Tax obligations of U.S. individuals living and working abroad - YouTube video text script

Hello everyone, and welcome to today's webinar Tax Obligations of US Individuals Living and Working Abroad. I see it's the top of the hour, so we'll go ahead and get started. We're glad you joined us today. My name is Candice Hardin and I am a Senior Tax Analyst with the Internal Revenue Service. I will be your moderator for today's webinar, which is slated for approximately 120 minutes or two hours.

This webinar offers two IRS Continuing Credits. Participants earn two IRS CE credits and a related Certificate of Completion by attending the live broadcast of the webinar for at least 100 minutes, or an hour and 40 minutes after the official top of the hour start time and answering at least four polling questions during the live broadcast. The polling question example to test your pop-up blocker will count as an attendance check towards the polling questions response requirement.

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Now, during the presentation we'll take a few breaks to check in and engage with you. At those times, a polling style feature will pop-up on your screen with a question and multiple-choice answers. Select the response you believe is correct by clicking on the radio button, which is located next to your selection, and then click Submit. If you do not get the polling question, this may be because you have your pop-up blocker on, so please go ahead right now and take a moment to disable your pop-up blocker for so you can answer the questions.

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So now we're going to take some time and test the polling feature. Here's your opportunity to ensure that your pop-up blocker is not on so you can receive the remaining polling questions throughout today's presentation. This example polling question will count towards the polling questions requirements to earn CE credits. So, the question is, do you know who your local Stakeholder Liaison is? Select A if yes, B if no, or C if you're asking what is a Stakeholder Liaison?

Go ahead and take a moment and click the radio button that corresponds to your answer. And while you're doing that, I'm going to go ahead and reread the question. Do you know who your local Stakeholder Liaison is? Select A if yes, B if no, or C if you're asking yourself what is Stakeholder Liaison? I'll go ahead and give you a few more seconds to make your selection.

Okay, we're going to go ahead and stop the polling now and let's see how the majority of you responded. I see the majority of you chose -- the majority of you -- I'm sorry, 90% of you chose letter A, which is yes. So that is great. So, for the 10% of you who did not choose or chose no or what is Stakeholder Liaison, we're going to go ahead and hopefully explain that to you at the conclusion of this webinar.

Again, we want to go ahead and welcome you, but before we move along in our session, let's make sure you're in the right place. So today's webinar is titled Tax Obligations of U.S. Individuals Living and Working Abroad. This webinar is scheduled to last approximately 120 minutes or two hours from the top of the hour.

Now I'm going to go ahead and introduce our all-star panel of speaker. Today, we are joined by Senior Revenue Agents Bethany Cross, Emma Sadakovich, and Kathy Bishop with our Large Business and International or LB&I Division. They are all technical specialists for the International Individual or IIC Compliance Jurisdiction to Tax Practice Network which is responsible for facilitating and coordinating the identification and development of issues on examinations involving US tax residency status and the taxation of US individuals living and/or working outside the United States.

So, we'll go ahead and start with Bethany. Bethany previously worked numerous examinations as a Revenue agent in LB&I IIC. Bethany has expertise in a variety of topics including residency status, the Foreign Earned Income exclusion, taxation of individuals with income from US territories and employees of foreign governments and international organizations. She has developed and presented numerous training courses and workshops presenting them within the IRS. Bethany has also developed and presented courses on behalf of the IRS to external audiences. Bethany holds a BS in Computer Science with a Minor in Accounting and courses in education.

Next up, we have Emma. Emma has expertise in a variety of topics including the Foreign Earned Income exclusion, expatriation and taxation of individuals with income from US territories. Emma is a Certified Public Accountant with an active status and holds a BBA in Business Administration with an emphasis in Accounting and Finance and also a Master of Accounting and Juris Doctorate.

Last but certainly not least, we have Kathy. Kathy has been with the IRS for 15 years. She previously worked numerous examinations as a Revenue Agent in SB/SE, including International issues. Kathy has expertise in a variety of topics including residency status, the Foreign Earned Income exclusion, taxation of individuals with income from US Territories and employees of foreign governments and international organizations. Kathy holds a BS in Accounting with Minor in Computer Technology and an MS in Accounting and Taxation. Let's give a virtual welcome to Bethany, Emma and Kathy.

So, we're going to go ahead and kick off the presentation with Kathy. So, Kathy, I will turn the floor over to you.

Thank you, Candice. And let me add my welcome and thanks to everyone for attending today's webinar. So, our topic today is Tax Obligations of US Individuals Living and Working Abroad, meaning they are outside the United States and its territories. So, during today's webinar, we will specify the US income tax obligations of US citizens and residents living and working outside the United States. We are going to list the requirements for claiming the Foreign Earned Income exclusion, and we will summarize the US employment tax obligations of US citizens and residents who are living and working outside the United States.

A US citizen who is living and working abroad, they must pay applicable federal taxes on all of their income, and that's regardless of the source, unless it is specifically exempt under the Internal Revenue Code or a tax treaty provision, they may be subject to employment taxes and they must file Form 1040. So, a US resident who is living and working abroad, they must also report and pay applicable federal taxes on all income, regardless of the source and unless specifically exempt under the Internal Revenue Code or a tax treaty provision, they may be subject to employment taxes and generally they must file a Form 1040. And I think Candice, is this a good time for our first polling question?

Absolutely, Kathy. So, everyone, here is our first polling question. US citizens and residents must report and pay applicable US taxes on which of the following: A, only their foreign source income; B, all of their income, both US and foreign source, regardless of where they live; C, all of their income, both US and foreign source, if living in the United States; or D, only their US source income.

Now, if you did not receive the polling question, what we want you to do is enter only the letters A, B, C or D with the response that corresponds to what you think is the correct answer. You're going to enter that in the Ask Question text box. Your response will be time-stamped. Remember that you need to answer at least four polling questions and participate in the live broadcast from the official start time for at least 100 minutes to earn those two IRS CE credits, okay. So, we want to make sure that you're earning those credits.

So, I'm going to go ahead and repeat the question while you all select your answer or enter your answer in the Ask Question text box. So that question is, US citizens and residents must report and pay applicable US taxes on which of the following: A, only their foreign source income; B, all of their income, both US and foreign source, regardless of where they live; C, all of their income, both US and foreign source, if living in the United States; or D, only their US source income. So, I'll go ahead and give you all a few more seconds to make your selection and/or submit your answer in the Ask Question feature.

Okay, we're going to stop the polling now and let's share the correct answer on the next slide. And the correct response is B all of their income, both US and foreign source, regardless of where they lived. So, 90% of you responded correctly. That is amazing for our first polling question. So, give you guys a round of applause, kudos, and hopefully the 10% of you that didn't get it will catch it on the next question. So, Kathy, I'm going to go ahead and turn the floor back over to you.

Thank you, Candice. As a US Citizen or resident, you are taxed on your worldwide income. However, if you live and work abroad, you may qualify to exclude income that you earn for services that you performed in a foreign country. And please note that the Foreign Earned Income exclusion is only available to US Citizens and residents who meet the requirements. It is not available to non-residents and the Foreign Earned Income exclusion is claimed on IRS Form 2555. So, the maximum Foreign Earned Income exclusion is indexed annually for inflation and for 2024 the amount was 126,500 per person and for 2025 it is 130,000 per person.

So, in addition to the Foreign Earned Income exclusion, you may also be able to exclude or deduct foreign housing expenses in excess of a base amount and subject to a limit. And to claim the Foreign Earned Income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must meet certain requirements. So, you must have foreign earned income, your tax home must be in a foreign country, and you must meet either the bona fide residence or the physical presence test and you must make a valid election. And we will now go over each of these requirements in greater detail.

So, the Foreign Earned Income is income that you received for services that you perform in a foreign country. Income earned in a US Territory is not foreign earned income. Please note that Antarctica is also not a foreign country, neither is international waters or airspace, and pay for services that are conducted in international waters or airspace is not foreign earned income.

So, pay received as a military or civilian employee of the US Government or any of its agencies is always US Source income. Now, Foreign Earned Income also does not include the following amounts, that's payments received after the end of the year following the year in which the services that earned the income were performed, pay otherwise excludable from income such as the value of meals and lodging that is furnished for the convenience of your employer on their premises and in this case it would be lodging as a condition of employment, pension or annuity payments including Social Security benefits, even if the services that gave rise to them were performed in foreign countries.

