Maximum ExclusionThe amount of foreign wages and salary a taxpayer can exclude per year is limited to actual foreign earned income or the annual maximum dollar limit, whichever is less. Starting with tax year 2006, the foreign earned income exclusion is adjusted each year for inflation by the Internal Revenue Service.
Maximum Foreign Earned Income Exclusion Amounts by Year
- Tax year 2013: $97,600
- Tax year 2012: $95,100
- Tax year 2011: $92,900
- Tax year 2010: $91,500
- Tax year 2009: $91,400
- Tax year 2008: $87,600
- Tax year 2007: $85,700
- Tax year 2006: $82,400
- Tax years 2002-2005: $80,000
- Tax year 2001: $78,000
- Tax year 2000: $76,000
- Tax year 1999: $74,000
- Tax year 1998: $72,000
Prorated ExclusionUnder the physical presence test, a taxpayer can choose any consecutive 12-month period to qualify for the foreign earned income exclusion. This creates the possibility that the amount of the exclusion may need to be spread over two year and that the amount of the maximum exclusion in a year may need to be prorated. To prorate the maximum exclusion, use the number of days you were physically present during the tax year. The exclusion is calculated by the ratio of the number of days physically present in the foreign county (numerator) to the number of days in the year (denominator). (See Publication 54, section on part-year exclusion.)
The pro-rated exclusion amount may not exceed the maximum allowable exclusion.
Taxpayers may also qualify for a prorated exclusion if you intended to meet all the time requirements but you left the country due to civil unrest. According to IRS Instructions for Form 2555:
Waiver of Time RequirementsMore Information:
If your tax home was in a foreign country and you were a bona fide resident of, or physically present in, a foreign country and had to leave because of war, civil unrest, or similar adverse conditions, the minimum time requirements specified under the bona fide residence and physical presence tests may be waived. You must be able to show that you reasonably could have expected to meet the minimum time requirements if you had not been required to leave. Each year the IRS will publish in the Internal Revenue Bulletin a list of countries and the dates they qualify for the waiver. If you left one of the countries during the period indicated, you can claim the tax benefits on Form 2555, but only for the number of days you were a bona fide resident of, or physically present in, the foreign country.
If a person can claim either of the exclusions or the housing deduction because of the waiver of time requirements, attach a statement to the return explaining that the taxpayer expected to meet the applicable time requirement, but the conditions in the foreign country prevented you from the normal conduct of business. Also, enter "Claiming Waiver" in the top margin on page 1 of Form 2555.
Foreign Earned Income Exclusion: Overview
Bona Fide Residence Test & Physical Presence Test
Foreign Housing Exclusion and Deduction
Self-Employment & Foreign Exclusions