# Foreign Earned Income Exclusion If



## Goodnews1

*Foreign Earned Income Exclusion If $ Is From US Co.?*

Hi,

This is my 1st post here. 

Can someone please help me with a complex, IRS tax question? I've spent hours searching the Web for my situation, but have not yet seen an expat tax expert address it.

Im a U.S. citizen living in Asia since 2005. I have an affiliate marketing website hosted in the U.S. that links to a U.S. merchant who pays me referral commissions (similar to Amazon's Associate Program. I don't sell any products or services.) 

So my question is, does the Foreign Earned Income Exclusion apply to me since my income comes from a U.S. company? And if I don't owe taxes, do I still need to file?

Thank you!


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## BBCWatcher

Check Publication 54, especially page 16. For what it's worth I would vote yes.

Note that you likely will have to pay self-employment tax on that income if I'm correct.


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## Bevdeforges

Note that where your money comes from really doesn't count for much, if anything. It's where you are resident while doing whatever it is they are paying you for.

FWIW, I'd agree with BBCWatcher that you can probably take the FEIE, but you'll have to pay social security (self-employment tax) on that income.
Cheers,
Bev


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## Goodnews1

Thank you for your replies. It sounds like you both think I owe self-employment tax, but not income tax. However am I self-employed if I don't own a business? Is my money business income or personal income (like stock trading?)

I'd like to hear David Mckeegan's opinions on these 2 questions since he's an expat tax expert.


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## Goodnews1

Looks like IRS Publication 54, page 16 says that the Foreign Earned Income Exclusion DOES apply to me... 

"The source of your earned income is the place where you perform the services for which you received the income. Foreign earned income is income you receive for working in a foreign country. Where or how you are paid has no effect on the source of the income. For example, income you receive for work done in Austria is income from a foreign source even if the income is paid directly to your bank account in the United States and your employer is located in New York City.

Example.
You are a U.S. citizen, a bona fide resident of Canada, and working as a mining engineer. Your salary is $76,800 per year. You also receive a $6,000 cost-of-living allowance, and a $6,000 education allowance. Your employment contract did not indicate that you were entitled to these allowances only while outside the United States."

So that leaves me with 3 questions...

1. Do I owe self-employment tax?
2. If I don't owe self-employment tax, do I still need to file?
3. If I do need to file, for how many back years?

Thanks again!


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## BBCWatcher

If the income qualifies for the FEIE it's earned income. If it's earned income, you either received it from an employer or you didn't. If the latter, it's subject to self-employment tax with possible minor exceptions that don't seem to apply to you.

I don't see a lot of daylight between those concepts.

Yes, you have to file, and your requirement to file does not depend on whether or not you owe tax. (The penalties assessed, if any, do.)

I would recommend the IRS's Streamlined Program if you qualify.


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## Bevdeforges

Goodnews1 said:


> So that leaves me with 3 questions...
> 
> 1. Do I owe self-employment tax?
> 2. If I don't owe self-employment tax, do I still need to file?
> 3. If I do need to file, for how many back years?
> 
> Thanks again!


There should be something in Pub 54 on the subject of self-employment tax, too. Technically speaking, if you are self-employed and in a country that does not have a social security treaty with the US, you owe self-employment tax except in certain, specific circumstances. Start here: Self-Employment Tax for Businesses Abroad

But you still need to file, whether or not you owe self-employment tax. The filing thresholds are in effect BEFORE you take (or not) the FEIE.

Under the streamlined procedure, you file current year (i.e. 2013) and 3 prior years. If you owe no more than $1500 in any of the years you filed (this figure is cited on one of the IRS pages on the Streamlined process) no problem. If you owe more than that, the IRS will be in touch.
Cheers,
Bev


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## FFMralph

It doesnt sound to me as if that is earned income. He is not employed. He is self emploed.


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## Bevdeforges

FFMralph said:


> It doesnt sound to me as if that is earned income. He is not employed. He is self emploed.


Self employment income is usually treated as earned income for FEIE purposes. From Publication 54:



> *Income from a sole proprietorship or partnership. * Income from a business in which capital investment is an important part of producing the income may be unearned income. If you are a sole proprietor or partner and your personal services are also an important part of producing the income, the part of the income that represents the value of your personal services will be treated as earned income.


Cheers,
Bev


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## DavidMcKeegan

Hello,

Yes, I basically agree with the statements above. From the sounds of your situation, you would be considered a self employed individual, and your income would be able to be excluded with the FEIE (note that the FEIE does not exclude your income from self employment taxes).

However if you are living in a country that has a Totalization Agreement in place with the US, and you are already paying self employment taxes there (for example the UK), then you can get a credit for those in the US, and save yourself the hassle of paying them twice.

As far as getting caught up goes, I would definitely recommend the Streamlined approach (whether it is a formal or quiet disclosure is up to you and your accountant). Three years of returns, and six years of FBAR (needed if you have more than 10K in foreign accounts) are enough in most cases to be "up to date".

Hope this helps!


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