Okay, Candice, this looks like a good time for our second polling question for those who are taking this course for Continuing Education purposes.

I agree, Kathy. So, our second polling question is which of the following is not foreign earned income? Is the correct response A, income earned in a US Territory; B, wages paid by the US Government to a US Government employee working in a foreign country; or C, income earned in international airspace; or lastly D, all of the above. I'll go ahead and repeat the question.

Which of the following is not foreign earned income? Is it A, income earned in a US Territory; B, wages paid by the US Government to a US Government employee working in a foreign country; C, income earned in an international airspace; or D, all of the above. So go ahead and take a moment and click the radio button that best answers the question.

And again, if you do not receive the polling question, please enter only the letter A, B, C or D that corresponds with your response in that Ask Question text box. And again, your response is time-stamped. So up until this point, including our practice question, we've had three polling questions. So, if you've answered all of those questions, you have answered three out of four of the questions that are required, okay. So, I'll go ahead and give you guys a few more seconds to make your selection or submit your answer in the Ask Question feature.

Okay, we're going to go ahead and stop the polling now and let's share the correct answer on the next slide. And the correct answer is D all of the above. I see that 84% of you responded correctly. Good response rate, but a little lower than the first one, so hopefully you guys will catch it on the next polling question. So, Kathy, it looks like you're going to discuss foreign tax hold next, so I'll go ahead and return the floor to you.

That's right, Candice. So, our next topic is the tax home. So, to claim the Foreign Earned Income exclusion, you must have a foreign tax home. Your tax home is a general area of your main place of business, employment or your post of duty. It's the place where you are permanently or indefinitely engaged to work as an employee or self-employed individual. So having a tax home in a given location does not necessarily mean that the given location is your residence or domicile for tax purposes. So, if you do not have a regular or main place of business because of the nature of your work, then your tax home may be the place where you regularly live.

If you have neither a regular or main place of business nor a place where you regularly live, then you are considered an itinerant, and your tax home is wherever you work. You are considered to have a tax home in a foreign country for any period in which your abode is in the United States, unless for tax years beginning after December 31, 2017 you were serving in support of the Armed Forces of the United States in an area designated by executive order as a combat zone.

So, your abode is not necessarily in the United States merely because you maintain a dwelling in the United States, whether or not your spouse or dependents use the dwelling. Your abode is also not necessarily in the United States while you are temporarily in the United States. However, these factors can contribute to you having an abode in the United States, so abode has been variously defined as one's home, habitation, residence, domicile, or place of dwelling. It does not mean your principal place of business.

So, abode has a domestic rather than a vocational meaning and does not mean the same thing as tax home. So, abode is a subjective term and has been defined by the courts as where an individual's economic, family, and personal ties are the strongest. We've talked about the first two requirements for claiming the Foreign Earned Income exclusion. You must have Foreign Earned Income and your tax hold must be in a foreign country.

So, there are two other requirements. You also must meet either the bona fide residence or the physical presence test, and you must make a valid election to exclude your foreign earned income. So, Bethany will go over those requirements now. Bethany.

Okay, thank you, Kathy. Now, to qualify under the bona fide residence test, you must either be a US Citizen or be a US Resident who is a citizen or national of a country which, with the United States, has an income tax treaty that's currently in effect. Okay, so if that's not the case and you're a US resident wishing to claim but Foreign Earned Income exclusion, you would still be able to claim it under the physical presence test if you qualify for that.

But again, the bona fide residence test is limited to those individuals who are US Citizens or who are US Residents and are also a citizen or national of a country with which the United States has a currently active income tax treaty. You meet the bona fide residence test if you're a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. And that didn't sound so good because I hate it when a definition refers to the word being defined, right; it's kind of circular. So let me explain further.

First of all, you don't automatically acquire bona fide resident status by just living in a foreign country for a year. If you go to a foreign country to work on a particular project or job for a specified amount of time, then you ordinarily will not be regarded as a bona fide resident of that country, even if you work there for longer than a full tax year. The length of your stay and the nature of your job are just two of the factors that need to be considered in determining whether you meet this bona fide residence test. It's a very subjective test and in determining whether someone rises to the level of a bona fide resident, the courts analyze 11 factors. And these 11 factors were first set forth in a court case called Sochurek v. Commissioner. It's a really old case from 1962, and rather strangely, it had to do with bona fide residency in a US Territory, not in a foreign country.

And since then, the rules for bona fide residency in a US Territory have actually changed. Nevertheless, the courts felt that this was a good case to help them define the concept of bona fide residency. So even though that case didn't have to do with the Foreign Earned Income exclusion as such and had to do with bona fide residency in a US territory, the courts looked to the 11 factors outlined in that case when they're determining whether someone's a bona fide resident of a foreign country for purposes of the Foreign Earned Income exclusion and those include intent, assimilation into the life and society of the foreign country, and reasons for any temporary absences. So again, those are factors that are looked at.

Now we're going to talk about the physical presence test. And a minute ago I said if a person was a US Resident but did not happen to be a citizen or national of a country with whom the US has an income tax treaty, then they might be able to qualify under the physical presence test. This one is an objective test. And of course, it's also available to the US Citizen, to the same people that could choose the bona fide residence test.

It's an objective test, and it's determined by counting the number of full days on which an individual is physically present in a foreign country or countries, and when I say full day here. A full day is the 24 hours from midnight to midnight. In order to meet the physical presence test, you have to be physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months. A 12 consecutive month period can begin on any day. It's not necessarily going to be a calendar year.

The minimum time requirements for the bona fide residency test, which is a full trust calendar year of presence in the foreign country, that's the minimum time requirement for bona fide residency, a full calendar year. A little bit of temporary absence is permitted, but it has to be very brief and temporary absences. So, the minimum time requirements for that, as well as for the physical presence test that I just discussed, the 330 full days during any period of, of 12 consecutive months, those time requirements can be waived if an individual is forced basically to leave a foreign country because of war, civil unrest or other adverse conditions.

And if that is the case, then you would have to show that you had a tax home in a foreign country before that waiver of time went into effect and that on or before the beginning date of the waiver, you reasonably could have been expected to meet the minimum time requirements and qualify under either the bona fide residence or physical presence test but for those adverse circumstances or conditions.

A list of countries that qualify for the waiver gets published each year in the Internal Revenue Bulletin along with the applicable departure dates. And I also, just an extra piece here that I wanted to mention was thinking about as I was saying all this is that a person who can't meet the physical presence test because they're not there enough to do so, it's really unlikely that they're going to meet the test for bona fide residency, okay.

Now, obviously, when it's your first year, if I move abroad in September, then, you know, I'm not going to know for a year if I even met the physical presence test. And there is a special extension that you can take for that, you know, to wait and see. But also, obviously that first year I don't know if I'm at bona fide residency either right. At the beginning, you really don't know because you can't tell the future. So sometimes it's only in looking backward that we can see, oh, I am a bona fide resident and I established it back then.

A bona fide resident is really someone who's there lock, stock and barrel for the long term. They're there for the long haul, and that becomes a very important home to them. It's often the only place on earth where they do own a home and that's where their family and closest connections and things are, so bona fide residency is actually a higher standard than the physical presence test. And again, if a person is in and out of a foreign country frequently and in any given year they never have met the physical presence test, then it could be doubtful that they would ever be a bona fide resident. That is a -- it's a higher standard.

Okay, I think I mentioned that the list of countries gets published, so now I want to talk about the fourth and final requirement; the fact that one has to make a valid election in order to claim the Foreign Earned Income exclusion. And the election to exclude Foreign Earned Income is separate from the election to exclude the cost of foreign housing. These are two separate elections and you can make one or both of them by attaching a Form 2555, two-year tax return for the first year for which it is effective. So, I could be living in a foreign country and maybe for three or four years, I only claim the Foreign Earned Income exclusion.

Well, then I do have an election in place starting with that first year that I attached the Form 2555 to my return claiming that exclusion. Now, let's say a few years in, I decide that I will -- you know, maybe my income goes up and I realize I'm kind of maxing out the exclusion, I'd also like to exclude the cost of my foreign housing and I'm eligible to do so. You know, I read the instructions and I see that I can do that. Well, then in that first year that I claim that cost of foreign housing on that 2555, that would become my election for that.

