IRS Form 2555 Requirements

By ZM Ishmurzina

Form 2555 is one of the major US tax forms for American expats. Americans living abroad are subject to US expat tax filing requirements and have to report their worldwide income. However, US expats can file IRS forms 2555 or 2555 EZ to claim the foreign income exclusion and foreign housing exclusion/ deduction. The purpose of this article is to provide American expats with basic IRS form 2555 instructions.

This is the latest email from one of our clients, American expats living abroad. “I am planning to move to Hong Kong on June 1. I read that US expat tax filing is more complex. I hope to take the advantage of foreign income exclusion and foreign housing exclusion by completing forms 2555 or form 2555 EZ. However, I still need to understand IRS form 2555 instructions.”

Let’s review in more details form 2555 instructions.

How many pages are the instructions?

This is a three-page form with four pages of instructions. There are additional eight pages with foreign housing allowance table due to the fact that the IRS updates the maximum amount of foreign housing expenses that can be claimed for each country and even some major foreign cities. Forms 2555 EZ has only two pages with three pages of instructions. The form must be attached to form 1040.

Should US expats file this form?

American expats can exclude up to $97,600 in a tax year 2013 if they have a foreign earned income. However, Americans living abroad must meet either the physical presence test or bona fide residence test to claim foreign earned income exclusion. Moreover, if US expats are eligible to claim the foreign income exclusion, they can also exclude certain foreign housing expenses like rent, utilities etc.

Which information should US expats gather to prepare this form?

Since the foreign exclusions can be claimed only on foreign earned income, American expats must collect the information about the foreign income source, dates of presence in a foreign country, USA trip dates and foreign housing expenses.

When is the due date of this form?

Per IRS form 2555 instructions, this form must be filed by the US expat tax return due date including extensions. The form must be sent with form 1040 to the same tax filing address.

What is the biggest misconception about this form?

Many American expats think that they are not required to file this form if their entire foreign earned income can be excluded. However, forms 2555 must be filed to take advantage of foreign exclusions. If the IRS files this form for Americans living abroad, then the IRS does not take into consideration any exclusion or deduction.

How much time does it take to prepare this form?

Per IRS form 2555 instructions, US expats will spend an average of 2.5 hours to prepare and file the form. Forms 2555 EZ will take even less time.

Is it a requirement to file this form?

American expats can file IRS form 2555/2555 EZ, form 1116 or both forms. US expats are required to file forms 2555 only if they want to take advantage of foreign earned income exclusion and foreign housing exclusion or deduction.

Conclusion

US expats must read the IRS form 2555 instructions to file this form correctly. Americans living abroad should be aware that they can be required to file other forms like FBAR, FATCA, form 5471, form 3520 etc. US expatriates should contact an expat CPA that specializes in US taxes for expats if they need help with various US expatriate tax forms. International tax experts at Artio Partners are here to help you.