US Citizens

When US citizens work abroad, they may qualify for the foreign earned income exclusions.

Physical Presence Test

To qualify for the foreign earned income exclusions using the physical presence test (PPT) an individual must have 330 full days in a foreign country during a 12 month period. Only full days in a foreign country count. Any 12 month period can be used. Qualifying under PPT is our biggest source of client questions. Our most common questions and answers are noted below.

What 12 month period can be used to count my days? Does this need to be a calendar/tax year?

You can use any 12 month period to count your 330 full foreign days. This period does not need to be the same as a calendar/tax year. You can even use 2 different 12 month periods that fall within the same year as discussed below.

For the first year, individuals often use the day after the start of assignment, forward 12 months.

Do I need to use the same 12 month period each year?

No - you do not need to use the 12 month period each year. Every year, you look at this period "fresh." Your physical presence period is not a tax year as discussed below.

Can I use multiple presence periods in the same year? Can I count the same days each year?

You can use 2 different physical presence periods in the same year. These periods can even overlap within the same year. Each period is claimed on a separate Form 2555. As of this writing, such returns do not qualify for electronic filing so a paper return must be submitted to the IRS.

I spent 12 months overseas, took a break for a few months in the states, then went back overseas to start another assignment. How do I complete my tax return?

Each physical presence period is claimed on a separate Form 2555 as discussed above. You need to wait to file until you have qualified for both periods as discussed below.

Once I meet the physical presence test, do I automatically qualify for the exclusions in the coming year?

No. You must qualify for the foreign earned income exclusions each year. We do often see individuals who are a tax resident in a particular country first qualify using the physical presence test. Once, the person is tax resident of the country for a full calendar year, the bona fide residence test (BFR) is used.

To ensure qualifying for the exclusions, an individual may need to be sure that the day count requirements of the physical presence test are met for up to 2 years before considering BFR. For example, someone who became a tax resident of a foreign country early in the year, such as January, would have to wait over 23 months before qualifying for the bona fide residence test.

Does claiming the physical presence test change my tax year?

No. You still report income earned during the calendar year. While your 12 month period may extend beyond the tax year, you are only claiming a benefit for those days that fall within the tax year. See our page on general questions for how this allocation works.

What is a full foreign day?

A full foreign day is presence in a foreign country from midnight to midnight. Partial days do not count. The day you leave or enter the US is definitely not a full foreign day.

How do I count the dates that I enter and leave the US?

The day that you enter or leave the US is not a full foreign day. You may also lose an additional day traveling to your foreign location. This is illustrated by the following examples.

You leave Dubai at 2:00 am and arrive in the US later the same day. This day is not a full foreign day and does not count towards the 330 full foreign days needed.

You fly out of Atlanta at 11:00 pm on Day 1. At 2:00 am on Day 2 you exit US airspace and fly over Greenland soon after, arriving in Europe on Day 2. You spend the rest of Day 2 and all of Day 3 in Europe. Day 1 and 2 are not full foreign days. Day 3 is a full foreign day.

You leave Houston at 4:00 pm on the last commercial flight to Europe of Day 1. You enter Canadian airspace late that afternoon and land in Europe on the morning of Day 2 and stay until Day 3. Day 1 is not a full foreign day. Day 2 is a full foreign day.

Do I need to be working each full foreign day? Does that day need to be spent at my foreign location?

You do not need to be working or at your job location for the day to count as a full foreign day. You do need to be in a foreign country.

Do the 330 days need to be next to each other (contiguous)?

No. The 330 full foreign days only need to be in the same 12 month period. This means that you can enter and leave the US multiple times during your period.

Do days in US territories or possessions count as foreign for these purposes?

No. Only days in a foreign country count. While US territories and possessions do not count as a foreign country for these purposes, an exclusion or credit may be available. For example, you may qualify for an exclusion while in Puerto Rico, a credit while in the US Virgin Islands, or even have no benefit available in the Johnston Atoll.