So, the two election years might be different because I might have been claiming one before the other or I could -- very -- you know, from the very first year decide to claim both. But either way, think of them as two separate elections, they do happen on the same form and they could happen at the same or different times. Once you make one or both of these elections by attaching that Form 2555 to your tax return for the first year for which it's effective, once you do that, then that choice, that election, remains in effect for that year and for all future years, unless and until you revoke it.

I also want you to keep in mind that once you choose to exclude Foreign Earned Income, you cannot -- and I saw a question in here. I was looking at some of the questions you've already been sending in and somebody was asking about if there's a hierarchy for the Foreign Earned Income exclusion in the foreign tax credit? No, I mean, if I'm living and working in a foreign country, I would either decide to take the foreign tax credit or the Foreign Earned Income exclusion, right. And if I max it out, I might be able to do both. But I mean, if I'm choosing the Foreign Earned Income exclusion, and I've been doing that, I've elected that, so I've chosen that and I've submitted a return with a 2555 attached, then that choice is in effect until I revoke it.

But if I choose in some future year to claim the foreign tax credit instead, well, then I've revoked my election to exclude Foreign Earned Income, if I'm choosing that foreign tax credit on income that I could have excluded, okay. So, once I choose to exclude foreign earned income, I need to max that out every year to the best of my ability, okay. So, the current exclusion amount, I think it's 130,000.

So, if I'm making 70,000 and I'm excluding 70,000, then I'm doing good and I can continue to do that. If I move to another country that's a higher tax jurisdiction and I somehow decided it would be more beneficial for me to have that foreign tax credit and perhaps utilize that, then I could do that because you don't have to pay foreign taxes to claim the Foreign Earned Income exclusion. So obviously, if I'm in a no tax or low tax jurisdiction, I would rather claim the exclusion, okay.

And so, there isn't exactly a hierarchy. Just keep in mind that once you've elected to exclude, if you switch to the foreign tax credit, that's a deemed revocation and you won't be able to exclude for the next five years without requesting a private letter ruling, which you can do if your circumstances changed and you felt the need to do that.

Just a few more points about the timing of these elections; generally, the election to exclude Foreign Earned Income and/or the cost of foreign housing, must be made with a timely filed return allowing for any extensions; a return amending a timely filed return, as long as that's within the timeframe for filing a claim as specified in section 6511A of the Internal Revenue Code, or on a late return filed within one year from the original due date of the tax return determined without regard to any extensions.

Okay, Candice, if it's all right with you, maybe we stop here for our third polling question.

Absolutely. Lots of great, great information, so let's see if you all were paying attention. So, our third polling question is, which of the following requirements must be met in order to qualify for the Foreign Earned Income exclusion? Do you think the correct answer is A, valid election; B, Foreign Earned Income; C, foreign tax home; D, meet the bona fide residence or physical presence test; or E all of the above. I'll go ahead and repeat the question.

Which of the following requirements must be met in order to qualify for the Foreign Earned Income exclusion? Is it A, valid election; B, Foreign Earned Income; C, foreign tax home; D, meet the bona fide residence or physical presence test; or E all of the above. Go ahead and take a moment to select which answer you feel best answers the question. Again, if you do not receive the polling question, okay, please enter only the letters A, B, C, D or E that corresponds with your answer in the Ask Question text box, okay.

If that polling question didn't pop-up for you, go ahead and just enter your selection in that ask question text box. And again, your response is time-stamped. So I'll go ahead and give you all a few more seconds to make your selection. We are on polling question number three, but technically it's polling question number four, if we include the practice question. So, if you have answered all of the polling questions in addition to the practice question, you have fulfilled -- after this question, you would have fulfilled the four question requirement. Okay, so go ahead and take a second to answer that question.

And we're going to go ahead and stop the polling now and let's share the correct answer on the next slide. And the correct answer is letter E, all of the above. So, we had a 91% correct answer rate. That is good because we are on the up and up from the last question. Actually, this is the highest that we have. So, it looks like you guys are listening, you are retaining that information, so great, great, great job. Bethany, I'm going to go ahead and turn the floor over to you so you can tell us about the filing requirements.

Okay, thank you. Candice. Yes, you must file a tax return attaching the Form 2555 to claim the Foreign Earned Income exclusion and/or the foreign housing exclusion or deduction. And when you do so, something very important to note is that the tax is computed using the Foreign Earned Income tax worksheet because what you're doing there is figuring tax on the income that's not excluded and that gets figured at your higher marginal rate. So, the proper way to do it is to use that worksheet. I also want to point out that even if your foreign earnings are below the Foreign Earned Income exclusion threshold, you still have to file a US Income tax return.

I also want to -- I saw another question in here. I had talked about bona fide residency a couple minutes ago and someone asked, what's a brief absence during that initial year for the bona fide residency. So brief absence would be a person coming back to the United States maybe for a week or two around the holidays, maybe coming back to attend a friend's wedding and maybe even in addition to that, a one-week trip to Disney. Let's just be generous, right?

Okay. So, all told, that's not a whole lot of time. Contrast that with someone on some sort of rotating schedule where they have 30 days on, 30 days off overseas and they keep coming back to the US and spending weeks at a time here repeatedly throughout the year. That would not be brief temporary absences. So I hope that -- again, it's objective -- I mean, sorry, subjective, but I hope that answers that person's question.

Okay. And we'll talk more during the Q&A about some of the other questions people submitted. But now Emma is going to talk about employment and self-employment taxes. Emma?

Thank you, Bethany. Now that we've talked about the requirements for claiming the Foreign Earned Income exclusion, let's turn our attention to employment taxes. The Federal Insurance Contributions Act, FICA, is a tax on wages from employment which is comprised of old age, survivors and disability insurance known as the Social Security Tax, and the hospital insurance tax known as the Medicare tax. FICA taxes are payable on the wages of US citizens and residents working abroad for an American employer.

The term American employer is defined in Section 3121(h) as a corporation organized under US federal or state law, an individual who is a resident of the United States, a partnership if two-thirds or more of the partners are US residents, a trust if all the trustees are US residents or the US government or its instrumentalities. FICA taxes are also payable on the wages if you have citizens and residents working abroad for a foreign person treated as an American employer under section 3121(z) or in certain instances, the foreign affiliate of an American employer, meaning a foreign entity in which a US company has a 10% or greater interest if the American employer agreed with the IRS to remit employment taxes on behalf of US citizens and residents employed by the foreign affiliate.

For those who are self employed, the Self-employment Contributions Act, SECA, provides for taxes on self employed individuals similar to the FICA taxes that must be paid by wage earners. Self employed US citizens and residents are responsible for paying self-employment tax under the Internal Revenue Code if net earnings from self-employment equal or exceed $400 regardless of where the self-employment activities occur, where the individual resides during the period of self-employment, and whether the individual is claiming the Foreign Earned Income exclusion.

Candice, I think it's time for another polling question.

Absolutely. So, our next polling question going to be a little different from what we've done before. It's more like a complete descendant style question. Okay, so you're going to fill in the blank. So, the question is which option or you're going to select which option -- excuse me, closely completes this sentence. The sentence is self employed US citizens and residents who live and work abroad must report and pay self-employment tax if they have net earnings from self-employment of at least blank or what dollar amount.

Okay, so I'm going to go ahead and repeat the sentence for you. It's going to be self employed US citizens and residents who live and work abroad must report and pay self-employment tax if they have net earnings from self-employment of at least blank or what dollar amount. Is the response pr is the correct answer A, $100; B, $400; C, $1,000; or D, NA or not applicable, they do not have to pay self-employment tax.

Okay, so go ahead and take a moment and click the button that best answers the question. Again, if you do not receive the polling question, please enter only the letters A, B, C or D that corresponds with your response in that Ask Question text box, okay, and your response as I stated before is time-stamped. So, I'll go ahead and give you all a few more seconds to make a selection or submit your answer in the Ask Question feature.

Okay, we're going to go ahead and stop the polling now and let's share the correct answer on the next slide. And the correct answer is B, $400. I see that 94% of you responded correctly. Another great response rate, great, great, great, great job you guys. So, Kathy, I think you're going to explain totalization agreements, is that correct?

