Gary Bode, CPA: Form 673 estimates your expected 2016 federal income tax for Form 2555. If you don’t have a local Expat CPA, or have a question on the Form 673 instructions, call for a free consult at (910) 840-3858.
Expat CPA tax accountants sometimes deal with adverse consequences of Form 673, Statement for Claiming Exemption from Withholding on Foreign Earned Income Eligible for the Exclusion(s) Provided by Section 911. What a title! Classic IRS. An analogous form might be the more familiar employment W-4, Employee’s Withholding Allowance Certificate. Tax Form 673 allows your employer to not withhold federal income tax from wages you earn while working abroad. So the government doesn’t tie up your tax refund for a year or so. I don’t find the Form 673 instructions all that helpful. And the Form 2555 instructions use lots of IRS jargon and a technical writing style. I read these instructions every year but rely more on a tax database that uses English and has relevant examples. I think it’s reasonable to trust your employer to help you prepare Form 673. Other Expats might be helpful too.
Note that Form 673 doesn’t apply to Medicare and Social Security tax withholding. No way to escape those unless you’re self-employed and working abroad. But if you’re self-employed a few tax positioning strategies exist that could lower your FICA taxes. The down side? Your eventual Social Security benefit checks could be less.
Here’s something you won’t find in the Form 673 instructions or the Form 2555 instructions; Form 673 isn’t filed with the IRS. but your employer has to keep it on file. Sometimes Form w-4 and Form 673(s) get audited usually by the State and not the IRS. But if your employer doesn’t have Form 673, it could, under some extreme circumstances, be responsible for your personal income taxes if you’ve become a back tax case and have unfiled tax returns. Ouch. So that’s the reason companies are careful about employment tax forms.
Since the 2016 foreign earned income exclusion is $100,800 the federal income tax alone can be $25,000+. And that’s not including the potential 2016 foreign housing exclusion of $30,240 into account. So the amount of cash with Forms 673 and Form 2555 are significant to most expats.
Are you a first time expat filer? Take time to read the Form 2555 instructions to better understand how the foreign earned income credit works. Chapter 4 of Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad helps as well. Your local University might subscribe to a tax database as discussed above. Sometimes it’s just easier to use an expat CPA for tax returns containing Form 2555.
“IRS Form 673 is just a prelude to filing tax Form 2555.”
– Gary Bode, expat CPA tax accountant
Tax Form 673 and Form 2555 Cycle:
- You decide to work abroad.
- You read the Form 673 instructions. Or your employer can help you.
- You present tax Form 673 to your employer. See the cautionary notes below on possible tax consequences of Form 673.
- Your employer does not withhold federal income tax on some or all of your wages earned abroad.
- At tax time your expat CPA prepares Form 2555, Foreign Earned Income. That’s attached to your Form 1040.
- Form 2555 calculates how much of your foreign earned wages qualify for exclusion from IRS taxable income. And of course, it includes the foreign housing credit too, if any.
- Your W-2 wages still appear on line 7 of Form 1040.
- The foreign earned income exclusion shows as a negative number on line 21 of Form 1040.
“Form 673 is basically a cash flow issue to the taxpayer. Correctly completed, Form 673 and Form 2555 means the IRS doesn’t collect income taxes during the tax year the way the same job would, if based in the US.”
– Gary Bode, Form 2555 CPA
Tax consequences you won’t find in the Form 673 instructions:
There are two extremes in the Form 673 and Form 2555 relationship:
- You underestimate your exclusion on form 673. Your employer withholds too much federal tax. Your tax Form 2555 and Form 1040 shows a refund. Sorta kinda like an old-time Christmas bank account that earned no interest.
- Your Form 673 over estimates the tax Form 2555 foreign earned income exclusion. Let’s say no federal income tax was with held on $100,800 for 2015. At tax time you don’t qualify for any foreign income exclusion for some reason. Maybe you failed the physical presence test for example. At tax time. you’re on the hook for thousands of tax dollars, let’s say $30,000 +/-. This starts a long-term cash flow problem that incurs penalties and interest.
