(Rev. December 2025)

Future Developments

Publication 54

(Rev. December 2025)

Tax Guide for

U.S. Citizens

and Resident

Aliens Abroad

For the latest information about developments related to

Pub. 54, such as legislation enacted after it was

published, go to IRS.gov/Pub54.

What's New

Tax law changes that impact 2025 and subsequent

tax years. Public Law 119-21, the One Big Beautiful Bill

Act, was signed into law on July 4, 2025. The law contains

several provisions that impact Form 1040 and other related forms. Some of the changes include:

• Standard deduction,

• Itemized deductions,

• Moving expenses,

• Casualty and theft losses, and

• Social security number (SSN) requirement to claim

child tax and other credits, and deductions.

For information on tax law changes for 2025 and subsequent years, go to the Form 1040 webpage, available at

IRS.gov/Form1040. Specific information regarding the

One Big Beautiful Bill Act is also available at IRS.gov/

Newsroom/One-Big-Beautiful-Bill-Act-Tax-DeductionsFor-Working-Americans-And-Seniors.

Direct deposit and electronic payments. If you have

access to U.S. banking services or electronic payment

systems, you should use direct deposit for any refunds.

The IRS also recommends paying electronically whenever

possible. Options to pay electronically include using your

bank account with Direct Pay, your debit or credit card,

your digital wallet, or your IRS Online Account. Go to

IRS.gov/Payments to see all your payment options.

Continuous-use revision. Publication 54 has been

converted from an annual revision to a continuous use revision in tax year 2025. Subsequent revisions will be made

on an as needed basis.

The annual inflation adjusted amounts for items such

as standard deduction, foreign earned income exclusion,

and individual retirement arrangement (IRA) contribution

limits have been removed throughout the publication.

For information on specific issues, please see the webpages and instructions on IRS.gov for the specific product.

For annual adjusted inflation amounts:

1. Go to IRS.gov/InflationAdjustment,

Get forms and other information faster and easier at:

• IRS.gov (English)

• IRS.gov/Korean (한국어)

• IRS.gov/Spanish (Español) • IRS.gov/Russian (Pусский)

• IRS.gov/Chinese (中文)

• IRS.gov/Vietnamese (Tiếng Việt)

2. Click on the link for the IRS tax inflation adjustments

for your tax year,

3. Click on the Revenue Procedure for the tax year, and

4. Look for the section that applies to your issue.

Mortgage and student loan forgiveness relief expires

in 2025. The exclusion from income of discharged mortgage debt for qualified principal residence indebtedness

Jan 8, 2026

Publication 54 (Rev. 12-2025) Catalog Number 14999E

Department of the Treasury Internal Revenue Service www.irs.gov

and qualified student loan debt under section 108(f)(5) expires on December 31, 2025.

New Forms 8964-ELE and 8964-TRA. Form 8964-ELE,

Section 987 Elections, and Form 8964-TRA, Section 987

Transition Information, are new forms for tax year 2025.

The forms are filed by taxpayers that own qualified business units (QBUs) that have reporting requirements under

section 987. See Other Forms You May Have To File, in

Chapter 1, for additional information.

International practice units are available for help with

questions and issues. The IRS' Large Business and International division has created practice units that are designed to provide additional information and answer questions for various issues unique to international individuals

and businesses. The practice units cover specific topics,

provide overviews and analyses of issues, resources that

include applicable law, related forms, examples, related

practice units, and additional resources.

Topics include residency; computations of income, deductions, and exclusions; sourcing of income; foreign currency issues; foreign earned income exclusion/housing

deduction; foreign tax credit; tax credits; taxes; international information returns and penalties; and statutes. You

can access the practice units by going to IRS.gov/

Businesses/Corporations/Practice-Units.

Special relief for terrorist attacks in Israel, Gaza, and

the West Bank. Taxpayers who live or have a business

in Israel, Gaza, or the West Bank, and certain other taxpayers affected by the terrorist attacks in the State of Israel have until September 30, 2025, to file and pay. This

includes all 2023 and 2024 returns. Please note payments

on the 2023 tax year returns are not eligible for the additional time because they were originally due prior to the

terrorist attacks. For additional information, see IRS.gov/

Newsroom/IRS-Announces-New-Relief-For-TaxpayersAffected-By-Terrorist-Attacks-In-Israel-2023-And-2024Returns-And-Payments-Are-Now-Due-Sept-30-2025Other-Relief-Available.

