Am I making foreign earned income when I freelance in another country for U.S. firms?
April 20, 2012 2:11 PM   Subscribe

If I do freelance work for U.S. companies while residing in a foreign country, is that considered "foreign earned income for IRS purposes?

I know you are not my accountant. If I do freelance work outside the United States but I do all my work for U.S. companies/firms and receive all my payment from firms located in the U.S., am I still considered to be making "foreign earned income" which would qualify me for the foreign earned income exclusion (assuming I meet the foreign residence requirements).
posted by KimikoPi to Work & Money (6 answers total) 3 users marked this as a favorite
Are you a US citizen?
posted by dfriedman at 2:16 PM on April 20, 2012

To the best of my knowledge, no. But read this page on and see if it applies to you. Basically they want to know where your "tax home" is. Here is the specific passage:

The General Rules To qualify for the foreign earned income exclusion, a U.S. citizen or resident alien must have a tax home in a foreign country and income received for working in a foreign country, otherwise known as foreign earned income. The taxpayer must also meet one of two tests: the bona fide residence test or the physical presence test.

Did you read this publication: Tax Guide for U.S. Citizens and Resident Aliens Abroad? Read that publication.
posted by jessamyn at 2:17 PM on April 20, 2012

I wouldn't have thought so, but this page states: "The place where you perform the services is what defines your income as foreign, not where or how you are paid. For instance, income received for personal services performed in France is foreign earned income, even if the employer is American and your pay is deposited in an American bank."
posted by Specklet at 2:20 PM on April 20, 2012

The tax guide that jessamyn links to also backs up Specklet:

"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 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.."

p. 16 "Source of Earned Income"
posted by vacapinta at 2:49 PM on April 20, 2012

It's safe to assume you are a U.S. citizen, yes?
posted by croutonsupafreak at 3:09 PM on April 20, 2012

Pub 54 that Jessamyn links to is the document you should be looking at. Note that the texts Specklet and vacapinta are talking to are context-dependent; you must first have your tax home abroad. IF you pass either the bona fide residence test or the physical presence test, then it is true that the company's location and method of payment do not matter. Note that "tax home" is explicitly different from "residence," though the two are often the same. Also note that any work you do while within the boundaries of the US, even if it is during a time period that you have established a foreign "tax home," may not be considered Foreign Earned Income (that has been the case in past years, at least if qualifying via the physical presence test).

The html version of Pub 54 is here.
posted by solotoro at 3:52 PM on April 20, 2012 [1 favorite]

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