Form 673, Part 1, Bona Fide Residence Test
The IRS determines whether you have a bona fide residence in a foreign country from info you provide on Form 2555. Which you file after Form 673. So, it pays to understand what they look for on Form 2555 proactively. You must expect your foreign residence to be long-term. The Bona Fide Residence Test for Form 673 requires you live in the foreign country for an entire tax year, interrupted by only infrequent return visits to US. Read the Form 2555 instructions, sometimes you qualify for the bona fide residence test but not the physical presence test. Talk to your expat CPA.
Form 673, Part 1, Physical Presence Test
Here you expect to be in foreign countries 330 full days in a consecutive 12 month period. This doesn’t have to a calendar year. This test does not depend on the kind of residence you set up, your intentions about returning, or the nature and purpose of your stay abroad. You can’t file Form 2555 until the 365 days are up. Is that a big deal? No, but your expat CPA may have to file tax extensions for you.
Form 673, Part II, Estimated Housing Cost Amount for Foreign Housing Exclusion
In addition to the Foreign Earned Income Exclusion, you may qualify to exclude amounts paid for foreign housing on your behalf. So here’s another estimated calculation. There’s usually some guidance on these costs from your employer and/or another employee. The Form 2555 instructions show a daily rate by country.
Even though Form 673 isn’t really a tax document, I expect to prepare a post that goes through it line by line.
Form 673, Part III, Certification
You have to sign Form 673 of course which attests you understand the stipulations required. This means the IRS can impose penalties if you miscalculates your exclusion on Form 2555. Theoretically the IRS might hold your employer liable for your unpaid tax if the company doesn’t handle Form 673 properly.
Form 1116: Foreign Tax Credit (Individual, Estate, or Trust)
Often Expats pay taxes to the country they live. The IRS will give you credit for those foreign taxes paid. The IRS Form 1116 instructions are 24 pages of highly technical jargon. So I think that some Expats forego the credit because of the Form 1116 instructions. Sad.
Form 2555
Click on 2555 from the drop down Forms box in our right sidebar for more info. Reading the Form 2555 instructions might help as well.
I’m an expat CPA with a virtual office to help long distance clients. The CPA license is now national. When I was a brick and mortar CPA we saw no expat tax cases and never prepared a Form 2555. So sometimes a local Form 2555 CPA is hard to find. If you need a free initial consult on Form 673 or Form 2555, please contact us at (910) 840-3858.
What is the Employer’s obligation and/or compliance when accepting form 673? With the exclusion limit for 2011 being $92,900, can (must) the employer begin withholding once that taxable wage amount has been met?
Well Lisa, remember your employer still with holds Medicare and Social Security (up to the annual limit). Employers can be made responsible for YOUR income tax if they don’t with hold properly after you exceed the base. But I’ve never seen that happen. So, if I was doing the payroll, there would be federal with holding after your salary exceeded the base. There can be under payment penalties assessed on you too, but most folks don’t seem to mind these, within a relevant range of course. If I was receiving a salary under your conditions, I’d stay on top of earnings and insure with holding is reinstated after the base. Hope that helps.
How can one make a company RESPONSIBLE for my income tax, if they continue to not withold after the employee has gone above the exclusion limit? (please reply to my email address)
Dave, did you find resolution in regards to your question? I have found myself in the same situation….
My end of the comments doesn’t thread, so, sorry, I don’t know what you’re referring to. Ask again and I’ll try to help.
DESCRIPTION: I am an overseas contractor and switched hats (company bought out) mid-2011. My housing allowance stayed the same and still given in a lump sum once a year. In OCT 2011, I completed my annual lease (covered by the company), but the allowance was not factored in my 2011 W2’s. Just before April (taxes), I was garnished FICA (soc. sec. & medicare) for the housing allowance with 24 hr notice. In OCT 2012, I renewed my lease, but had to arrange FICA payments on the housing amount before funds were released and this time the housing depicted on my pay stub.
QUESTIONs:
–Is there there any law or regulation on taxation (FICA) of a benefit like housing allowance?
