Does rental income count as foreign earned income?
No. The category covers pay for services performed outside the country: wages, salary, and the earnings of a self-employed person's own work. Rents, dividends, interest, capital gains and pension income are not earned in that sense, however foreign they are and however much of the household's income they represent. The distinction matters because the US exclusion is available only against earned income, so a year with substantial foreign investment income can support a far smaller claim than the taxpayer expects. Split the year's income into earned and unearned before the return is started rather than during it.
Is my salary foreign earned income if my employer is back home?
What decides it is where you performed the services, not who employed you, where the payroll was run, or the currency you were paid in. Pay for work done abroad is foreign earned income even where the employer, the contract and the bank account are all at home. The converse is the part people miss: pay for days worked back in the home country during the same year is not foreign earned income, even though it sits inside the same salary and on the same statement. That is why a day-by-day record of where work was performed is worth keeping.
Can self-employment income be foreign earned income?
Yes, for services performed abroad. The complication arises where the business uses capital as well as the proprietor's own labour, because only the part attributable to services is earned income. A consultant with a laptop is very largely services; a business with premises, equipment, staff and stock is not, and the earned element has to be identified rather than assumed. Self-employment also brings its own liability for social contributions, which excluding earned income from tax does not reach, so a claim can reduce one liability while leaving the other exactly where it was.
Does the exclusion cover my whole foreign salary?
As a rule, no. It applies to earned income, for the period you qualify, up to a limit for the year, and it has to be claimed on a filed return rather than applying by itself. Each of those constraints removes something: unearned income drops out, a part-year of qualification is apportioned, income above the limit stays taxable, and an unfiled year cannot benefit at all. Where the exclusion leaves income still taxable, credit for the foreign tax paid on that income is the next question, and the two interact rather than being freely chosen between.
Which parts of my foreign pay are not earned income?
Look for amounts that are not consideration for your services. Investment returns inside a pay package, pension accruals and pension payments, and anything representing a return on capital rather than on work all fall outside. Pay for days worked in the home country during the year is earned but not foreign. Reimbursements and allowances need reading against what they were actually paid for. The reason to do this line by line is that the classification decides what the exclusion is measured against, and an aggregate figure lifted from a pay statement usually contains at least one item that does not belong in it.
How do I split my pay for a year worked in two countries?
By reference to where the services were performed, which in practice means workdays. Build a calendar for the year showing the location of each working day, settle the method against the records you actually hold, and apply it to the whole of the year's pay rather than to selected components. Keep the supporting material: travel records, employer confirmations, project or timesheet data. A split derived from a consistent day count and documented at the time survives a question about it. One reconstructed afterwards from memory usually does not.
How do I report foreign employment income with no W-2?
A foreign employer does not issue one, and none is required. You report the wages from your own records — payslips, the employment contract, and the foreign tax assessment or return, which is the document a reviewer finds most persuasive — converted to your own currency. Keep the foreign filing with the return, because it is also the proof of foreign tax paid that supports the credit or the exclusion you are claiming. See a US return from abroad.
Does the Foreign Earned Income Exclusion apply to self-employment tax?
No — it does not reduce self-employment tax at all. The exclusion removes income from income tax only, so a US self-employed person abroad can exclude the profit for income-tax purposes and still owe self-employment tax on it. What can relieve that is a totalization agreement with the country where you actually work, which assigns you to one social-security system instead of both. See totalization agreements.
