Working Abroad? Have you heard of Foreign Earned Income Exclusion?

Retiring abroad can have some terrific benefits that include a lower cost of living, better weather, and exotic cultures and scenery.

But what if you’re still working? Is there any benefit to working abroad?

There certainly can be if you meet certain qualifications. One huge financial benefit is the Foreign Earned Income Exclusion, or FEIE, which allows you to take a tax exclusion for income that you earn outside the U.S.

Here’s how it works.

U.S. citizens are taxed on income they earn anywhere in the world. However, if you meet two qualifications, you can take a tax exclusion on your income tax return for the income you earn abroad. As of 2015, this exclusion can be as much as $100,800.

This exclusion is per person, so if a married couple are both working abroad, each one can claim the full exclusion.

The exclusion is available only for wages or self-employment income earned for services performed outside the U.S. Only individuals are eligible for the exclusion, not businesses, and the individual must meet one of two requirements:

  1. They must be a bona fide resident of a foreign country for a period that includes a full U.S. tax year, or
  2. They must be outside the U.S. for 330 days in any 12-month period.

If I qualify, what do I do?

If an individual meets either of these requirements, the money they earn outside the U.S. during that period can be claimed as a tax exemption on their federal income tax. (Non-resident aliens or anyone who informs a foreign country that they are not a resident there can’t qualify for the FEIE.)

Working abroad and earning less than the Foreign Earned Income Exclusion maximum does not exempt you from filing a U.S. income tax return. All U.S. citizens, no matter where they reside, must file tax returns each year. The FEIE is an election on your tax return…it must be claimed on IRS Form 2555.

If you’re working abroad and meet the requirements, the FEIE can be a real financial boon, putting more money in your pocket to enjoy your life overseas. It’s always a good idea to get the help of an experienced tax preparer when filing for the FEIE—especially one who is familiar with expat tax issues—to make sure you do indeed meet one of the two residence requirements and fill out the election form properly.

By Dan Prescher and Suzan Haskins,forInternatiional Living