–On part II of Form 673, line 7 has my total allowance (less than State Department’s rate for this location). I believe I read on your forum that line 8 (Estimated Base Housing) is 16% of the annual foreign exclusion limit ($95,100 for 2012) covering only $15,216, which is about half of the State Department housing allowance rate for this location. Does this mean I can only exclude $15,216 from my income even though the allowance is higher and yet still under State Dept?
–Basically, is line 8 of Part II Form 673 in fact $15,216 for 2012 and therefore line 9 illustrating the estitmated housing cost to me that will not be an exclusion?
Thank you so much in advance! Your site alone has given relief that there is someone like you out there. Pending your response, I have quite a few people out here that would be very interested in giving you a call for legal, expat guidance. Hopefully I’ll hear back from you soon!
Mike
I’ll be working in the UK for 41 months beginning this Aug (2013). For Part II of Form 673, do I use annual amounts, pro rata amounts for partial 2013, or total amounts for the full 41 months?
Hi John, good question. Partial for 2013. Full 12 months for 2014. Hope that helps.
Confused. There don’t seem to be alot of CPA’s in our area that are familiar with this form 673 or want to fool with foreign tax situations. Husband deploys as a civilian medic to Afghanistan in 4 days, August 4th 2013. Contract is for 1 year exactly. (Aug 4, 2013-Aug 4, 2014) We got the form 673 to return to his employer. Salary is an even 100K. The tax year 2013 exclusion is $96,700. The way we read this form, the Physical Presence Test seems to be the one to choose since the 12 month period will be split between 2013 and 2014. (1)Would this be the correct choice? (2)What do we plug into the 2 dates required in that section? It seems common sense as to that answer, but just checking!! (3)Is this form good for the entire 12 months? (4)Are our Indiana state taxes, SS and Medicare still taken out as usual? (5)When paid, how will the federal tax witholding line read? In other words, a very small amount or a large amount based on his earnings then the reimbursed exemption by tax refund early next year? Section II of the form will not be used. You are our only QUICK hope for answers! Thank you, Sir.
Well Karen most CPAs don’t handle expat tax issues. Form 673 is an annual requirement, probably more for employer protection. Physical presence test is correct. First day of employment to 12/31. You’re correct, other taxes will still be with held, only the federal tax passes along to the employee every paycheck. I don’t understand the last part of the question, sorry. Remember Form 2555 has pitfalls.
We may just call for a free consult. When are the hours you are available for this? There is too much to write and inquire about! Thank you immensely!
Hi. I have a question on Part 2 on form 673. I have recently shifted from a “full expat” status to a “resident expat” status at an overseas job., which means my employer is no longer providing any overseas housing benefits or allowances. I now pay these costs from my regular salary, just as I would if I lived in the US. Do I need to fill out Part 2?
Hi Elizabeth: Filling out part 2 allows your employer to with hold less federal tax from your paychecks. I think it’s a question of increased net pay or bigger refund when you file. I hope that helps.
I will be moving to the KSA in about 1.5 weeks for the next 2 years and I will use the physical presence test for the 673, will I still be responsible for MD state taxes?
Hi: if you’ve established a residence in a State that requires an income tax return it’s possible they’d tax some of that. Generally States follow the Federal tax return so IRS Form 2555 flows through to them as well. Best planning perhaps is to establish residency in a non income tax State like FL or Tx. Hope that helped.
Began military contract job 10Oct13, due to end june2014. Still having taxes taken out. Should I do the 673form or wait and do 2555form with 1040.
Hi Keith. It depends. If you want the improved cash flow now, I’d submit IRS tax Form 673. If you’re a Christmas Club kind of guy, don’t file Form 673 and get a nice refund.
Do I fill an extension for tax year 2013, or file on time. My contract ends in June.,Do I file than in June?
If I understand the question, yes you’d file an extension and file after June. Hope that helps.
Thought this my help show the regulations for the Physical Presence Test. My employer was giving me issues and I had to prove it with IRS info.
“The physical presence test is based only on how long you stay in a foreign country or countries. 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.”
“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. The 330 days do not have to be consecutive. Any U.S. citizen or resident alien can use the physical presence test to qualify for the exclusions and the deduction.”
