For most Expatriates, very little changes under the Tax Cut and Jobs Act (TCJA) because “foreign earned income” continues to be treated the same way for Individual Taxpayers under the TCJA. For others, provisions of the TCJA will affect Expatriates in the same manner that they will affect their US counterparts.
US Persons living inside or outside of the United States are subjected to REPORTING their worldwide income. However, US Persons who live and work abroad may be able to exclude from their income all or part of their foreign salary or wages, or amounts received as compensation for their personal services (Foreign Earned Income Exclusion). Foreign earned income does not include: pensions, annuities, social security benefits, dividends, interest, capital gains, or alimony.
The foreign earned income exclusion amount is adjusted annually for inflation. For tax year 2017, the maximum foreign earned income exclusion is up to $102,100 per qualifying person. If the individuals are married and both work abroad and meet either the bonafide residence test or the physical presence test, each one can choose the foreign earned income exclusion. Together, they can exclude as much as $204,200 for the 2017 tax year.
To qualify for the foreign earned income exclusion, US persons need to be a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year OR be physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months, that includes the filing year for which the foreign earned income is excluded.
Once a Taxpayer chooses to exclude foreign earned income, the choice remains in effect for that year and all later years unless he revokes the exclusion.
Don’t be a victim of your own making. If you are a US Person living overseas, consult a specialized tax consultant in order to determine how to best protect your foreign earnings.