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Currently, preliminary technical preparations for such testing are underway. Users were even able to navigate to the digital yuan wallet and activate it through registering their mobile phone numbers. Obviously news of this spread like wildfire amongst the Chinese cryptocurrency community and social media. According to the below images that were being circulated, it appeared that upon activating the wallet, users would be assigned a specific wallet ID for transacting between the wallet and their bank accounts left image.
Users searching for this wallet now will only get a error message saying that the function is not yet officially available to the public. Basically for those in China, all your daily necessities can be met on the Meituan ecosystem. So whilst the specifics of the partnership are yet to be finalised, it is likely that such cooperation is going to be huge for the mass use of DCEP in China. These companies are joining existing giant such as Didi Chuxing, a ride hailing app which merged with Uber China back in and also has millions of dollars worth in daily transactions.
This will be poised as a direct replacement of paper money, as DCEP will be usable in areas without internet coverage. So DCEP is not exactly like blockchain either, rather it is their own variant. China has established a countrywide initiative to push forward Blockchain Adoption. On the other hand, cryptocurrencies that are native to Blockchain are suppressed as Cryptocurrency Exchanges and ICOs are banned in the country. DCEP is a digital currency that is run on a centralized private network — the Central Bank of China has complete access and control of the currency.
This is a huge contrast to Bitcoin, which has an open decentralized network where there is no centralized leader. If you want to find out what are reputable exchanges, check out our top cryptocurrency exchanges guide.
It is strongly recommended NOT to trade DCEP until it is officially released as there is no guarantee exchanges have access to the digital currency. This will eventually open up to the general public in There are currently no cryptocurrency exchanges that trade DCEP. The overwhelming view appears to be yes, both from the Chinese and the US perspective. According to statistics from the World Bank, 1. However, two-thirds of this population own a mobile phone, which can be used to make monetary transactions.
Currently, the two online payment companies handle more payments monthly than Paypal did in the whole of i. With the mobile wallet payment infrastructure in place, their cooperation with the PBoC could be the answer to distributing DCEP overseas. The idea is that with DCEP being used by mobile wallets, populations along the Belt and Road can be connected, bypassing existing financial infrastructures completely and giving an opportunity for the unbanked to pay for online purchases and build their savings.
In the US, the government does not see a demand for a digital currency. In a letter from the Chairman of the Federal Reserve, Jerome Powell, he took the view that many of the challenges a digital currency intends to solve does not apply to the US. In his view, the US payments landscape is already highly competitive and innovative, with plenty of digital payments options for consumers. Powell also commented, echoing the sentiments of those US lawmakers opposing Libra, that a digital payment where you would know and be able to track each and every payment would be unattractive for the US.
Whilst the House Committee on Financial Services also sees Libra has potentially raising national security concerns, observers consider the challenge from China is not being taken seriously. And it is likely that China will outrun the threat from Libra.
You can watch the episode here. Key differences are that DCEP does not necessarily use blockchain technology and that it is a centralised currency under the control of a centralised authority. The gradual rollout of DCEP will also get the average citizen accustomed to the actual usage of digital currencies. As a result, many people are excitedly speculating on the possibility of a bridge between DCEP and various existing blockchain projects- with some projects proclaiming they will be the first project to launch on DCEP.
However it must be borne in mind that we do not know the full technical details of DCEP, so we do not know how this bridge between blockchain and DCEP will work, if at all. Also, the fact is that China is currently very hostile towards cryptocurrencies, this is mostly due to a number of cryptocurrency scams- such as Plus Token. As a result, the Chinese government have closed several bank accounts found to be involved in cryptocurrency transfers and banned all ICOs, several major cryptocurrency exchanges such as Binance and OKEx and some Over the Counter desks.
Hence a lot of cryptocurrency circles and discussions occur underground, such as in private WeChat groups. Dovey Wan, Founding Partner of Primitive Ventures has observed that the real intent behind this media push is difficult to interpret, but so far the Chinese cryptocurrency community see this as a signal that crypto has reached its top. Meanwhile, on the Western front on Twitter, people have been seeing this as a bull signal.
Decentralised Finance DeFi can be considered the cryptocurrency and blockchain star of , having revived the cryptocurrency market and bringing some much-needed revival and positivity. But what is DeFi? In short, DeFi attempts to bring traditional banking to developing industries, but with a twist: it would be open-source, decentralised, cheap and will cut out the middlemen.
So what can central banks and government do to maintain their dominant status quo whilst benefitting from the technology that DeFi can bring? An answer could be to create a CBDC. In a Forbes article, the author suggests that CBDC would be a positive move for governments since it tokenises money whilst allowing users to enjoy the advantages of cheaper, faster transactions. It suggests that governments and institutions, however, will need to be quick to catch up as new DeFi solutions in payments, mortgage, insurance etc.
These innovators challenge the status quo, and with the mounting advantages of DeFi, there may soon be a real contender vying for the attention of citizen-consumers. There is still no specific timetable for the formal debut of DCEP. The experts also reveal that it is unclear whether DCEP can debut in the second half of , although plans for its development have certainly been ramped up by the PBoC.