“Form 673 – Reduce Your Withholding”
-Your employer is not required to withhold U.S. income tax from the portion of your wages earned abroad that is equal to the foreign earned income exclusion and foreign housing exclusion if your employer has good reason to believe that you will qualify for these exclusions.
-You can give a statement to your employer indicating that you will meet either the bona fide residence test or the physical presence test and indicating your estimated housing cost exclusion.
-Form 673, Statement for Claiming Exemption From Withholding on Foreign Earned Income Eligible for the Exclusions Provided by Section 911, is an acceptable statement.
-You can use Form 673 only if you are a U.S. citizen. Resident aliens are not allowed to file Form 673. You do not have to use the form.
-You can prepare your own statement. Give the statement to your employer and not to the IRS. For additional information, refer to the Income Tax Withholding section in Chapter 2 of Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.
References:
-Physical Presence Test: http://www.irs.gov/Individuals/International-Taxpayers/Foreign-Earned-Income-Exclusion—Physical-Presence-Test
-IRS Pub on this matter: http://www.irs.gov/publications/p54/ch04.html
-Which form to file 673: (http://www.irs.gov/Individuals/International-Taxpayers/Foreign-Earned-Income-Exclusion—Which-Form-to-File)
Also I wanted to say thank you for the provided information. This helped me a ton!
Good Sam, thanks for the feedback.
2013 was the first year I submitted a 673 for working overseas as a civilian contractor. I have been in Afghanistan since 23 DEC 2012 so the dates I put on my 673 for 2013 were 1 JAN 2013 to 31 DEC 2013, just to cover the entire calendar year. I’m planning on staying in Afghanistan until JUN 2014 and my contract site lead said when I submit my 673 for 2014 I can make the dates 1 JUN 2013 to 30 JUN 2014 to ensure an entire calendar year is covered and that all my pay for JAN to JUN 2014 would be included as tax free income (since I won’t be staying in Afghanistan for 330 days in CY 2104). I asked him if that is permissible since the two time periods on the two 673’s would overlap. He said it was because he had done it when he was in Germany. Does the IRS truly permit this or is my site lead potentially setting himself up for an audit down the road? Thanks in advance!
Well Mark the IRS never sees Form 673 unless there’s an issue with you or your employer. I believe any new Form 673 supersedes the previous one. So I don’t think dates are a problem. Hope that helps.
I began work as a contractor in the Middle East in July 2013. I submitted a Form 673 using the “physical presence test” on October 2013. Do I have to extend my 2013 Tax Return to July 2014 in order to meet the 12 month rule and utilize the $96,700 exclusion?
Hi Sarah: I would file an extension for your IRS and state. And then submit the tax returns in July. Hope that helps.
Filling out form 673; when I came to line 9, our low housing costs here in India ($4750 for the year) produced a negative result of -$10,866 when I subtracted $15,616. Does that mean the calculation is irrelevant, so I shouldn’t bother with Part II, and therefore we don’t need to deal with Form 2555 either?
Hi Kirsten. Well Part II sounds irrelevant but Form 673 allow your employer not to with hold Federal income tax from your paychecks. You’ll file Form 2555 eventually to report the foreign earned wages. If you don’t use Form 2555 all that foreign earned income is taxable. Hop that helped.
Hi Gary! I was asked by my company to fill out form 673 but I missed the filling deadline with my company for the tax year 2014. What is the consequence of this? will this mean my company will withhold money from my pay check and then I will get refunded by the end of this tax year? I am familiar with the CP 2555, but this is the first of form 673 I am encountering.
I am so worried I would get taxed this year :-/ my family is here overseas with me (2 dependents)
Gosh Jintara, it seems strange your company won’t allow you to use Form 673. They couldn’t do it retroactively, but should be able to implement it whenever moving forward you submit it. But yes, they’ll with hold federal income taxes from your paychecks which you can’t re coup until you file your 2014 returns. Sorry.
