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CCH® PAYROLL — 5/9/08

IRS provides basic information on foreign earned income exclusion

The IRS has released a fact sheet providing an overview of the foreign earned income exclusion under Code Sec. 911. Qualifying taxpayers can elect the exclusion on Form 2555, which is then attached to a timely filed Form 1040. For 2008, the maximum amount of excludable income is $87,600. In addition to the income exclusion, Code Sec. 911 provides a foreign housing cost exclusion, which is generally limited to $26,280 in 2008. Certain types of income do not qualify for the exclusion and a foreign tax credit or deduction can not be claimed with respect to income that is excluded under Code Sec. 911. In addition, a taxpayer may not claim the earned income tax credit if they elect to exclude income under Code Sec. 911. Taxpayers determine the tax on non-excluded income using the tax rates that would have applied had the individual not claimed the Code Sec. 911 exclusion. Once elected, the exclusion remains in effect for all subsequent years until the taxpayer affirmatively revokes the election. Once revoked, a taxpayer generally can not make another election under Code Sec. 911 for five years without the IRS's approval. (Foreign Earned Income Exclusion IRS Fact Sheet.)

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