On a recent episode of Kitco News, journalist Max Kaiser claimed that China will launch a gold-backed cryptocurrency, with the intention of destroying the USD as a reserve currency. He added that China has already amassed as much as 20, tons of gold. However this is mere speculation — China has no plans to return to the Gold Standard nor issue gold-backed cryptocurrencies. There are many plans to build gateways that allow the swapping of DCEP to other cryptocurrencies.
Projects such as Algorand have stated they want to support DCEP and build possible bridges to swap these currencies. However, as the technical details of DCEP have not been fully revealed, such bridges have not been built yet. The information provided in this article is intended for general guidance and information purposes only. Contents of this article are under no circumstances intended to be considered as investment, business, legal or tax advice. We do not accept any responsibility for individual decisions made based on this article and we strongly encourage you to do your own research before taking any action.
Although best efforts are made to ensure that all information provided herein is accurate and up to date, omissions, errors, or mistakes may occur. Hi Michael, thanks for this information, really interesting. I was curious about the NFC contact-based payments and how it will work. From my understanding, iPhones probably will not allow the peer-to-peer communications.
How will these devices be included? Perhaps QR-based transfers that are already common? It meant to escalate us dollars in certain places at certain circumstances. Like small trade in Africa. Be careful. I understand that an algorithm has to be solved by special computers called miners and a bitcoin is rewarded to the miner that solved the algorithm. I presume that the blockchain developed by the Chinese Central Bank needs an algorithm to be solved before a transaction can be included into the blockchain.
Great question! No idea actually but it seems logical the CCP would want absolute control over the process and resulting data…. The crypto coin that will ultimately become a global dominant player will likely be the one simply based on sheer numbers of global adoption.
No the US will not act by creating their own crypto. It goes against the very fabric of a central bank, large corps connected to banks and not wanting to let go of their firm grip on consumer behaviour. Try to dehumanize the Chinese. And provoke to go to war. Thankfully, China will not really care about the US. They will go ahead as planned. Great for the people in power. Shit for Chinese citizens.
DCEP is undergoing testing in China. No you cannot mine it or buy it, it is a digital version of their national currency. Hi Michael, I met with someone who is from Hong Kong. What do you recommend? Should I open an account from this webpage and invest in digital currency? Is this possible to invest via company id on this page?
I could not understand the coins on this page. What is the relationship between cbdc and this currencies. Hi Michael, I met with someone who is from China. Save my name, email, and website in this browser for the next time I comment. If you have received blocked income on which you have not paid tax, you should check to see whether that income is still blocked.
If it is not, you should take immediate steps to pay tax on it, file a declaration or amended declaration of estimated tax, and include the income on your tax return for the year in which the income became unblocked. If you choose to postpone reporting blocked income and in a later tax year you wish to begin including it in gross income although it is still blocked, you must obtain the permission of the IRS to do so.
To apply for permission, file Form You must also request permission from the IRS on Form if you have not chosen to defer the reporting of blocked income in the past, but now wish to begin reporting blocked income under the deferred method. See the Instructions for Form for information on changing your accounting method. All income must be reported in U. In most cases, the tax must also be paid in U.
To qualify for this method of payment, you must prepare a statement that shows the following information. You were a Fulbright grantee and were paid in nonconvertible foreign currency. The total grant you received during the year and the amount you received in nonconvertible foreign currency. You should prepare at least two copies of this statement. Attach one copy to your Form or SR and keep the other copy for identification purposes when you make a tax deposit of nonconvertible foreign currency.
When you prepare your income tax return, you may owe tax or the entire liability may have been satisfied with your estimated tax payments. If you owe tax, figure the part due to and payable in the nonconvertible foreign currency by using the following formula. You must attach all of the following to the return. A detailed statement showing the allocation of tax from amounts received in foreign currency and the rates of exchange used in determining your tax liability in U.
The original deposit receipt for any balance of tax due that you paid in nonconvertible foreign currency. Figuring estimated tax on nonconvertible foreign currency. If you are liable for estimated tax discussed later , figure the amount you can pay to the IRS in nonconvertible foreign currency using the following formula. If you must pay your host country income tax on your grant, subtract any estimated foreign tax credit that applies to your grant from the estimated tax on the blocked income.
Once you have determined the amount of the actual tax or estimated tax that you can pay in nonconvertible foreign currency, deposit that amount with the disbursing officer of the Department of State in the foreign country in which the foundation or commission paying the grant is located. You can either deposit the full estimated tax amount before the first installment due date or make four equal payments before the installment due dates.
See Estimated Tax , later. Upon accepting the foreign currency, the disbursing officer will give you a receipt in duplicate. The original of this receipt showing the amount of foreign currency deposited and its equivalent in U. Keep the copy for your records. IRS e-file electronic filing is the fastest, easiest, and most convenient way to file your income tax return electronically.
IRS e-file offers accurate, safe, and fast alternatives to filing on paper. IRS computers quickly and automatically check for errors or other missing information. Returns with a foreign address can be e-filed. There are three ways you can e-file. Use a volunteer. Many programs offering free tax help can e-file your return. Use a tax professional. Most tax professionals can e-file your return.
If any of the following situations apply to you, do not file your return with the service center listed for your home state. Instead, use one of the following special addresses. If you are not enclosing a check or money order, file your return with the:. If you do not know where your legal residence is and you do not have a principal place of business in the United States, you can file with the appropriate address listed above. However, you should not file with the addresses listed above if you are a bona fide resident of the U.