Yes Candice, that is correct. So now what if you live and work in a foreign country and you're paying into their Social Security system? So, some foreign countries have entered into what are called totalization agreements with the United States and this prevents the payment of Social Security taxes to two different jurisdictions on the same wage or self-employment income. So, we'll provide a link to a list of those countries on a resources slide at the end of this presentation. So, if that is the case, then the terms of that agreement will govern whether Social Security taxes must be paid in the United States. So, where a totalization agreement is in place, tax is not owed to the United States, if the terms of the agreement provide that the wages are net earnings from self-employment, are subject only to foreign Social Security taxes and are exempt from US social Security taxes. And there are several Internal Revenue codes for this and that's IRC 3101(c), 3111(c) and 1401(c).

So how do you go about claiming an exemption from your Social Security taxes in the United States under a totalization agreement? So, if you're an employee, either you or your employer should obtain a Certificate of Coverage or a similar statement from the authorized official or the agency of the foreign country verifying that the wages are subject to Social Security coverage in that country. If the authorities of the foreign country won't issue a certificate of coverage or they won't give you a statement, either you or your employer should get a statement from the US Social Security Administration saying that the wages are not covered by US social Security. So, either way your employer should keep a copy of the certificate or statement in their files.

Okay, what if you are self employed? So, in that case you need to request a Certificate of Coverage or a similar statement from the appropriate agency of the foreign country. So if you can't get a certificate or a statement from that foreign country, then you would need to ask the US Social Security Administration for the statement. So either way you would attach the certificate or that statement to your tax return for each applicable year and you are going to print exempt, see attached statement on the line on the tax return for self-employment taxes and for 2025 the draft that's not finalized yet, so it would be on your schedule two, part two, line four.

Okay Candice, do you have another polling question for everyone?

Oh, you know, I stay ready with polling questions. Okay everyone, here we go. So under the terms of a totalization agreement, a US citizen or resident may not have to pay what type of tax? Is it A, US Income tax; B, FICA taxes; C, SECA taxes; D, both B and C; or E, all of the above. I'll go ahead and repeat the question. Under the terms of a totalization agreement, a US citizen or resident may not have to pay what type of tax? Is it A, US Income tax; B, FICA taxes; C, SECA taxes; D, both B and C; or E, all of the above.

Go ahead and take a moment and click the radio button that best answers the question. Again, if you do not receive the polling question, please enter only the letter A, B, C, D or E that corresponds with your answer. And you're going to enter that in the Ask Question text box. I'll go ahead and give you all a few more seconds to make your selection or submit your answer in the Ask Question feature.

Okay, we're going to go ahead and stop the polling now and let's share the correct answer on the next slide. And the correct answer is D, both B and C, which is under the terms of totalization agreement, a US resident may have to pay or may not have to pay FICA or SECA taxes, so great job on that. I see 86% of you responded correctly. So even though it's a little slightly lower than before, that's still an amazing job, okay. So, Emma, I believe you have some resources that you want to share with our audience.

I do, Candice. Listed here are some resources that you may find helpful; publication 54, a link to pages for individual taxpayers with international aspects to their returns, a link to various totalization agreements and taxpayer assistance numbers. There are also a number of practice units about the Foreign Earned Income exclusion; you can find them at the web address listed on this slide.

They include a unit on the concept of tax home for purposes of the Foreign Earned Income exclusion, units on the physical presence and bona fide residence, several units on how to compute the Foreign Earned Income exclusion whether you're an employee, self employed or a partner in a partnership with Foreign Earned Income, a unit on making or revoking the election to exclude Foreign Earned Income and/or the cost of foreign housing and units on the foreign housing exclusion and the foreign housing deduction and a couple of units on employment and self-employment taxes for US individuals for working abroad.

This concludes the presentation portion of today's webinar. Now I'll turn the microphone over to Candice for the question and answer session. Candice?

Thank you so much, Emma. Thank you for sharing that information with us. Hopefully you guys will find it useful. So now we have made it to the exciting part of our session which is going to be our live Q&A. I'll be moderating the session, but before we start, I want to go ahead and thank everyone for attending and staying engaged during our presentation today which is titled Tax Obligations of US Individuals Living and Working Abroad.

So earlier I mentioned that we want to know what questions you have for our presenters. So here is your opportunity. If you haven't input your questions, you still have time, okay, it's not too late, so go ahead and click on the dropdown arrow next to the Ask Question field, type in your question and please, please, please, please remember to click Send. If you don't click Send, we won't get that question. Also, please remember, do not enter any sensitive or taxpayer specific information, okay,

Now, Bethany, Emma and Kathy are going to stay on the line with us to answer your questions. And however, we do have a special guest joining in with us for this Q&A session. In addition to Bethany, Emma and Kathy, we have Lindsey Stellwagen from our SB/SE Special Counsel, International Litigation and Advisory Division. She has agreed to graciously join us during this session. So, Lindsey, we want to welcome you and thank you for being here.

So, one more thing before we begin, okay, need you guys to reel in and listen very, very carefully. Our Q&A panel may not have time to answer all of the questions. We've had a lot of questions that have come in, okay. So, we're probably not going to get to all of the questions, but they will try to answer as many questions as the time will allow. So, we're going to go ahead and get started so that we can get as many of those questions answered as possible. So let me take a look and see what our first question is going to be.

This is Lindsey. Could I jump in just quickly and talk just briefly about some of the litigation that we see?

Okay, go ahead.

So, the four requirements under Section 911, we do get a lot of litigation. And there were a couple things I wanted to just highlight briefly for the audience. One is whether the elections are timely. That's one thing that we see a lot of litigation on, the foreign earned income, especially with Antarctica, international air and water space, and individuals, whether or not they're a US Government employee. So there's a lot of litigation in that area. That's the foreign earned income.

And of course, under the qualified individual, as Bethany explained, you've got the bona fide residence subjective test or the physical presence test. As you can imagine, those two tests, you get a lot of litigation because they're highly factual. But the one thing I really wanted to highlight today is the tax home. And as Kathy explained in slide 31, the tax home is keyed to Section 162, business expenses. And that brings into play the principal place of business.

And you may recall we had a lot of litigation on pilots and having a base station in the US but basically it's a problem when you're living and working in a foreign country, but you're only authorized to conduct business in the US and this brings up remote working. So, you want to make sure that person, you may be living and spending a lot of time in the foreign country and working there, but if you're only authorized to conduct business in the US that's going to be your principal place of business and you're going to fail the tax home test. So, I did think it was important because there is so much remote work these days that I wanted to point that out. So, thank you for allowing me that time.

Absolutely. Thank you, Lindsey. So, I think I pulled our first question, and it's actually going to be for Kathy, okay. And the question is, is a person who excludes Foreign Earned Income ever permitted to claim a foreign tax credit?

Thank you, Candice. And I did see quite a few questions regarding this issue. So, if you can take the Foreign Earned Income expense exclusion and the foreign tax credit. Now earlier we mentioned that you cannot claim a credit or a deduction for foreign taxes paid on income that you excluded. But if you have Foreign Earned Income above that annual exclusion limit, which, remember, so for 2024 is 130,000, so if that is the case, or if you have foreign unearned income, such as foreign interest or dividend income, then you may be able to take advantage of both the Foreign Earned Income exclusion and that foreign tax credit, but not on the same dollars.

So, for example, suppose that for tax year 2025, you are a US citizen living in a foreign country and you have foreign earned income, let's say of 150,000, and you paid foreign taxes of 35,000. So, since the maximum of your Foreign Earned Income that you can exclude is 130,000, so then you would still have $20,000 of remaining foreign earned income. So, you are allowed to claim a credit for the foreign taxes that you paid on that remaining 20,000.

So, the amount of the credit, you would compute it by multiplying that 35,000 in foreign taxes by the same ratio of the unexcluded Foreign Earned Income over the total foreign earned income. So, we would take the 20,000, that is the income that we have left, and divide that by the 150,000, our total foreign earned income, and then this would result in a foreign tax credit of $4,667. So, you would take that same percentage of your excluded income, use that with the foreign taxes paid, and you are going to use Form 1116 for the foreign tax credit and if you review the instructions for that form, it's going to walk you through that calculation. So hopefully that answers that question, so back to you, Candice.

Thank you. Thank you. Thank you so much, Kathy. Let's see. Okay, Bethany, I think this next question is related to some information that you share with us, so I will throw this one at you. The question is, as a US citizen living abroad, I understand that I need to file the FinCEN Form 114, which is the Report of Foreign bank and Financial Accounts, or FBAR. Are there any other information returns that I must file? And I'll turn the floor over to you to answer that.