Hi Gary,
My husband, kids and I recently moved from Virginia to Brussels, Belgium due to a position I accepted at my companies Brussels office. I have a few questions regarding filling out form 673
1) My income exceeds the minimum $96,700 exclusion. Does this mean any income earned above this + housing allowance will be taxed by both the US and Belgium?
2) Our rent is higher than $15472, should I report our current rent in the 673 form, or cap it at $15472 to avoid being under taxed.
3) My husband is working remotely for his US employer, does he also need to fill out the 673 given that he will be living in Belgium for the next 2-3 years?
Thanks
Hi Nita, hope you like Brussels. Sure you’d pay US taxes on income over the limit. Don’t know about Belgium. But look at our Form 1116 to claim a credit for taxes paid to them. I’d list the entire foreign housing expense and let your employer sort that out. Form 673 isn’t a requirement. Your employer will just withhold income tax from every check if you don’t. Hope that helps.
Hello Gary,
First, thanks for providing insight to this daunting area of the tax code. Now for my Form 673 question: I will be in Saudi Arabia for at least the next 19 months (if not longer). What is the basis for the figure on line 8? The table in the Form 2555 instructions (prorated for the current year, which will be 245 days x $80.21 for an unlisted city in Saudi)?
Many thanks!
Hi Lance, this goes beyond a Comment, sorry. Your employer could help you perhaps. But you’d have to engage me before I’d complete the Form because of professional liability issues. Sorry.
I’m the operations director for a non-profit group sending staff to live abroad. I want to make sure I give people the best advice.
For a long-term assignment, what is the best option for the first partial year. If I leave on November 1, 2013 and plan on being out of the country for greater than 24 months, what do I do for the November 1 to Dec 31 period? Can I file Form 2555 on April 15, 2014 with the ASSUMPTION I will still be living abroad longer to meet the 330 day test? Or must I pay taxes for that time, and file an amended return after the 330 days are met?
If I moved October 1, 2013, could I have filed extensions until the last Oct 15, 2014 deadline after having achieved 330 days, and then not have owed any taxes during that time?
Thanks,
Seems to me John you could refer them to me, LOL. The first scenario? File without 2555 and then amend. 2nd scenario works. They’d have make payments with the extensions though. No worries.
Hello Gary,
My husband and I are both academics who were seconded to the UK for about 18 months. We filed form 673 for both our 2012 and 2013 taxes. If we take another job in the UK with a different employer and resign from the university that seconded us, will we be held liable for back taxes from the years we were seconded (if we do not return to the US)?
Hi Sandra. I don’t know what seconded means. But, for the foreign earned income exclusion on IRS tax Form 2555, changing jobs has no effect except perhaps a different wage structure. I think that’s what you’re asking. Staying in the UK to meet the physical presence or bona fide residence is what counts.
Hi Gary,
Middle of December 2013 I began a year’s contract in Afghanistan. I submitted an IRS form 673 to my employer, so Fed. taxes have not been withheld. Now, (mid May 2014) employer has told me that due to the Afghan war wind down, there is a good likelihood that I will sent home as a RIF (Reduction In Force) by the end of July 2014, although the date could slide right until Sept. 2014. Either way, I will be sent home before having been out of the US the required 330 days. From what I read in IRS Publication 54 it sounds like I will be then liable for all Fed taxes.
Is this correct? If so, what could I do to avoid the tax hit which will be significant? Could I go home stay a few weeks and then leave again to travel or reside in a foreign country until the 330 day test has been met?
I am also sure how I can prove when I left the US (Dec. 19th 2013) as the US doesn’t stamp an exit visa in passports, and since I arrived in Afghanistan on a MilAir flight at Bagram, Afghan authorities were unable to stamp an arrival date into my passport.
This is the first time I have been deployed and filed an IRS form 673, I expected to complete the year’s contract, so I didn’t foresee this tax issue.
Any advice or clarity you could supply would be much appreciated.
Thanks
A common issue Mike with expat taxes and Form 2555. Don’t fudge the dates. Stamp or no stamp my guess is the IRS would have that info if you’re audited. Living outside the US works for the 330 physical presence rule. Hope that helps.