If you are a bona fide resident of the USVI during your entire tax year, you are generally not required to file a U. However, you must file a return with the USVI. Send your return to the:. File the original return with the United States and file a signed copy of the U. You must complete Form and attach a copy to both your U. You should file your U. See Pub. Virgin Islands returns. If you are a bona fide resident of Guam during your entire tax year, you should file a return with Guam.
However, if you have income from sources within Guam and you are a U. Send your return to the address listed under Where To File , earlier. Puerto Rico and American Samoa have their own separate and independent tax systems. Although their tax laws are modeled on the U. Internal Revenue Code, there are certain differences in law and tax rates.
If, at the end of your tax year, you are married and one spouse is a U. This election includes situations in which one of you is a nonresident alien at the beginning of the tax year and a resident alien at the end of the year and the other is a nonresident alien at the end of the year. You and your spouse are treated, for income tax purposes and purposes of wage withholding, as U. You must file a joint income tax return for the year you make the choice and attach a statement as described under How To Make the Choice , later.
Pat Smith, a U. Pat and Norman make the choice to treat Norman as a resident alien by attaching a statement to their joint return. Pat and Norman must report their worldwide income for the year they make the choice and for all later years unless the choice is ended or suspended. Although Pat and Norman must file a joint return for the year they make the choice, they can file either joint or separate returns for later years. When Bob and Sharon Williams got married, both were nonresident aliens.
In June of last year, Bob became a resident alien and remained a resident for the rest of the year. Bob and Sharon both choose to be treated as resident aliens by attaching a statement to their joint return for last year. Bob and Sharon must report their worldwide income for last year and all later years unless the choice is ended or suspended. Bob and Sharon must file a joint return for last year, but they can file either joint or separate returns for later years.
If you do not choose to treat your nonresident alien spouse as a U. To use this status, you must pay more than half the cost of maintaining a household for certain dependents or relatives other than your nonresident alien spouse. For more information, see Pub. If you choose to treat your nonresident alien spouse as a U. To get an SSN for a nonresident alien spouse, apply at an office of the U. You must also provide original or certified copies of documents to verify that spouse's age, identity, and citizenship.
Your spouse may need to renew his or her ITIN. Attach a statement, signed by both spouses, to your joint return for the first tax year for which the choice applies. It should contain the following. A declaration that one spouse was a nonresident alien and the other spouse a U. If one spouse died, include the name and address of the person making the choice for the deceased spouse.
You generally make this choice when you file your joint return. However, you can also make the choice by filing a joint amended return on Form X. Attach Form or SR and enter "Amended" across the top of the amended return. If you make the choice with an amended return, you and your spouse must also amend any returns that you may have filed after the year for which you made the choice.
You must generally file the amended joint return within 3 years from the date you filed your original U. A list of any states, foreign countries, and U. The choice to be treated as a resident alien does not apply to any later tax year if neither of you is a U.
Dick Brown was a resident alien on December 31, , and married to Judy, a nonresident alien. They chose to treat Judy as a resident alien and filed joint income tax returns for and On January 10, , Dick became a nonresident alien. Judy had remained a nonresident alien. Because Dick was a resident alien during part of , Dick and Judy can file joint or separate returns for that year.
Neither Dick nor Judy was a resident alien at any time during and their choice is suspended for that year. For , both are treated as nonresident aliens. If Dick becomes a resident alien again in , their choice is no longer suspended and both are treated as resident aliens. Once made, the choice to be treated as a resident applies to all later years unless suspended as explained earlier or ended in one of the ways shown in Table If the choice is ended for any of the reasons listed in Table , neither spouse can make a choice in any later tax year.
The requirements for determining who must pay estimated tax are the same for a U. For current instructions on making estimated tax payments, see Form ES. If you had a tax liability for , you may have to pay estimated tax for The first installment of estimated tax is due on April 15, For more information about figuring your estimated tax, see Pub.
When figuring your estimated gross income, subtract amounts you expect to exclude under the foreign earned income exclusion and the foreign housing exclusion. In addition, you can reduce your income by your estimated foreign housing deduction. However, you must estimate tax on your nonexcluded income using the tax rates that will apply had you not excluded the income. If the actual amount of the exclusion or deduction is less than you estimate, you may have to pay a penalty for underpayment of estimated tax.
For more information, see the Instructions for Form You do not need to file the report if the assets are with a U. The FBAR due date for foreign financial accounts maintained during calendar year is April 15, , to coincide with the filing date for the Form or SR.
For more information, go to bsaefiling. More information about the filing of FinCEN Form can be found in the instructions on the back of the form, available at fincen. You must file Form to report the ownership of specified foreign financial assets if the total value of those assets exceeds an applicable threshold amount the "reporting threshold".
The reporting threshold varies depending on whether you live in the United States, are married, or file a joint income tax return with your spouse. Specified foreign financial assets include any financial account maintained by a foreign financial institution and, to the extent held for investment, any stock, securities, or any other interest in a foreign entity and any financial instrument or contract with an issuer or counterparty that is not a U.
You may have to pay penalties if you are required to file Form and fail to do so, or if you have an understatement of tax due to any transaction involving an undisclosed foreign financial asset. More information about the filing of Form can be found in the separate Instructions for Form W-4 Employee's Withholding Allowance Certificate.