See IRS article and Publication 570 for more information.?

How do days in international waters count?

Days in international waters, such as aboard a cruise ship, do not count as days in a foreign country. Note that the requirement is to have 330 full days in a foreign country - it is not to have less than 35 days in the states. In our experience, a typical 5 day cruise in the Gulf of Mexico or Caribbean only results in about one full foreign day.

Are there any exceptions to the 330 full foreign day period? What about if this was due to a family emergency, injury, death or outbreak of war?

There are no exceptions to the requirement to have 330 full foreign days. This includes no exception for family emergency, injury or death, or for any other reason, even if the government calls you back to the states, such as to report for reserve duty.

Example: Your truck was hit by an IED as a civilian in Iraq. The medic told you that there may still be some tax break available even though you knew otherwise. Why? Because the medic needed you to be stabilized so that you would heal quickly.

For outbreak of war, see our War Zones page.

Is there a partial benefit? I only had 329 full foreign days during my 12 month period.

There is no partial benefit if you don't have your 330 full foreign days in your 12 month period. Note that your 12 month period does not need to be the tax year as mentioned above.

What is the safest way to plan my travel in and out of the US in the first year?

Always keep a few extra days available to come to the states in case of an emergency. 5 days is the minimum time that we see anyone able to come to the states to attend to a family matters, such as a funeral.

Never wait in the states until the last possible day. If your flight is delayed for any reason, you would not qualify for the exclusions. We have seen actual instances of this for security alerts, mechanical problems, bad weather and overbooking by the airlines. Note that there is no exception to meeting the 330 full foreign day requirement.

After the first year, how should I plan my US travel?

The safest way to plan your US travel after the first year is to always keep 330 full foreign days in your last 12 months. This means that you will always qualify for the exclusions through your last day overseas.

We see many individuals plan US travel using the same period each year. This period often matches an employment contract. This method means that the employee has a risk of not making the full 12 months for each succeeding contract which means that the exclusions may not be fully allowed the last year overseas.

My W-2 reports income for the tax year. Does this matter when claiming PPT? Do I need to let my employer know what period I am using to count my days?

Your W-2 should report income paid to you during the calendar year. (For example, wages earned in December but paid in January will be on the next year's W-2. ) Your income is still reported on a calendar year basis even though you are using some other period for the physical presence test.

You do not need to let your employer know about your physical presence period as nothing is shown on the W-2 or otherwise reported to the IRS that you expect to qualify for the foreign earned income exclusions. This is true even if you submitted Form 673 to your payroll department.

I will not have met the 330 full foreign day requirement by the time to file my tax return. What should I do?

You need to wait to file your tax return until you have qualified for the exclusions. This means that you may need an extension of time to file if you do not yet have your 330 full foreign days. If you submit the return before you qualify, the IRS most likely will send a tax bill to you as if you had worked in the states during the entire period. The IRS has a well-developed extension process so that you can qualify before you file. See our web page on Extensions and pay particular note to the discussion on Form 2350.

Rather than filing an extension, should I go ahead and file my return now without claiming the exclusions, then amend later?

While you can always file an amended return within certain time limitations, we suggest that you file an extension as provided by the IRS. This not only avoids delays in receiving a refund, it also a more efficient use of your and the IRS' resources. Please note that all amended returns are further subject to scrutiny - a much greater percentage of amended than original returns are selected for examination.

How do I prove my travel dates to the IRS if I am audited?

The IRS does not detail what documentation is needed to prove the travel dates shown on your tax return. Any documentation will be subject to the auditor's judgment based on the facts of your situation. In our experience, we have seen IRS agents request a copy of the employment contract as well as a copy of any air tickets in and out of the US. An agent may request further documentation from your company's travel department to support your claims and could even ask border security for your travel across US borders.

If you spend your home leave across the border in Mexico or Canada, you should try to keep some type of documentation to support your claim. Receipts and credit card statements may help.