Okay, thank you. Yes, that person is correct that most likely, if you're living in a foreign country and you have a bank account there, which most people probably would if they're living there, then there would be that need to file FinCEN Form 114, the report of Foreign bank and Financial Accounts, as they said, commonly referred to as an FBAR. And this would be true if you are a US Citizen or resident.

And if the aggregate value of your foreign financial accounts in which you have a financial interest -- well, of foreign financial accounts in which you have a financial interest or signatory authority, if the aggregate value of those accounts is greater than $10,000 at any point during the calendar year. So, for example, if you have two foreign financial accounts and the combined balance is greater than $10,000 at any point in time during the calendar year, then both of those accounts must be reported.

The FBAR, I want to point out, is not filed with the IRS. It's filed directly with the Office of Financial Crimes Enforcement Network, or FinCEN, which is a bureau under the Department of the Treasury that is separate from the IRS. And that form is filed electronically. It's due April 15th of each year, but it's automatically -- you can get an automatic extension to October 15th, and there's no form required to get that extension.

For greater detail about the FBAR filing requirements, I would suggest they visit fincen.gov and I'll spell that out for you using the NATO Alphabet. And thank you, last webinar we had, I said that Alphabet that people use, and a couple of you wrote in and said that's called the NATO Alphabet. So that's going to be where you want to go is FinCEN.gov; foxtrot, India, November, Charlie, Echo, November, which would be FinCEN.gov, Golf, Oscar, Victor.

In addition to the FBAR, this person was asking, are there any other information returns that they might be required to file? And yes, there certainly could be, examples of some of those possibilities, depending on the facts and circumstances, would be Form 8938, Statement of Specified Foreign Financial Assets; Form 3520, Annual Return to Report transactions with foreign trusts and receipt of certain foreign gifts; Form 3520-A, annual information return of foreign trust with a US owner; Form 8621, information returned by a shareholder of a Passive Foreign Investment Company or PFIC; Form 5471, Information Return of US persons with respect to certain foreign corporations; Form 926, return by a US transferor of property to a foreign corporation; Form 8865, which is a return of US persons with respect to certain foreign partnerships; Form 8858, information return of US persons with respect to foreign disregarded entities and foreign branches; Form 8854, initial and annual expatriation statement.

Now, all these forms I just rattled off. If you go to the irs.gov website and poke around, you'll be able to find a list of pretty much all IRS forms and including those, or if you do a Google search on information return reporting requirements. Unlike the FBAR, these other forms that I named are filed directly with the IRS. And because of the complexity and the high penalties for non-compliance, it would probably be a good idea to consult with a tax professional who specializes in international tax law so that you can get a handle on your specific filing obligations if you aren't aware of them.

Thank you so much. Thank you so much. Thank you for that information. Hopefully, I pretty much think that question was answered with all the great information that Bethany was able to share with us. Now, Emma, I didn't want to let you slide through the cracks without throwing a question at you. So, I think I found one that's related to something that you've discussed. So, the question is, is it better to claim the Foreign Earned Income exclusion or the foreign tax credit? So, I'll go ahead and turn the floor over to you so you can go ahead and respond to that question.

Thank you, Candice. It really depends on the individual circumstances. So generally speaking, provided that this person meets the requirements for both the Foreign Earned Income exclusion foreign tax credit, if that person resides in a low tax jurisdiction, then the Foreign Earned Income exclusion will most likely be a better option for that person. On the other hand, if they reside in a high tax jurisdiction, then claiming the foreign tax credit or using a combination of the Foreign Earned Income exclusion and a foreign tax credit will probably be more advantageous for that person.

All right, thank you, Emma. Let's see. Let's take a look. Okay, Bethany, I think this is something that was related to information that you discussed. So the question is, how is foreign unemployment compensation received abroad by a US citizen reported?

Okay, that gets reported on Schedule 1 line 8Z, as other income. That's the other income line. Well, for tax year 2024 it is, it could change over the years. But on the 2024 Tax Return Schedule 1, line 8Z as in zebra would be where one would put the foreign unemployment income. And then from there it flows over to the face of the 1040. I believe it goes on line 8 from there, travels over there. But yes, that would be the place to put it.

And I will say, Candice, I couldn't help noticing a question just now. I had just been talking about the FinCENs, the FBAR form with FinCEN, and somebody was asking in the chat if they have actual -- I guess actual physical silver or gold. So currency, actual physical silver, not shares in an account that deals in that, but the actual, you've got a safe in your house with some gold coins in it or you have some cash in your wallet, those do not go. Those do not need to be reported on an FBAR. The FBAR is for foreign financial accounts. I hope that helps.

Okay, thank you so much.

And oh, Candice, I'm sorry. I have one more suggestion. We do have limited time and I know there are some people in the audience who are actually working at the IRS and have attended and we're glad to have them here, you know, for their -- a few of them have attended for continuing professional education credit to maintain their CPA licenses et cetera. But we do ask, if you're from IRS, that if you do have questions, perhaps submit those to us. You guys can look us up and get our email addresses internally and send them to us that way rather than tying up the Q&A session. I just wanted to throw that out there as a suggestion.

All right, thank you so much. Okay, let's see. The next question is actually going to come to Kathy. Okay, so Kathy, the question is if you have elected the Form 2555 in a prior and repatriate back to the US and you do not go on another assignment until 10 years later, does that Form 2555 still apply or can you elect Form 1116 only as you are not in a high tax country?

Okay, thank you, Candice. Yes, so I'll take this question. And there's another question. I think somebody asked if they could go back and forth between the Foreign Earned Income exclusion and the foreign tax credit; so, once you do make that election, it does stay in place. So, for the 10 years that you mentioned in your question, the Foreign Earned Income exclusion, that election is still valid.

But then once you change your mind, you decide you want to take that foreign tax credit and that original election is revoked, then, yes, you can go ahead and take the foreign tax credit on the Form 1116, but then you cannot take the Foreign Earned Income exclusion again, you can't go back and take that election for five years. So, you can't really go back and forth from year to year, but you can, like you said, if you move into a country that has a higher tax bracket and you want to change to the foreign tax credit, that's fine. Just keep in mind you cannot go back to the Foreign Earned Income exclusion for five years after you have revoked that original election.

All right. Thank you, Kathy. Emma, I think this question would be for you. Are Social Security benefits and pension payments considered earned income?

No, generally, earned income includes wages, salaries, professional fees and other amounts received as compensation, and pension and Social Security benefits are not earned income.

All right, thank you. Let's see, what else do we have? Okay, Bethany, I think this is going to be one for you. Is the income for services performed on a cruise ship considered foreign earned income?

Okay, thank you. Yes, it depends on where you are, okay; same thing, similar with people that work on airplanes. In both instances, the odds are that you're spending a significant portion of time in or over international waters, okay. And international waters is -- I think it was Kathy that might have mentioned that earlier, talking about the definition of Foreign Earned Income and what's a foreign country for purposes of this international waters, international airspace are not foreign countries. It has to be under the jurisdiction of a government other than the United States in order for it to be a foreign country, so international waters are not.

So, if a person working on a cruise ship, the question becomes where are they docking, okay, and how long and how many days, et cetera. So, they would have to divvy up their time and often there may not be enough time spent onshore in foreign countries to meet the foreign earned income collusion but there could be.

Let's just say that the ship goes back and forth between New York City and Rio de Janeiro or something, then the only time that would count as foreign and the only income that would be foreign source, you'd have to do an allocation and see how much income is earned while you're docked within 12 nautical miles of the shore of Brazil, anything beyond that would then be foreign -- I mean, would then be international, so it would not be foreign.

So, you can see that it would probably be a limited amount of time that would be spent earning Foreign Earned Income in an area that could be deemed a foreign country. So often it's very hard for those individuals to meet that, but they do need to make an allocation and kind of figure out where they were each day. And remember when we're doing the physical presence test, it's full midnight to midnight days and there has to be 330 of them in a period of 12 consecutive months. That's a pretty high standard. I hope that helps.

All right, thank you, Bethany. Let's take a look and see what else we have here. Kathy, I think this question would be for you. Is there a quick way to get info on the treaty of any particular country?