See chapter 7 for information about getting this publication and these forms. Your employer does not have to withhold U. Your employer should withhold taxes from any wages you earn for working in the United States. You can give a statement to your employer indicating that you expect to qualify for the foreign earned income exclusion under either the bona fide residence test or the physical presence test and indicating your estimated housing cost exclusion.
Form is an acceptable statement. You can use Form only if you are a U. You do not have to use the form. You can prepare your own statement. See a copy of Form , later. Generally, your employer can stop the withholding once you submit the statement that includes a declaration that the statement is made under penalties of perjury.
However, if your employer has reason to believe that you will not qualify for either the foreign earned income or the foreign housing exclusion, your employer must continue to withhold. Your employer must consider any information about pay you received from any other source outside the United States in determining whether your foreign earned income is more than the limit on either the foreign earned income exclusion or the foreign housing exclusion.
If you plan to take a foreign tax credit, you may be eligible for additional credits on Form W You can take these additional tax credits only for foreign tax credits attributable to taxable salary or wage income. For more information, see the instructions for Step 3 of Form W You can choose exemption from withholding if you:.
Provide the payer of the benefits with a residence address in the United States or a U. Certify to the payer that you are not a U. Before you report U. Compare other records, such as final pay records or bank statements, with Form W-2 or Form to verify the withholding on these forms. Check your U. You may be assessed penalties and interest if you claim more than your correct amount of withholding allowances.
Summary: This is an example of Form Revision August The text states:. The following statement, when completed and furnished by a citizen of the United States to his or her employer, permits the employer to exclude from income tax withholding all or a part of the wages paid for services performed outside the United States. I understand that this total, plus the total reported on any other statements outstanding with other employers, should not be more than my expected housing cost amount exclusion.
If I become disqualified for the exclusions, I will immediately notify my employer and advise what part, if any, of the period I am qualified for. I understand that any exemption from income tax withholding permitted by reason of furnishing this statement is not a determination by the Internal Revenue that any amount paid to me for any services performed during the tax year is excludable from gross income under the provisions of Code section a.
Please click here for the text description of the image. Generally, U. Use Form W-9 to notify the payer. See the Instructions for Forms and SR for how to claim the credit. The following information must be submitted with your Form or SR. A signed declaration that includes the following statements. I am filing a U.
I have not claimed benefits for the taxable year under an income tax treaty as a nonresident alien. Social security and Medicare taxes may apply to wages paid to an employee regardless of where the services are performed. In general, U. You perform the services on or in connection with an American vessel or aircraft defined later and either:.
You are working in one of the countries with which the United States has entered into a bilateral social security agreement discussed later. You are working for an American employer defined later. You are working for a foreign affiliate defined later of an American employer under a voluntary agreement entered into between the American employer and the U.
Department of the Treasury. An American vessel is any vessel documented or numbered under the laws of the United States and any other vessel whose crew is employed solely by one or more U. An American aircraft is an aircraft registered under the laws of the United States. A partnership of which at least two-thirds of the partners are U.
A corporation organized under the laws of the United States, any U. Virgin Islands, Guam, or American Samoa. An American employer also includes any foreign person with an employee who is performing services in connection with a contract between the U. Government or any instrumentality thereof and a member of a domestically controlled group of entities which includes such foreign person. Form is used by American employers to extend social security coverage to U. Once you enter into an agreement, coverage cannot be terminated.
The United States has entered into agreements with some foreign countries to coordinate social security coverage and taxation of workers who are employed in those countries. These agreements are commonly referred to as totalization agreements. Under these agreements, dual coverage and dual contributions taxes for the same work are eliminated.
The agreements generally make sure that you pay social security taxes to only one country. Generally, under these agreements, you will only be subject to social security taxes in the country where you are working. However, if you are temporarily sent to work in a foreign country and your pay would otherwise be subject to social security taxes in both the United States and that country, you can generally remain covered only by U.
You can get more information on specific agreements at SSA. If your pay in a foreign country is subject only to U. Employers can request a certificate of coverage online at SSA. If you are permanently working in a foreign country with which the United States has a social security agreement and, under the agreement, your pay is exempt from U. If the authorities of the foreign country will not issue such a statement, either you or your employer should get a statement from the U.
This statement should be kept by your employer because it establishes that your pay is exempt from U. Only wages paid on or after the effective date of the totalization agreement can be exempt from U. Which self-employed individuals can take the new refundable income tax credits for sick and family leave. Form SS U. Self-Employment Tax Return. If you are a self-employed U. The self-employment tax is a social security and Medicare tax on net earnings from self- employment.
All net earnings are subject to the Medicare portion of the tax. Additional Medicare Tax may apply to you if your net earnings from self-employment exceed a threshold amount based on your filing status. If you were employed by a U. However, you can choose to be exempt from social security and Medicare taxes if you are a member of a recognized religious sect. You must take all of your self-employment income into account in figuring your net earnings from self-employment, even income that is exempt from income tax because of the foreign earned income exclusion.
You are in business abroad as a consultant and qualify for the foreign earned income exclusion. If you are a member of the clergy, you are treated as self-employed for self-employment tax purposes. Your U. You can receive exemption from coverage for your ministerial duties if you conscientiously oppose public insurance due to religious reasons or if you oppose it due to the religious principles of your denomination. You must file Form to apply for this exemption. You must pay the self-employment tax whether or not the income is exempt from U.
