year's work in Sweden. Form 1040 v payment voucher You excluded all the income on your 2011 and 2012 returns. Form 1040 v payment voucher   In 2013, you were paid $92,000; $82,000 for your work in Sweden during 2013, and $10,000 for work you did in Sweden in 2011. Form 1040 v payment voucher You cannot exclude any of the $10,000 for work done in 2011 because you received it after the end of the year following the year in which you earned it. Form 1040 v payment voucher You must include the $10,000 in income. Form 1040 v payment voucher You can exclude all of the $82,000 received for work you did in 2013. Form 1040 v payment voucher Community income. Form 1040 v payment voucher   The maximum exclusion applies separately to the earnings of spouses. Form 1040 v payment voucher Ignore any community property laws when you figure your limit on the foreign earned income exclusion. Form 1040 v payment voucher Part-year exclusion. Form 1040 v payment voucher   If the period for which you qualify for the foreign earned income exclusion includes only part of the year, you must adjust the maximum limit based on the number of qualifying days in the year. Form 1040 v payment voucher The number of qualifying days is the number of days in the year within the period on which you both: Have your tax home in a foreign country, and Meet either the bona fide residence test or the physical presence test. Form 1040 v payment voucher   For this purpose, you can count as qualifying days all days within a period of 12 consecutive months once you are physically present and have your tax home in a foreign country for 330 full days. Form 1040 v payment voucher To figure your maximum exclusion, multiply the maximum excludable amount for the year by the number of your qualifying days in the year, and then divide the result by the number of days in the year. Form 1040 v payment voucher Example. Form 1040 v payment voucher You report your income on the calendar-year basis and you qualified for the foreign earned income exclusion under the bona fide residence test for 75 days in 2013. Form 1040 v payment voucher You can exclude a maximum of 75/365 of $97,600, or $20,055, of your foreign earned income for 2013. Form 1040 v payment voucher If you qualify under the bona fide residence test for all of 2014, you can exclude your foreign earned income up to the 2014 limit. Form 1040 v payment voucher Physical presence test. Form 1040 v payment voucher   Under the physical presence test, a 12-month period can be any period of 12 consecutive months that includes 330 full days. Form 1040 v payment voucher If you qualify for the foreign earned income exclusion under the physical presence test for part of a year, it is important to carefully choose the 12-month period that will allow the maximum exclusion for that year. Form 1040 v payment voucher Example. Form 1040 v payment voucher You are physically present and have your tax home in a foreign country for a 16-month period from June 1, 2012, through September 30, 2013, except for 16 days in December 2012 when you were on vacation in the United States. Form 1040 v payment voucher You figure the maximum exclusion for 2012 as follows. Form 1040 v payment voucher Beginning with June 1, 2012, count forward 330 full days. Form 1040 v payment voucher Do not count the 16 days you spent in the United States. Form 1040 v payment voucher The 330th day, May 12, 2013, is the last day of a 12-month period. Form 1040 v payment voucher Count backward 12 months from May 11, 2013, to find the first day of this 12-month period, May 12, 2012. Form 1040 v payment voucher This 12-month period runs from May 12, 2012, through May 11, 2013. Form 1040 v payment voucher Count the total days during 2012 that fall within this 12-month period. Form 1040 v payment voucher This is 234 days (May 12, 2012 – December 31, 2012). Form 1040 v payment voucher Multiply $95,100 (the maximum exclusion for 2012) by the fraction 234/366 to find your maximum exclusion for 2012 ($60,802). Form 1040 v payment voucher You figure the maximum exclusion for 2013 in the opposite manner. Form 1040 v payment voucher Beginning with your last full day, September 30, 2013, count backward 330 full days. Form 1040 v payment voucher Do not count the 16 days you spent in the United States. Form 1040 v payment voucher That day, October 20, 2012, is the first day of a 12-month period. Form 1040 v payment voucher Count forward 12 months from October 20, 2012, to find the last day of this 12-month period, October 19, 2013. Form 1040 v payment voucher This 12-month period runs from October 20, 2012, through October 19, 2013. Form 1040 v payment voucher Count the total days during 2013 that fall within this 12-month period. Form 1040 v payment voucher This is 292 days (January 1, 2013 – October 19, 2013). Form 1040 v payment voucher Multiply $97,600, the maximum limit, by the fraction 292/365 to find your maximum exclusion for 2013 ($78,080). Form 1040 v payment voucher Choosing the Exclusion The foreign earned income exclusion is voluntary. Form 1040 v payment voucher You can choose the exclusion by completing the appropriate parts of Form 2555. Form 1040 v payment voucher When You Can Choose the Exclusion Your initial choice of the exclusion on Form 2555 or Form 2555-EZ generally must be made with one of the following returns. Form 1040 v payment voucher A return filed by the due date (including any extensions). Form 1040 v payment voucher A return amending a timely-filed return. Form 1040 v payment voucher Amended returns generally must be filed by the later of 3 years after the filing date of the original return or 2 years after the tax is paid. Form 1040 v payment voucher A return filed within 1 year from the original due date of the return (determined without regard to any extensions). Form 1040 v payment voucher Filing after the above periods. Form 1040 v payment voucher   You can choose the exclusion on a return filed after the periods described above if you owe no federal income tax after taking into account the exclusion. Form 1040 v payment voucher If you owe federal income tax after taking into account the exclusion, you can choose the exclusion on a return filed after the periods described earlier if you file before the IRS discovers that you failed to choose the exclusion. Form 1040 v payment voucher Whether or not you owe federal income tax after taking the exclusion into account, if you file your return after the periods described earlier, you must type or legibly print at the top of the first page of the Form 1040 “Filed pursuant to section 1. Form 1040 v payment voucher 911-7(a)(2)(i)(D). Form 1040 v payment voucher ” If you owe federal income tax after taking into account the foreign earned income exclusion and the IRS discovered that you failed to choose the exclusion, you may still be able to choose the exclusion. Form 1040 v payment voucher You must request a private letter ruling under Income Tax Regulation 301. Form 1040 v payment voucher 9100-3 and Revenue Procedure 2013-1, 2013-1 I. Form 1040 v payment voucher R. Form 1040 v payment voucher B. Form 1040 v payment voucher 1, available at www. Form 1040 v payment voucher irs. Form 1040 v payment voucher gov/irb/2013-01_IRB/ar06. Form 1040 v payment voucher html. Form 1040 v payment voucher Effect of Choosing the Exclusion Once you choose to exclude your foreign earned income, that choice remains in effect for that year and all later years unless you revoke it. Form 1040 v payment voucher Foreign tax credit or deduction. Form 1040 v payment voucher