If you are an expat thinking whether to apply for the bona fide test or a physical presence test for FEIE, you should understand the difference between the two. Only then you can decide which test will help you get the tax exemption on the taxes levied on the foreign earned income from a country outside the United States. To qualify for this exclusion, you should:
Qualifying for foreign earned income exclusion through these tests:
Individuals qualifying for FEIE through any of these tests will become eligible for exclusion of up to $104,100 annually from the foreign earned income. Even, they will be eligible for excluding an additional amount for housing using this deduction of exclusion.
Types of Foreign Earned Income to which FEIE Applies:
The FEIE exclusion will be applicable only for the income earned by offering service either as an employee or as an independent contractor in a foreign country. The income can either be wages, salaries or even fee for the professional services rendered. Even, it includes the amount earned as compensation for any kind of personal services offered. It means that both self-employment income and salaries will qualify for the exclusion. So, if you have gained any other type of income, it is not possible to exclude it.
For which tax is foreign earned income excluded under FEIE?
FEIE will help with the exclusion of income earned from the Federal Income Tax in the United States. Individuals offering their services in foreign countries will have to qualify in any of the two tests to claim a deduction or exemption.
The main difference between these two tests lies in the number of days of spending in a foreign country without visiting the United States.