The United States may reach agreements with foreign countries to eliminate dual coverage and dual contributions taxes to social security systems for the same work. As a general rule, self-employed persons who are subject to dual taxation will only be covered by the social security system of the country where they reside. For more information on how a specific agreement affects self-employed persons, see Bilateral Social Security Totalization Agreements in chapter 2. If your self-employment earnings should be exempt from foreign social security tax and subject only to U.
The certificate will establish your exemption from the foreign social security tax. You can request a certificate of coverage online at SSA. The COVID virus has caused a global health emergency that has prompted the creation of various types of tax relief applicable to employees and self-employed individuals. The deferral of self-employment tax payments and the credits for sick and family leave, both available for certain self-employed individuals, are discussed, later.
Section of the CARES Act permits self-employed individuals to defer payment of a portion of their self-employment tax until and For more information, see Schedule SE Form and its instructions. Sections and of the Families First Coronovirus Response Act FFCRA created two credits against income tax for eligible self-employed individuals who were unable to work during the period April 1, , through December 31, , due to conditions related to the coronavirus.
Both credits are calculated and reported on the new Form For more information, see new Form , Part I, and its instructions. You may be entitled to claim the credit for family leave if you were unable to perform services as a self-employed individual because of certain coronavirus-related care you provided to a son or daughter under the age of For more information, see new Form , Part II, and its instructions.
Who qualifies for the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction;. If you meet certain requirements, you may qualify for the foreign earned income and foreign housing exclusions and the foreign housing deduction.
In addition, you can exclude or deduct certain foreign housing amounts. You may also be entitled to exclude from income the value of meals and lodging provided to you by your employer. See Exclusion of Meals and Lodging , later. To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must meet all three of the following requirements. If you are a nonresident alien married to a U. For information on making the choice, see the discussion in chapter 1 under Nonresident Alien Spouse Treated as a Resident.
The minimum time requirements for bona fide residence and physical presence can be waived if you must leave a foreign country because of war, civil unrest, or similar adverse conditions in that country. This is fully explained under Waiver of Time Requirements , later. See Figure 4-A and information in this chapter to determine if you are eligible to claim either exclusion or the deduction.
Due to the global health emergency caused by COVID, you may be eligible for a waiver of the minimum time requirements. To qualify for the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, your tax home must be in a foreign country throughout your period of bona fide residence or physical presence abroad. Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home.
Your tax home is the place where you are permanently or indefinitely engaged to work as an employee or self-employed individual. If you do not have a regular or main place of business because of the nature of your work, your tax home may be the place where you regularly live.
If you have neither a regular or main place of business nor a place where you regularly live, you are considered an itinerant and your tax home is wherever you work. Armed Forces in an area designated as a combat zone. See Service in a combat zone , later. Otherwise, if your abode is in the United States, you will not meet the tax home test and cannot claim the foreign earned income exclusion. The location of your abode is based on where you maintain your family, economic, and personal ties.
Your abode is not necessarily in the United States merely because you maintain a dwelling in the United States, whether or not your spouse or dependents use the dwelling. Your abode is also not necessarily in the United States while you are temporarily in the United States; however, these factors can contribute to your having an abode in the United States.
You return to your family residence in the United States during your off periods. For several years, you were a marketing executive with a producer of machine tools in Toledo, Ohio. In November of last year, your employer transferred you to London, England, for a minimum of 18 months to set up a sales operation for Europe. Before you left, you distributed business cards showing your business and home addresses in London.
You kept ownership of your home in Toledo but rented it to another family. You placed your car in storage. In November of last year, you moved your spouse, children, furniture, and family pets to a home your employer rented for you in London. Your entire family got library cards for the local public library. You and your spouse opened bank accounts with a London bank and secured consumer credit.
You joined a local business league and both you and your spouse became active in the neighborhood civic association and worked with a local charity. Your abode is in London for the time you live there. You satisfy the tax home test in the foreign country. Armed Forces can qualify as having a tax home in a foreign country, even if they have an abode within the United States.
Summary: This flowchart is used to determine if the taxpayer can claim any foreign exclusions or deductions. Are you a citizen or national of a country with which the United States has an income tax treaty in effect? Were you a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year? Were you physically present in a foreign country or countries for at least full days during any period of 12 consecutive months?
You CANNOT claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction. You CAN claim the foreign earned income exclusion and the foreign housing exclusion or the foreign housing deduction. Footnote: Foreign housing exclusion applies only to employees.
Foreign housing deduction applies only to the self-employed. The location of your tax home often depends on whether your assignment is temporary or indefinite. If your new tax home is in a foreign country and you meet the other requirements, your earnings may qualify for the foreign earned income exclusion.
If you expect your employment away from home in a single location to last, and it does last, for 1 year or less, it is temporary unless facts and circumstances indicate otherwise. If you expect it to last for 1 year or less, but at some later date you expect it to last longer than 1 year, it is temporary in the absence of facts and circumstances indicating otherwise until your expectation changes.