Yes. The IRS.gov website has a great page where all of the countries with treaties, it has a link to each of their treaties. So, if you go to your search engine, whichever search engine you want to use, and type in treaties A to Z, it will take you right to that IRS.gov website that lists all treaties by country.

Okay, thank you, Kathy. Let's see, what else do we have here? Bethany, I think this next question would be for you. We actually have a lot of questions that look like that's related to information that you share, so I might be picking on you a little bit. Okay, the question is what is a brief period of time -- I think we kind of already answered that, so I'm going to try to -- I'm going to ask this other one. If my earned income is over the FEIE and I am living in a high tax country, can I use FEIE and the foreign tax credit on the amount above FEIE?

Yes. I think what you're saying there is that if an individual makes more than the maximum threshold amount for the year, can they turn, after they have maxed out the Foreign Earned Income exclusion, can they turn to the foreign tax credit? And the answer to that is yes. And I think Kathy gave a really good example of that a few minutes ago. She kind of walked. I know it's hard to follow sometimes all this stuff because you guys have a lot coming at you today, a lot of information. But yeah, that was kind of already answered, the answer being yes that they can.

As long as once you've elected the Foreign Earned Income exclusion, as long as you exclude to the extent that you are able to, then you can next turn to the foreign tax credit to exclude your remaining foreign earned income, subject to the limitations. You know, you can only exclude the taxes that were paid on that Foreign Earned Income that exceeded the exclusion amount and Kathy had walked us through an example on that. Thank you, Kathy.

Okay. Thank you, Bethany. Let's see. Okay, Kathy, I have one for you. Looks like it says, does the physical presence test apply to the spouse that does not work or only for the income producer?

Okay. So, the Form 2555, it would kind of stand alone for each spouse. So, if the income is just for the one spouse, then the fiscal presence test, or bona fide residence test, that is for that spouse. If both spouses have their own foreign earned income, then they both have to meet those tests separately. So, if the other spouse doesn't have any income, then they're fine, they don't need to -- they don't have to qualify, it's tied to the spouse that earned that foreign earned income. So, it's standalone. If they both have foreign earned income, then they both have to meet all of those requirements for the Form 2555.

All right, thank you. And while I'm trying to find the next question, I do want to mention that we will be having a webinar on the foreign tax credit on September 25th, okay. So, we will have another team who will be providing information on that. So, if you want to know more about the foreign tax credit, you want to get deep into that, dive into that, get maybe some of the questions that you may have answered on that, there is a webinar that will be happening on September 25th, okay, so please make sure to check that out. So, our next question actually is going to be for Emma. If a child is born in the US and is a US Citizen and moves to a foreign country and never returns to the US, do they have to file US tax returns when they become an adult?

Yes, Candice. US Citizens, including accidental Americans, meaning individuals who were born in the US, become US Citizens, return to a foreign country and never come back to the US, they're subject to worldwide taxation, and they have to report their income on their US Tax return, regardless of the source of the income.

Thank you, Emma. Okay, let's see. Okay, Bethany, I think this person is asking -- they're saying more explanation in the situation when a US Citizen or resident gets a raise and now wants to claim the foreign exclusion as well as the housing exclusion, there seems to be an issue with that. Also include if the change to add housing is because they are moving to a different country. So, I will open the floor and let you take a stab at that one.

Yeah. Okay. Let's say that I'm living abroad and the maximum exclusive exclusion amount being 130,000 and let's just say that I made more than 130,000. You know, let's say I made 150,000, then I can exclude my 130,000 to the extent that I still have, which would be the max amount to the extent that I still have room to absorb it at all. I could try to take a foreign housing exclusion and that is all detailed in the rules to the 2555. So yes, it is possible to exclude both on the same return provided I have the income to absorb them.

So, if my maximum Foreign Earned Income for the year were 120,000 and I had excluded it, I wouldn't have any more Foreign Earned Income to consider for the foreign housing exclusion. But if my Foreign Earned Income is above 130,000, this is for tax year -- I think it's 2025 that it's 130,000, if I have more than that, then I would have the ability to, you know, consider taking a foreign housing exclusion, provided of course that I otherwise qualify that I incurred foreign housing expenses and meet all the requirements for claiming the exclusions. I hope that that answer is helpful.

I hope so too. Okay, let's see. While I have you, Bethany, we have someone that's asking where does the exempt fee attached message go again? I don't see it in the slides and want to make sure I got it right.

Okay, that goes on the line for self-employment tax, so that's where that would go. So, where you would normally put your self-employment tax, you can put exempt C attached and attach that totalization agreement.

Okay, let's see. And please forgive me if I ask the question that you all have already answered. Some of these I'm kind of trying to scroll through. Let’s see. Okay, Bethany, another question. If someone is on a one-year assignment abroad, would their tax home be in a foreign country for FEIE?

I'm sorry, can you say that again?

They're saying if someone is on a one-year assignment abroad, would their tax home be in a foreign country for FEIE purposes?

Okay, so this person was on a one-year assignment. I know when I was talking about the test for bona fide residency, that wouldn't rise to the level obviously of being a bona fide resident. Honestly, it's doubtful that this person would end up having a tax home in a foreign country. They might meet the numeric counting of days for the physical presence test. That could be possible. But you also have to meet the tax home test and the tax home test has two prongs, as was discussed in the presentation.

First of all, your main or principal place of business, we wouldn't have a problem there, right, that's clear enough. But then there's this second piece that has to do with abode and the fact that the courts have defined your abode as where your economic, familial and personal ties are strongest. So, if I've been assigned to a foreign country for just a one-year assignment, it's very unlikely that my economic, familial and personal ties are going to be stronger there than they are here in the United States, where I've always been and to which I am soon going to be returning. So, I would think it would be a -- I'm not saying it's impossible, but close to it, so I don't think that such an individual would be very likely to qualify, but again, it's very much driven by facts and circumstances, but I would suggest exercising caution there.

All right. Thank you. Okay. Another question is, and this is I think for Bethany as well, if a taxpayer is living abroad but earning income from a US company, is that considered Foreign Earned Income and would it be eligible for the Foreign Earned Income exclusion?

I'm glad you called on me again. Yes, I wanted to finish something on the last one. I wanted to add another thought to it. I do want to highlight that if this individual, in the example where someone asked about a person who was only on a one year assignment, if they were working, let's say they're working for a defense contractor and they're in a combat zone and the work they're doing is in support of the United States Armed Forces, then those people do not need to concern themselves with that abode prong. And in that case, that person might have met that physical presence test and would be just fine.

So, I do want to point out that that abode prong to the tax home test does not apply to individuals. And I think that was mentioned in the deck and it's on the slides. But just to reiterate, if they're working in an area designated by the president as a combat zone and they're there in support of the US Armed forces, then they do not have to concern themselves with the second prong of the tax on test, but everyone else would need to. Most people need to consider the second prong, only those ones wouldn't.

Now, the question you just asked, let's see if I can remember it. You said something about a US -- someone working for -- they're working abroad, they're working for a US company and the question was are those -- is that Foreign Earned Income or is it US source? Well, when it comes to the sourcing of income, and that was covered I think earlier in the deck, but I know we covered a lot of material today. It's where the services are performed when it comes to compensation. So, compensation is sourced in the location where the services are performed.

Generally speaking, as Lindsey pointed out earlier, there could be instances and we have seen there have been court cases out there where a person was practicing a business that they were licensed to do in the US but they were outside the US and they were working outside the US but it still wasn't deemed they were self employed. But when you're an employee and you're working for a US company and they've stationed you in another country and you're working over there, that income is foreign sourced because that's where you're doing the work.

Again, it gets a little dicier if you're -- I think I heard of a situation once where there was an attorney that was working on cases and they were license to practice law in a certain state in the US, they were trying or thinking that if they lived overseas and worked on all their court cases there and then just came back here occasionally to appear in court maybe or did it virtually or something that it could be Foreign Earned Income, but they were -- I believe it was disallowed by the powers that be. So, if you're self employed, it can get a little more confusing. But when you're an employee, if you are working overseas, regardless of whether it's a foreign or United States company, it's based on where you're at when you're doing the work.

Okay, thank you, Bethany. Okay. I have a question that popped up for Lindsey and Lindsey, I'm not sure if you can answer this or not, but I'm going to ask it, but specifically for you. Are you still there, Lindsey?

