There are several provisions which allow US expats to claim the benefit of taxes paid in a foreign country on his US tax return. One of them is Foreign Earned Income Exclusion (FEIE) which can help you claim a credit of the tax paid on salary in India on US taxes. This exclusion can be availed by filling out Form 2555 – Foreign Earned Income.
This form.
Let me explain how to claim deduction as per Form 2555
- What is FEI
- As the name suggests, Foreign Earned Income Exclusion can be availed for the income that is “earned” in a “foreign country”. Earned income would refer to either salary income or income from a business or profession. Any other type of income such as bank interest, dividends, home rental income is considered to be passive income and, therefore, cannot be claimed under FEIE.
2. Who qualifies for FEIE
Taxpayers who have foreign earned income qualify for the deduction under FEIE if they satisfy both the conditions given below:
a. You meet the tax home test and
b. You meet eithe the bona fide residence test or the physical presence test.
In general, if you have been settled down in a foreign country (outside the US) for the past 2-3 years, you would generally qualify for FEIE.
3. What is the deduction allowed under FEIE ?
FEIE allows a tax payer to deduct a certain amount from this gross income on his US return. This amount changes every year. The deduction allowed for the tax year 2015 is $100,800.