Once your expectation changes, it is indefinite. To meet the bona fide residence test or the physical presence test, you must live in or be present in a foreign country. A foreign country includes any territory under the sovereignty of a government other than that of the United States. The term "foreign country" includes the country's airspace and territorial waters, but not international waters and the airspace above them.
It also includes the seabed and subsoil of those submarine areas adjacent to the country's territorial waters over which it has exclusive rights under international law to explore and exploit the natural resources. Virgin Islands, and American Samoa. For purposes of the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction, the terms "foreign," "abroad," and "overseas" refer to areas outside the United States and those areas listed or described in the previous sentence.
Residence or presence in a U. You may, however, qualify for an exclusion of your territory income on your U. There is a territory exclusion available to individuals who are bona fide residents of American Samoa for the entire tax year.
Gross income from sources within American Samoa may be eligible for this exclusion. Income that is effectively connected with the conduct of a trade or business within American Samoa may also be eligible for this exclusion. Use Form to figure the exclusion. An exclusion will be available to residents of Guam and the Commonwealth of the Northern Mariana Islands if, and when, new implementation agreements take effect between the United States and those territories.
Residents of Puerto Rico and the U. Generally, if you are a U. However, you are subject to U. In figuring your U. You meet the bona fide residence test if you are a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.
You can use the bona fide residence test to qualify for the exclusions and the deduction only if you are either:. You do not automatically acquire bona fide resident status merely by living in a foreign country or countries for 1 year. The length of your stay and the nature of your job are only two of the factors to be considered in determining whether you meet the bona fide residence test.
To meet the bona fide residence test, you must have established a bona fide residence in a foreign country. Your domicile is your permanent home, the place to which you always return or intend to return. You could have your domicile in Cleveland, Ohio, and a bona fide residence in Edinburgh, Scotland, if you intend to return eventually to Cleveland.
The fact that you go to Scotland does not automatically make Scotland your bona fide residence. But if you go to Scotland to work for an indefinite or extended period and you set up permanent quarters there for yourself and your family, you have probably established a bona fide residence in a foreign country, even though you intend to return eventually to the United States.
You are clearly not a resident of Scotland in the first instance. However, in the second, you are a resident because your stay in Scotland appears to be permanent. If your residency is not as clearly defined as either of these illustrations, it may be more difficult to decide whether you have established a bona fide residence.
Questions of bona fide residence are determined according to each individual case, taking into account factors such as your intention, the purpose of your trip, and the nature and length of your stay abroad. To meet the bona fide residence test, you must show the IRS that you have been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year.
The IRS decides whether you are a bona fide resident of a foreign country largely on the basis of facts you report on Form The IRS cannot make this determination until you file Form Whether a treaty prevents you from becoming a bona fide resident of a foreign country is determined under all provisions of the treaty, including specific provisions relating to residence or privileges and immunities. You may be a bona fide resident of the United Kingdom.
You are exempt from Swiss taxation on the salary or wages paid to you by the United Nations. To meet the bona fide residence test, you must reside in a foreign country or countries for an uninterrupted period that includes an entire tax year. An entire tax year is from January 1 through December 31 for taxpayers who file their income tax returns on a calendar year basis.
During the period of bona fide residence in a foreign country, you can leave the country for brief or temporary trips back to the United States or elsewhere for vacation or business. To keep your status as a bona fide resident of a foreign country, you must have a clear intention of returning from such trips, without unreasonable delay, to your foreign residence or to a new bona fide residence in another foreign country.
You arrived with your family in Lisbon, Portugal, on November 1, Your assignment is indefinite, and you intend to live there with your family until your company sends you to a new post. You immediately established residence there. You spent April of at a business conference in the United States.
Your family stayed in Lisbon. Immediately following the conference, you returned to Lisbon and continued living there. On January 1, , you completed an uninterrupted period of residence for a full tax year , and you meet the bona fide residence test.
Assume the same facts as in Example 1, except that you transferred back to the United States on December 13, You may, however, qualify for the foreign earned income exclusion or the housing exclusion or deduction under the physical presence test discussed later. Once you have established bona fide residence in a foreign country for an uninterrupted period that includes an entire tax year, you are a bona fide resident of that country for the period starting with the date you actually began the residence and ending with the date you abandon the foreign residence.
Your period of bona fide residence can include an entire tax year plus parts of 2 other tax years. You were a bona fide resident of Singapore from March 1, , through September 14, On September 15, , you returned to the United States. Since you were a bona fide resident of a foreign country for all of , you were also a bona fide resident of a foreign country from March 1, , through the end of and from January 1, , through September 14, If you are assigned from one foreign post to another, you may or may not have a break in foreign residence between your assignments, depending on the circumstances.
You were a resident of Pakistan from October 1, , through November 30, On December 1, , you and your family returned to the United States to wait for an assignment to another foreign country. Your household goods were also returned to the United States. Your foreign residence ended on November 30, , and did not begin again until after you were assigned to another foreign country and physically entered that country.
You may, however, qualify for the foreign earned income exclusion or the housing exclusion or deduction discussed under Physical Presence Test , later. Assume the same facts as in Example 1, except that upon completion of your assignment in Pakistan you were given a new assignment to Turkey. On December 1, , you and your family returned to the United States for a month's vacation. On January 2, , you arrived in Turkey for your new assignment. You meet the physical presence test if you are physically present in a foreign country or countries full days during a period of 12 consecutive months.
