Aliens and U. S. Citizens Living Abroad: U.S. Citizens Overseas

I am a U.S. citizen working abroad. Are my foreign earnings taxable?

A U.S. citizen or resident alien is generally subject to U.S. tax on total worldwide income. However, if you are a United States citizen or a resident alien who lives and works abroad, you may qualify to exclude all or part of your foreign earned income.

For specific information, refer to Tax Topic 853, Foreign Earned Income Exclusion - General.
If you would like more information on who qualifies for the exclusion, refer to Tax Topic 854, Foreign Earned Income Exclusion - Who Qualifies. For more information on what type of income qualifies for the exclusion, refer to Tax Topic 855, Foreign Earned Income Exclusion - What Qualifies. You may also wish to refer to chapter 4 Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, for a detailed discussion.

I am a U.S. citizen working for a U.S. firm in a foreign country. Is any part of my wages or expenses tax deductible?

U.S. citizens are taxed on their worldwide income. Some taxpayers may qualify for the foreign earned income exclusion, foreign housing exclusion, or foreign housing deduction, if their tax home is in a foreign country and they are either a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or are physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months. If the taxpayer is temporarily away from his or her tax home in the United States on business (less than a year), he or she may be able to claim a foreign tax credit (if required to pay qualifying foreign tax on income earned in a foreign country), but would not qualify for the foreign earned income exclusion. The taxpayer may also qualify to deduct away from home expenses (for travel, meals, and lodging), but not against excluded income.

References:

Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad
Publication 514, Foreign Tax Credit for Individuals
Publication 463, Travel, Entertainment, Gift and Car Expenses
Form 2555 (PDF), Foreign Earned Income
Form 2555EZ (PDF), Foreign Earned Income Exclusion
Form 1116 (PDF), Foreign Tax Credit
Tax Topic 514, Employee Business Expenses

I am a U.S. citizen living and working overseas. Can I have a tax credit on my U.S. taxes for the taxes I pay to the foreign country?

The foreign tax credit is intended to relieve U.S. taxpayers of the double tax burden when their foreign source income is taxed by both the United States and the foreign country from which the income is derived.

Generally, only income taxes paid or accrued to a foreign country or a U.S. possession qualify for the foreign tax credit. You can choose to take the amount of any qualified foreign taxes paid or accrued during the year as a foreign tax credit or as an itemized deduction.

To choose the foreign tax credit you must generally complete Form 1116 (PDF), Foreign Tax Credit, and attach it to your Form 1040 (PDF). You may claim credit without attaching Form 1116 if all of your foreign source income is passive income (such as interest and dividends) reported to you on qualified payee statements and the total amount of qualifying foreign taxes you paid or accrued is not more than $300 ($600 in the case of a joint return) and is also reported to you on these qualified payee statements. To choose the deduction, you must itemize deductions on Form 1040, Schedule A (PDF).

You may not take either a credit or a deduction for taxes paid or accrued on income you exclude under the foreign earned income exclusion or the foreign housing exclusion. There is no double taxation in this situation because the income is not subject to U.S. tax.

References:

Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad
Publication 514, Foreign Tax Credit for Individuals
Form 1116 (PDF), Foreign Tax Credit
Tax Topic 856, Foreign Tax Credit