Hi Gary,
My husband a USA citizen started working in Tanzania-Africa March 2012 and we want to do the exclusion for 2014 tax form 2555 since April 2013 he is staying out of USA only came for 27 days and will not come back to USA until April 2014 so we meet the tax home test 330 full days present in a foreign country and the physical presence test.
1-The company he works for in Africa is a Canadian mining company, can he be eligible to apply for an exclusion – form 2555 if he works in a foreign country for a Canadian company?
2- if the answer to question 1 is yes he can apply for an exclusion :
a) do we have to do form 673? since there is no withhold federal tax US.
b) he does pay to Tanzania 30% of his wages (we do form 1116 to claim a credit for taxes paid to Tanzania Africa)and he stays on the mine property so no housing… Is there a conflict? meaning for tax 2014 can he be able to do form 1116 + form 2555 for exclusion or do we have to choose one?
3- He is a resident of Tanzania and we will have a installment agreement for tax 2013, can we qualify for exclusion form 2555 for tax 2014?
Thank you!
Hi Nicole. Yes, no 673, both, don’t know, would have to research it.
Hello,
I teach for a private school in China. My employers have no affiliation with the United States. I have been teaching in China for four years. My income each year is less than $54,000 each year. I am single and have no other assets. The private school provides free room and board. I plan to return to the USA in 20 years. I am an American citizen that enjoys living abroad. May I file IRS form 673 and 2555, retroactively, when I return to the USA? Will there be penalties?
Hi Johnny. You’d qualify for exclusion of the entire $54,000. You can amend three prior years if they generate a refund. No penalties if you filed the originals on time.
Hello –
I will be moving to Asia for work on September 2, 2014 and plan to stay minimally one year but most likely longer. I would like to qualify for the FIEC under the Physical Presence Test which means I would file an extension for my 2014 taxes correct? Should I submit my 673 to my employer before I leave so that I can benefit under the FIEC for Sept-Dec 2014? Or does it make more sense to start clean and submit the 673 for Tax Year 2015?
What happens if there is some emergency over the next year and I fail the Physical Presence Test? Will I then owe back the taxes that were withheld Sept-Dec when I file next year?
I am single, no dependents, total income less than $90,000.
Thank you.
Yes, lots of expats extend their tax returns to claim the foreign earned income credit on IRS tax Form 2555. The 673 question is up to you. More cash flow now versus a refund later. Some expats do get caught short on the physical presence test and end up owing full income taxes on the foreign earned wages. Hope that helps.
Hi Gary,
I got to Afghanistan January 17, 2014 and I have been back to the states once for about 20 days. I will be here until February 2015. I did not fill out a 673 so I have been getting taxes taken out. I was told I could claim exemption when I file my taxes next year Is this true? If so what form would I need to fill out? Do I fill out a 673 when I file my taxes or just the form 2555?
Hi Kerryann. You file Form 2555 with your 2014 tax return. Form 673 is for your employer if you don’t want them with holding federal taxes for 2014. Hope that helps. Stay safe.
Hello Gary,
Thanks for providing a lot of great info! My question has to do with the 330 day physical presence requirement and if it could be waived due to civil unrest in the country I’m currently working in. I understand the IRS publishes a bulletin that tells you the countries and dates eligible; however, it usually isn’t published until the following year. For example; IRB 2014-15 (7 April 2014) details the countries eligible for the physical presence waiver in 2013. I’m in Northern Sinai Egypt near Gaza and it’s getting a little crazy around here, but I can’t find anything that states the IRS has determined it’s a country eligible for the 330 day physical presence requirement. Is there a real-time website that provides that information when the unrest takes place? Thanks for all your help.
Hi Anthony. Please stay safe. I don’t know if there’s a current source for your physical presence test on Form 2555. Sorry.
Gary,
When you choose not to file the 673 and have Federal Taxes taken out of your paycheck but reach your 330 days working overseas, do you receive all of your Federal Taxes back on your return???
Yes Harold. Subject to foreign income earned and foreign housing exclusion limits. But yes you get that money back. Hope that helps. I’d love to do the 2014 return Harold.