Any U. The physical presence test is based only on how long you stay in a foreign country or countries. Generally, to meet the physical presence test, you must be physically present in a foreign country or countries for at least full days during a month period. You can count days you spent abroad for any reason. You can be on vacation. You can be physically present in a foreign country or countries for less than full days and still meet the physical presence test if you are required to leave a country because of war or civil unrest.
See Waiver of Time Requirements , later. A full day is a period of 24 consecutive hours, beginning at midnight. You leave the United States for France by air on June You arrive in France at a. Your first full day of physical presence in France is June If, in traveling from the United States to a foreign country, you pass over a foreign country before midnight of the day you leave, the first day you can count toward the day total is the day following the day you leave the United States.
You leave the United States by air at a. You pass over western Africa at p. Your first full day in a foreign country is June You can move about from one place to another in a foreign country or to another foreign country without losing full days. If any part of your travel is not within any foreign country and takes less than 24 hours, you are considered to be in a foreign country during that part of travel. You leave Ireland by air at p. Your trip takes less than 24 hours and you lose no full days.
You leave Norway by ship at p. If you remain in Portugal, your next full day in a foreign country is July 9. You are treated as traveling over areas not within any foreign country. Figure 4-B. Summary: This figure illustrates Example 2 under "How to figure the month period" in the text. There are four rules you should know when figuring the month period. Your month period can begin with any day of the month. It ends the day before the same calendar day, 12 months later.
Your month period must be made up of consecutive months. Any month period can be used if the days in a foreign country fall within that period. You can choose the month period that gives you the greatest exclusion. In determining whether the month period falls within a longer stay in the foreign country, month periods can overlap one another. You are a construction worker who works on and off in a foreign country over a month period.
You might pick up the full days in a month period only during the middle months of the time you work in the foreign country because the first few and last few months of the month period are broken up by long visits to the United States. You work in New Zealand for a month period from January 1, , through August 31, , except that you spend 28 days in February and 28 days in February on vacation in the United States. You are present in New Zealand for at least full days during each of the following two month periods: January 1, — December 31, , and September 1, — August 31, By overlapping the month periods in this way, you meet the physical presence test for the whole month period.
See Figure 4-B. Both the bona fide residence test and the physical presence test contain minimum time requirements. The minimum time requirements can be waived, however, if you must leave a foreign country because of war, civil unrest, or similar adverse conditions in that country. You must be able to show that you could have reasonably expected to meet the minimum time requirements if not for the adverse conditions. To qualify for the waiver, you must actually have your tax home in the foreign country and be a bona fide resident of, or be physically present in, the foreign country on or before the beginning date of the waiver.
Early in , the IRS will publish in the Internal Revenue Bulletin a list of the only countries that qualify for the waiver for and the effective dates. If you left one of the countries on or after the date listed for each country, you can meet the bona fide residence test or physical presence test for without meeting the minimum time requirement.
However, in figuring your exclusion, the number of your qualifying days of bona fide residence or physical presence includes only days of actual residence or presence within the country. The countries and the respective dates that qualified for the waiver in are listed in Revenue Procedure The COVID virus has caused a global health emergency that has prompted the Department of the Treasury and the Internal Revenue Service to provide a waiver related to the minimum time requirements for the foreign earned income exclusion.
Another foreign country on or after February 1, , but on or before July 15, ; you may still be able to meet requirements of the bona fide residence test or physical presence test for or for purposes of determining the foreign earned income exclusion and housing exclusion or deduction. If you are claiming this waiver for tax year , enter "Revenue Procedure " across the top margin of your Form , and attach it to your Form or SR income tax return. If you are present in a foreign country in violation of U.
Income that you earn from sources within such a country for services performed during a period of violation does not qualify as foreign earned income. Your housing expenses within that country or outside that country for housing your spouse or dependents while you are in violation of the law cannot be included in figuring your foreign housing amount.
At the time this publication was released, the only country to which travel restrictions applied during was Cuba. However, individuals working at the U. Personal service income earned by individuals at the base is eligible for the foreign earned income exclusion, provided the other requirements are met.
To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must have foreign earned income. Foreign earned income is generally income you receive for services you perform during a period in which you meet both of the following requirements.
The value of meals and lodging that you exclude from your income because the meals and lodging were furnished for the convenience of your employer. Pension or annuity payments you receive, including social security benefits see Pensions and annuities , later. Pay you receive as an employee of the U. See U. Government Employees , later. Amounts you include in your income because of your employer's contributions to a nonexempt employee trust or to a nonqualified annuity contract.
Payments you receive after the end of the tax year following the tax year in which you performed the services that earned the income. This is pay for personal services performed, such as wages, salaries, or professional fees. The list that follows classifies many types of income into three categories. The column headed Variable Income lists income that may fall into either the earned income category, the unearned income category, or partly into both.
For more information on earned and unearned income, see Earned and Unearned Income , later. In addition to the types of earned income listed, certain noncash income and allowances or reimbursements are considered earned income. The fair market value of property or facilities provided to you by your employer in the form of lodging, meals, or use of a car is earned income.