I am.

Okay, so the question is -- or the scenario -- I guess it's a scenario. This person says, I have a client who worked in Ireland for four years. They didn't leave Ireland and arrived January 1st the first year and left December 31st the fourth year. So, they never left Ireland, arrived January 1st and left December 31st of the fourth year. Here's the problem. They thought that their returns were filed with their tax preparer, but in fact were not. This is the 2011 through 2014 tax years. It says, I haven't gotten any help from the IRS helpline for any information which includes forms, publications, et cetera. The code states that the form must be filed within three years of filing the return. The code is not clear regarding returns that were not filed. The original tax preparer had a nervous breakdown and quit doing taxes. So, I'm assuming they're wanting you to speak to the legality of being able to file those returns that weren't filed.

Yes, so that's a question of whether or not they were timely filed and they -- I'm assuming the returns all had the election or they had the election attached to it in the first year. I think it's a facts and circumstances. So, in your case, what you're saying is that they thought that they were filed, but the return preparer had a nervous breakdown and I'm not sure, and Bethany, feel free to jump in, but generally a taxpayer cannot rely upon a professional when it comes to filing, and that's been established by the Supreme Court. So, my guess is that the fact they're relying on the preparer's situation is not going to carry the day. Yeah, but I haven't looked into it. That's just first reaction.

Bethany, did you have any thoughts on it?

Yeah, I was just saying, I agree. I think I'm pretty sure I heard the same thing before. So I -- and you know better than I do, but it sounds correct to me, too.

Yeah, yeah, yeah, I think the Supreme Court said it, so we -- so yeah.

Yeah.

Unfortunately, you can't delegate filing.

Okay, thank you, Lindsey. Let's see. Okay, Kathy, I think this question is going to be for you. It says, can the value of housing in the foreign country be excluded if provided by the employer.

Okay, so this would be, so under the foreign housing exclusion. Yes, you could still -- you could claim the foreign housing exclusion if you meet the requirements, which includes the tax home test and the other requirements, then yes, it can be for your housing, even if it's paid on your behalf by your employer.

All right, thank you. Let's see, what else do we have? Okay, I'm just going to throw this question out there and I think, like a general question. How should a US citizen who has lived abroad for more than 10 years and owns a business overseas catch up on US tax filings if they have not filed during that time?

Well, silence is Bethany. Okay, this is Bethany and, Lindsey, you feel free to jump in, okay. But of course, when you don't file a return, the statute of limitations has not started to run and it's wide open, so the IRS can come after you at any time for that return. And so, you know, it's probably for anyone and everyone, just in general who has failed to file returns, it's probably a good idea to catch up with those and file them. You might want to -- if that's your situation and it's been a very long time, you might want to engage a professional because they would probably be able to help you get on track, provided it's somebody who's trustworthy and honest, right.

Meaning there are people out there that will tell you perhaps what you want to hear, but it might not be correct, so you want to go with a trustworthy outfit. It would be my suggestion, if you're balking at it because it seems too overwhelming for you and it can be. Taxation is a deep topic, so if you feel the need to get a tax professional involved, that would probably be a good idea.

Along those same lines, Candice, I saw various questions by people who said that, you know, maybe they'd only been working overseas for a couple of years and they -- I think at least one of them said, well, I could have -- like the income was less than the exclusion amount. So, they know that -- I mean, let's just say I've been working overseas for two years. And I erroneously just thought that, well, because I only make -- let's say I make 40,000 a year, the equivalent of $40,000 a year. And so, I know that I'm there lock, stock and barrel. There's no question that that's my tax home and that's my life now and I'm not planning to leave.

So, I had thought, oh, I could have attached to 2555, but it would have removed the income from my return and so I'm okay, so why bother? You don't want to think that way, you do want to file for the reasons I just stated. It just, you know, keeps your record here up to date and it also shows us that you are choosing to exclude that Foreign Earned Income and that's important. So even though the tax liability for some people might still be zero, it is well worth it to go ahead and file a return. And while you're at it, you do want to make sure that you -- we talked about information returns before, so that would be a good idea, too. And I mean, I'm just talking off the cuff here.

Me, myself, long before I worked at the IRS when I was just a housewife, I've always been more of a do-it-yourself kind of person, whether it's remodeling the house or doing my taxes, right. But having said that, I knew that, like in the year that we sold a house or did anything unusual, probably a good idea to get an accountant involved and same thing, we had income property. So, you know, if you've acquired income property or anything, in this case, it would be moving overseas and wanting to claim an exclusion or a foreign tax credit or what have you, it's always good to get professionals involved early on and then you can kind of look at what they did the next year, and if you're a do it yourself type, at least you have something to go by, right.

And Bethany, this is Lindsey, if I jump in two seconds. You're absolutely right on the statute of limitations; you're going to want to file that return to get that statute going. The other thing is that the exclusion is not automatic. You have to claim it and so if you haven't filed an election and you've got your 40 grand, we could deny the exclusion and you owe tax on the 40. So, you don’t want to do that.

Yes and that is a good point. Yeah, that is another thing.

I think the other thing is that when you get this tax professional, you can get somebody that's very good, but they have to have the right qualifications. And if you want to rely on your tax practice for a reasonable cause defense, you have to give them all of the information. You have to have somebody who's got an expertise in this case international, and then you have to rely on their advice. Again, that doesn't apply for filing. You're on the hook for filing, but for any other kinds of positions that you've taken on the return and if you're moving between exclusions and credits, you'll want to have -- you may want to, to have that protection of having hired a professional.

Yes. Thank you, Lindsey. And that -- well, that kind of segues into another question that I also saw somebody was talking about, you know, not having filed, and again, if you have a client who hasn't filed, as Lindsey said, A, you're going to get the statute going, B, it lets us know you made the election. If the IRS discovers that you didn't elect a Foreign Earned Income exclusion, in other words, if we see that you didn't file a return, the courts have said, or somebody out there, I think it's a revenue ruling. But if you haven't, the fact that you haven't filed a return is in and of itself, if we notice that and come to you and say, hey, you didn't file, then we've discovered your failure to elect the Form 2555.

And if you look at the regulations, the treasury regulations 1.911-, and you can look them up online, if you look up Treasury Reg. 1,911-, they'll list a bunch of regulations. But if you look at the regulations, you can see there are some caveats and loopholes and a way to do it. You do need to say that it's filed under treasury regulation. And Lindsay, I can't remember off the top of my head what that number is, I should have it at the tip of my tongue.

But anyway, you want to make it clear that you're filing under the regulations on this Foreign Earned Income exclusion. And then you can only hope that in the interim it doesn't cross in the mail with something from us saying, hey, you didn't file because -- and then if you didn't file, as long as there's still no tax due, you may still be okay, but if there is, you could be subject to penalty and interest and all that good stuff, which just something to keep in mind as long Lindsey said, make sure you file. It is an election and that's the same thing with treaty positions, I mean, unless there are certain things. If you look at the Form 8833 for treaty positions, there are a few things that you don't have to have an 8833 attached to the return or disclose the treaty position, but many treaty positions also are required to be disclosed and so that's another reason to -- and those are also elections, you know, choices that you make, so it's good to file timely or at least catch up.

Thank you, Bethany. And I'm going to kind of piggyback on the information that you gave with another question that has popped up. So, you've given all the instances and examples as to when or why individuals should file who are living or working abroad. But do you have any examples of instances or circumstances where an individual would not need to or would not have to file a Form 1040?

Oh, is that me you're asking?

Yes, yes. I was kind of piggybacking on what was your thought.

Well, and I don't have it in front of me, so I can't tell you what the number is, but I do know that, just in general, anybody, whether you're in the US or not, there are -- there's minimal amount of income that a person has to have an order to file. So, if you're 19 years old and you had a summer job and you only made a couple thousand dollars, it might be that you didn't have to, I don't know. There can be situations, my mother, who passed away less than a year ago and was living with us, her Social Security amount was so low that she actually was below the threshold for filing a return and I double checked that because she was living with me. And I just wanted to make sure that she was legit to not have to file a return because I noticed she hadn't been and she had assured me that she was below the threshold that I double checked on that. So, there can be scenarios where a person is below the threshold.