Hi Gary,
Thank you for your posts. I’m a US citizen and will need someone to prepare my taxes next year. Now I am living in Russia ( I am also a Russian citizen) and I am planning to be hired by a company with the office in Moscow, but they also have the main office in US. I will work in Moscow office for rubles and will pay taxes in Russia. However, this company has business and customers in USA and other countries. Do you think I will qualify for a Foreign Earned Income Exclusion next year? Or I will have to pay double taxes? Can I file 2555? Should I ask them about 673?
Thanks a lot,
Alex
You should qualify as a bona fide resident for Form 2555 Alex. I don’t know if the status of using Form 1116 yet. You won’t be paying double taxes. Form 673 allows your employer to not with hold US federal income taxes. If you’re sure you’ll be a bona fide resident for at least a year you can request to have no tax with held.
Thank you for your information.
Alex
Hi Gary,
I am an American now permanently settled in the UK for almost a decade. I have done a bit of freelance work on oDesk and they are trying to make me fill out a W9 before giving me my payment. The W9 doesn’t let you use a foreign address. Can I just enter my UK address and also give them a 673? Their computer system is not set up to handle Americans abroad, so they aren’t filling me with confidence.
Also, I remember reading back in 2008 or so in the 2555 notes that you didn’t need to file if you weren’t going to owe anything. I have not been able to find this same instruction this year, but I haven’t filed since 2008. Is this still true?
Kind regards,
Cristina
Sure a 673 would work Christina.
I have been living in Jamaica for the past 3 years but have not filed US taxes because I was not employed at that time. I took a job in Liberia in December with a US organization and my employer asked me about filing the 673. I am on a 6 month contract in Liberia that goes from December 2014 to June 2015. After this time I will return to Jamaica. I would like to file the 673 using the physical presence test but don’t know if I should be putting both Jamaica and Liberia on it, especially since I am covering 2 tax years (technically 2014 and 2015)and US employment is only in the last month of 2014 and the first 5 months of 2015. Should I file the 673 with both Liberia and Jamaica for 2014? Is the rent estimation per month or per calendar year? Thank you so much.
It’s per year. You file 673 with your employer. Hope that helps.
Hi. I am a contractor in KW. I have been on this job site for 2 months now. I am on a 12 month contract. I am paying my taxes as usual. I am thinking about filling out the 673 however. If I submit this 673 at this time, will I have to do a full 12 months from the time of submission ? Or is it from the time I got into this country. Thank you
Time in the KW Chris. Stay safe.
Hello Gary – I am an Expat to Japan and I need to fill a Form 673 to my Employer. I will be there until May 2016. is it possible to fill only one form for both years or do I need to fill one for each Tax Year?
thanks and regards,
I believe it’s every calendar year.
I recently got a contract job in Japan and I have to fill out the form 673. I have been here for 9 months and I will start my job on August, do I pick the physical presence test and what date do I use I will be here for 2 more years.
The physical presence test for Form 2555 can cross two tax years. If so you would get the 2014 on the 2014 return and the 2015 on the next return. Date start when you leave the US. Hope that helps.
Hi Gary,
I have been working overseas for 3 years now and have had a 673 filed each year. The first 2 years I did this I earned more than the federal income limit and still had no federal taxes taken out, which was fine I simply paid what I owed on the overage at the end of the year. This year when I hit 100,800 my company started to take out federal taxes again and I did not want that to happen. Is my company aloud to do this or can I still not have federal taxes taken out? I thought that the 673 was in effect for the entire year. Thanks
I’m not a lawyer. And I don’t know the employer guidelines. But it sounds like they’re only taking taxes out for pay above the Form 2555 exclusion limit. But they’re not considering foreign housing exclusion. You might argue that.
Hi, I am currently filing back taxes for 2012 and 2013, for when I was working as a student teacher in Spain. I am filing as a “bonafide” resident and I earned around $15,000 a year (as a scholarship). Since that is well below the foreign earned income exclusion am I still responsible for paying for FICA? Thank you!
Yep Zoe there’s no way around the FICA. Hope that helped.