Earned income includes allowances or reimbursements you receive, such as the following amounts. Reimbursement for moving or moving allowance unless excluded from income as discussed later in Reimbursement of employee expenses under Earned and Unearned Income. 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. Your employment contract did not indicate that you were entitled to these allowances only while outside the United States. You work a 5-day week, Monday through Friday. After subtracting your vacation, you have a total of workdays in the year.
You worked in the United States during the year for 6 weeks 30 workdays. The following shows how to figure the part of your income that is for work done in Canada during the year. Earned income was defined earlier as pay for personal services performed. Some types of income are not easily identified as earned or unearned income. Some of these types of income are further explained here.
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. If you have no net profits, the part of your gross profit that represents a reasonable allowance for personal services actually performed is considered earned income.
You invest in a partnership based in Cameroon that is engaged solely in selling merchandise outside the United States. You perform no services for the partnership. Assume that in Example 1 you spend time operating the business. The entire amount of business income is earned income. You and Lou Green are management consultants and operate as equal partners in performing services outside the United States. Because capital is not an income- producing factor, all the income from the partnership is considered earned income.
The salary you receive from a corporation is earned income only if it represents a reasonable allowance as compensation for work you do for the corporation. Any amount over what is considered a reasonable salary is unearned income. You perform no work or service of any kind for the corporation. You may have earned income if you disposed of stock that you got by exercising a stock option granted to you under an employee stock purchase plan.
If your gain on the disposition of stock you got by exercising an option is treated as capital gain, your gain is unearned income. However, if you disposed of the stock less than 2 years after you were granted the option or less than 1 year after you got the stock, part of the gain on the disposition may be earned income. It is considered received in the year you disposed of the stock and earned in the year you performed the services for which you were granted the option.
Any part of the earned income that is due to work you did outside the United States is foreign earned income. For purposes of the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction, amounts received as pensions or annuities are unearned income. Royalties from the leasing of oil and mineral lands and patents are generally a form of rent or dividends and are unearned income. Royalties received by a writer are earned income if they are received:.
For the transfer of property rights of the writer in the writer's product, or. Generally, rental income is unearned income. Larry Smith, a U. On the other hand, if he just owns the rooming house and performs no personal services connected with its operation, except perhaps making minor repairs and collecting rents, none of his net income from the house is considered earned income. It is all unearned income. If you are engaged in a professional occupation such as a doctor or lawyer , all fees received in the performance of these services are earned income.
Income you receive from the sale of paintings you created is earned income. Any portion of a scholarship or fellowship grant that is paid to you for teaching, research, or other services is considered earned income if you must include it in your gross income.
If the payer of the grant is required to provide you with a Form W-2, these amounts will be listed as wages. Certain scholarship and fellowship income may be exempt under other provisions. If you receive fringe benefits in the form of the right to use your employer's property or facilities, the fair market value of that right is earned income. Fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being required to buy or sell, and both having reasonable knowledge of all the necessary facts.
You are privately employed and live in Japan all year. The house is not provided for your employer's convenience. You report on the calendar-year, cash basis. If you are reimbursed under an accountable plan defined below for expenses you incur on your employer's behalf and you have adequately accounted to your employer for the expenses, do not include the reimbursement for those expenses in your earned income.
The expenses for which you are reimbursed are not considered allocable related to your earned income. If expenses and reimbursement are equal, there is nothing to allocate to excluded income. If expenses are more than the reimbursement, the unreimbursed expenses are considered to have been incurred in producing earned income and must be divided between your excluded and included income.
See chapter 5. If the reimbursement is more than the expenses, no expenses remain to be divided between excluded and included income and the excess reimbursement must be included in earned income. These rules do not apply to the following individuals. Employees who have arrangements with their employers under which taxes are not withheld on a percentage of the commissions because the employers consider that percentage to be attributable to the employees' expenses.
An accountable plan is a reimbursement or allowance arrangement that includes all three of the following rules. The expenses covered under the plan must have a business connection. The employee must adequately account to the employer for these expenses within a reasonable period of time.
The employee must return any excess reimbursement or allowance within a reasonable period of time. In most cases, reimbursement of moving expenses will be earned income. This section discusses reimbursements that must be included in earned income. The rules for determining when the reimbursement is considered earned or where the reimbursement is considered earned may differ somewhat from the general rules previously discussed. Although you receive the reimbursement in one tax year, it may be considered earned for services performed, or to be performed, in another tax year.
You must report the reimbursement as income on your return in the year you receive it, even if it is considered earned during a different year. Moving expenses are only deductible for members of the U. Armed Forces who move pursuant to a military order and incident to a permanent change of station. Therefore, the exclusion from earned income for qualified moving expenses is, generally, only available to members of the U.
If you move from the United States to a foreign country, your moving expense reimbursement is generally considered pay for future services to be performed at the new location. The reimbursement is considered earned solely in the year of the move if you qualify for the exclusion for a period that includes at least days during that tax year.
If you are neither a bona fide resident of nor physically present in a foreign country or countries for a period that includes days during the year of the move, a portion of the reimbursement is considered earned in the year of the move and a portion is considered earned in the year following the year of the move. To figure the amount earned in the year of the move, multiply the reimbursement by a fraction.
The numerator top number is the number of days in your qualifying period that fall within the year of the move, and the denominator bottom number is the total number of days in the year of the move. The difference between the total reimbursement and the amount considered earned in the year of the move is the amount considered earned in the year following the year of the move.