Speaking of Social Security and pensions, I think I saw a question earlier. Those are not foreign earned income. Doesn't matter where you were when you did the services that gave rise to the pension or Social Security, it is not going to be foreign earned income. And as to whether or not it's taxable, you would need to look to the instructions of the 1040 as well as any possible applicable tax treaty. And that's as much as I can say on that. The other thing I wanted to mention is next week we have a webinar on foreign tax credit a week from today. The IRS does, not me personally, but another team and we did a webinar last week.

I saw a question somewhere in here about an employee of a foreign consulate. Well, that was last week's webinar that talked about that and I believe there're recordings that are being posted, YouTube recordings of these webinars, so I would encourage anyone with questions around that to go back and revisit that. And a couple weeks before that, back in August, we did one on residency status to determine whether or not someone's a US resident, and it also touched on the filing under 6013G where US individual filing with their non-resident spouse. So, I would encourage you to check out some of the YouTube videos and IRS.gov webpages on these topics.

All right, thank you, Bethany. We actually have a couple of minutes left. So, I actually want to take the time if Emma or Kathy or Lindsey had any kind of last words or comments based on the Q&A that we had that they maybe want to share in the last forms. If not, then we can go ahead and move forward.

This is Lindsey. I don't have any parting remarks.

Okay, thank you, Lindsey. All right. And I'll take the silence as a no. So, I want to thank everyone for their contributions to the Q&A. Lots of good information came out of that. Hopefully a Lot of the questions that were asked were answered. We did have a lot of questions that were similar in nature. So hopefully a lot of you got a lot of answers to the questions that you have based on the information that was shared today. So, I want to thank you all for sharing your knowledge and your words and I want to thank you all, the audience, for sending in those questions. We had lots and lots and lots of questions. So, thank you, thank you, thank you for your participation.

Now, we cannot leave or I will not allow you guys to leave without our final polling question, okay. So, if you only have three that you answered, this is your last opportunity to hit that four question mark that you need for that CE credit. So, our last polling question is actually an attendance check, so super easy, okay. All you have to do is select the radio button on the screen or, or again, if you do not receive the polling question, go ahead and add the letter A as your response in the Ask Question text box, okay. And remember, those responses in that Ask Question text box are time-stamped, okay. So, I'll give you all a few seconds to go ahead and either select that button or input a letter A into that Ask Question box feature.

Okay, so we're going to close the polling now. And again, I want to thank you guys for responding and participating in all of our polling questions today. Hopefully you guys got a lot of information not only from the information that was given, but also from our polling questions, okay. So, before we close out today, Kathy, can you go ahead and share some key points that you want the attendees to remember from today's webinar?

Absolutely. Thanks Candice. So, the US generally taxes its citizens and its residents on worldwide income. And those who live and work in a foreign country and meet the requirements, they may be able to exclude some of their foreign earned income. US citizens and residents working abroad may be subject to employment taxes or FICA and self-employed US Citizens and residents are responsible for paying self-employment taxes or SECA, so if net earnings from self-employment equal or exceed $400 regardless of where they live and work. So, if the US has entered into a totalization agreement with the foreign country where the wages or net earnings from self-employment were earned, then the terms of that agreement will govern whether the FICA or SECA taxes must be paid to the United States.

And if a totalization agreement applies and you are covered by the Social Security system of the foreign country, then you would need to request a certificate of coverage or a similar statement from the appropriate agency of that foreign country. And if you are unable to obtain a certificate or statement from that foreign country, then you can request one from the US Social Security Administration. If you are self employed, you will attach that certificate or statement to the tax return and print exempt see attached statement, you will print that on the line on your tax return where self-employment tax goes. Candice, that's all we have. I'll turn it back over to you.

Thank you so much Kathy for those key points. So, I want you all to remember that we have additional webinars planned throughout the rest of the year. We mentioned there is actually a webinar next week on the foreign earned income, okay. So, if you have questions or you want to know more information about the foreign earned income, there's going to be a webinar next week that's going to take a deep dive into that subject for you. So again, that webinar is on next Thursday, September 25th, okay.

So, to register for that webinar as well as upcoming webinars, please visit IRS.gov and in the search bar, in the keyword search bar, you're going to type in webinars. And once you get to the landing page for that selection, you're going to select the webinars for taxpayer practitioners, or if you're interested in webinars for small business, you're going to select webinars for small businesses. When appropriate, we will offer certificates and CE credit for upcoming webinars, okay.

We also invite you to Visit the IRS YouTube page at www.youyube.com/IRSvideo. There you can view available recorded versions of our webinars and other key video messaging once posted. Again, continuing education credits or certificates of completion are not offered, if you view an archived version of any of our webinars.

I want to give another big thank you to our presenters Emma, Kathy and Bethany for another amazing webinar. I also want to thank you, our attendees, for attending today's webinar, which is titled Tax Obligations of US Individuals Living and Working Abroad. We want to thank you for coming, for participating, for listening in, because without you, these would not happen.

So, a couple of things to remember if you attended today's webinar, okay. If you attended for at least 100 minutes, that's going to be an hour and 40 minutes after the official start time and answered at least four polling questions during the live broadcast, you will receive a Certificate of Completion for two IRS credits, or if you attended for at least 50 minutes after the official start time and answer at least three polling questions during the live broadcast, you will receive a Certificate of Completion for one IRS CE credit.

Remember, the polling question example will count towards the minimum question response requirement. It is also important for you to know that the certificates of completion will be emailed to the registration email address of qualifying participants as a PDF attachment. The email is going to come from the email address seen on this slide. Please add this email address to your contacts to ensure that you receive the email with the certificate attached.

Okay, we want to make sure that you see the email. You have to add us to your contacts or that email may end up in your junk file and you'll be sending us emails saying, hey, I didn't get my email, I didn't get my certificate. So, make sure that you add us to your contacts to ensure that the email comes into your inbox.

If you qualify for IRS continuing education credit for this webinar and registered with your valid first name, last name and PTIN as it appears in your IRS PTIN account, your CE credit will be posted in your IRS PTIN account, okay, but that information must match, okay. So please do now look for it in that PTIN account if that information does not match the information that you registered for the webinar with, okay.

Also, if you are eligible for continuing education from the California Tax Education Council or CTEC, your credit will be posted to your CTEC account as well. If you qualify and have not received your certificate and/or credit by September 29th, okay, everybody say it with me. September 29th, okay, please email us at the email address shown on the slide. So, wait until September 29th to receive that information. If you don't receive it by then, then send us an email, okay. That email address is going to be cl.sl.web.conference.team@irs.gov.

Also, if you're interested in finding out who your local Stakeholder Liaison is, and that should be everybody. If you're a tax practitioner, you want to know who your local Stakeholder Liaison is, okay. You're going to visit irs.gov or send an email to the address shown on this slide and we'll send you that information.

Now, if you go to irs.gov, what you're going to want to do is in that keyword search box, you're going to put in Stakeholder Liaison. That's going to bring you to a landing page where you can look for the state that you live in and you'll be able to find the contact information for that Stakeholder Liaison group that is associated with your state and then from there you can send an email to ask who your specific Stakeholder Liaison is, okay.

Now, we also would appreciate it if you would take a few minutes to complete a short evaluation before you exit. We want to hear from you. If you'd like to have more sessions like this one, let us know. If you have thoughts on how we can make them better, please let us know that as well. If you have any requests for future webinar topics or pertinent information you'd like to see in an IRS fact sheet, tax tips or frequently asked questions, or FAQ, on irs.gov, please include your suggestions in the comment section of the survey, okay.

A lot of times we don't know what you want to know unless you let us know, okay. So, this is an opportunity for you to let us know what you want to hear and what you want to see from the IRS. So go ahead and click the survey button on the right side of your screen to begin, and if it doesn't come up, check to make sure you have disabled your pop-up blocker.

It has definitely been my pleasure to be with you all today. And on behalf of the IRS and our presenters, I would like to say thank you for attending today's webinar. It's important for the IRS to stay connected with the tax professional community, individual taxpayers, individual associations, along with federal, state, and local government organizations.

You definitely make our jobs easier by sharing the information that allows for proper tax reporting. Again, my name is Candice Hardin, Senior Tax Analyst with the Internal Revenue Service, and I want to thank you again for your time and attendance. We hope that you found this information helpful. So, I want you all to enjoy the rest of your day. And at this time, you can go ahead and exit the webinar. Thank you.