What is meant by the statement ‘tax home’ ? I am in Afghanistan for at least the next 6 months and plan to be here for an additional 12. Do I put what state I resided in before obtaining the position and moving or the country I’m in? Also, for the tax year, I put the effective date I arrived in country and dec 31 as the ‘ending on’, correct?
Thank you
I use Afghanistan as my tax home. But 12/31 is correct. Stay safe
Your forum has been very helpful, Thanks for the information.
Gary,
YOU deserve big big KUDOS for spending so much time guiding people and offering such wise advise.
Thank you for this helpful forum.
Susan/Germany
Hello there,
I live abroad for the 5th consecutive year now and my employer is mandating to fill out a W4 and 673 this year.
1- My empkoyer does not pay any Social Security contribution on mybehalf. Do I have to pay for the entire contribution by myself?
2-What is the Social Security percentage withheld from the income?
3- I get a base salary + housing cash allowance = monthly salary. Is the housing allowance subject to social security withholding
thank you very much
Hi Omar I’m unclear as to why your employer wouldn’t that. I don’t know you would pay it yourself, sorry.
Hi Gary,
I am a military spouse working overseas for an American company. What are the benefits of filing a form 673. Seems like it will exemp me from federal tax withholding, but then I get less back in my returns when I file. And if I do let them withhold, I just get it back when I file my returns? Seems like you either get your money early or just wait until tax season to get it back. Correct me if I’m wrong.
Nope Mary you understand it perfectly.
Hi Gary,
I worked as expat from Jan to Mar 2015. For 2015, my employer did both Fed/state tax withholding as well as expat withholding. I am confused on couple of issues:
(1) Since I only worked 3 months as expat in 2015, I should just be considered domestic entirely for 2015 (residency test?)
(2) Where dose expat withholding go? My W2 don’t show that at all, how should it be handled for tax filing? I don’t see any place to enter it as paid tax in turbo tax, but my income did been deducted for that expat withholding.
Well no Wayne. You’d extend your 2015 tax return. And file when 12 months passes. Then you can use Form 2555 for those 3 months.
Hi Gary,
I live in Zambia, and am working on my 2015 return. in 2015, I was in Zambia for 345 days, so I pass the physical test. I earned 37200 in 2015, so my exemption should be just over 35637. I am married, filing jointly, we are both us citizens and have 2 dependents. I have made no other deductions, just standard ones. What confuses me is when I use Form 2555 my federal refund actually goes down. Am I doing something wrong or is there something I don’t understand? Any help would be great. Otherwise why even use form 2555?
Thanks!
Well Eric your income should be excludable. Might be a software issue you could get support for. We can do that return for you and you use it as template for future years. But please don’t taxes until you’ve exploited every Form 2555 cranny.
I am in the third year working as a teacher in Guatemala. This is the first year that my employer has asked us to fill out a 673. My employer provides housing and the cost for 2015 was $9168. In past years I have reported this n my 2555 on line 20 for non-cash income that was later reversed on line 25 as excusable.
Should this amount be recorded on line 1 of part II of the 673 for rent? I feel I should list it here and then use the IRS estimated base housing calculation on line 8 part II which will reverse this as the base amount is much larger.
In addition, I receive $1700 for utilities but this is in my paycheck so I don’t think it needs to be reported separately as it is just regular income.
Thanks for any help in advance and I will share your website with my other expat teachers who may wish to use your services.
Sorry Brett. I’ve never filled out a Form 673 an just discussed the gross effects of it. Might make a good post But sorry I can’t help you at the moment.
Thanks in advance for your help Gary. I worked 11/5/15 through the end of the year overseas. It seems like I have to pay the income tax on that income now and then file an amended return in November? Is that right?
Well I might not pay the tax now. A letter of explanation on an extended return (10/14) might work.
Hello! I started working overseas on 11/6/15. That makes 55 days in 2015. I claimed 99 exemptions so paid no income tax. Do I need to pay tax on that money now and then file ammended return in November when I qualify?
Yes Brian. That limbo between 10/15 and maybe 1/15 does require amended retuen because you need a 12 month period to claim those 55 days.