On September 30, 2025, the Service announced that

due to the ongoing conflict in Israel, the agency is providing additional tax relief to affected individuals and businesses, postponing until September 30, 2026, a wide

range of deadlines for filing federal returns, making tax

payments, and performing other time-sensitive tax-related

actions. For additional information, see IRS.gov/

Newsroom/IRS-Announces-New-Relief-For-EligibleTaxpayers-Affected-By-Ongoing-Events-In-Israel-DueDates-For-Eligible-Returns-And-Payments-May-BePostponed-To-Sept-30-2026-Additional-Relief-May-BeAvailable.

Reminders

Denial or revocation of U.S. passport. The IRS is required to notify the State Department of taxpayers certified

as owing a seriously delinquent tax debt. The State Department is generally prohibited from issuing or renewing

a passport to a taxpayer with seriously delinquent tax

debt.

2

If you currently have a valid passport, the State Department may revoke your passport or limit your ability to

travel. Additional information on passport certification is

available at IRS.gov/Passports.

Individual taxpayer identification number (ITIN) renewal. An ITIN for a nonresident alien spouse or dependent used on a prior-year income tax return may require renewal. For more information, go to IRS.gov/ITIN.

Digital assets. You may have to report transactions with

digital assets such as cryptocurrency and non-fungible tokens (NFTs) on your tax return. Income from digital assets

is taxable. For more information on digital assets, go to

IRS.gov/DigitalAssets.

Figuring tax on income not excluded. If you claim the

foreign earned income exclusion, the foreign housing exclusion, or both, you must figure the tax on your nonexcluded income using the tax rates that would have applied

had you not claimed the exclusions. See the instructions

for Form 1040 and Form 1040-SR, available at IRS.gov/

Form1040 and complete the Foreign Earned Income Tax

Worksheet to figure the amount of tax to enter on Form

1040 or 1040-SR, line 16. If you must attach Form 6251,

Alternative Minimum Tax—Individuals, available at

IRS.gov/Form6251, to your return, use the Foreign Earned

Income Tax Worksheet provided in the instructions for

Form 6251.

People who failed to meet eligibility requirements because of adverse conditions in a foreign country.

Section 911(d)(4) of the Code provides that an individual

will be treated as a qualified individual with respect to a

period in which the individual was a bona fide resident of,

or was present in a foreign country if the individual left the

country during a specified period. The Secretary of the

Treasury, in consultation with the Secretary of State, determines each year the list of countries that individuals were

required to leave because of war, civil unrest, or similar

adverse condition that precluded the normal conduct of

business. You must establish that but for those conditions

you could reasonably have been expected to meet the eligibility requirements. Early each year, the IRS publishes

an Internal Revenue Bulletin with a list of the foreign countries for which the minimum time requirements are waived

and the effective dates. The Internal Revenue Bulletins are

located at IRS.gov/IRB.

The VSO Equal Tax Treatment (VETT) Act adds certain organizations to the list of deductible charitable

contributions for members of the Armed Forces.

The VETT Act, enacted December 12, 2024, amends section 170(c) to include section 501(c)(19) organizations

that are federally chartered corporations. The amendment

applies to tax years beginning after December 12, 2024.

Find information about an organization's tax-exempt status and filings by using the online search tool, available at

IRS.gov/TEOS.

For additional information on claiming charitable contributions, see Pub. 526, Charitable Contributions, available

at IRS.gov/Pub526.

Other forms you may have to file. If you had foreign financial assets and/or financial accounts, entered the U.S.

Publication 54 (12-2025)

with $10,000 or more in currency, have ownership interests in foreign entities, foreign trusts, or qualified business

units (QBUs), received gifts from foreign persons, or gave

up your U.S. citizenship or residency, you may have additional forms to file. See Other Forms You May Have To File

in chapter 1.

U.S.-Hungary income tax treaty. On July 8, 2022, the

United States terminated the income tax treaty between

the government of the United States and the government

of the Hungarian People's Republic. The termination of

the treaty is effective for withholding taxes on payments

made on or after January 1, 2024, and is effective for tax

years beginning on or after January 1, 2024, for any other

taxes.

U.S.-Chile income tax treaty. The tax treaty between

the United States and Chile entered into force on December 19, 2023. The treaty is effective for withholding taxes

at source on payments made on or after February 1, 2024,

and is effective for tax years beginning on or after January

1, 2024, for any other taxes.

U.S.-Russia income tax treaty. On July 1, 2024, the

United States provided formal notice to the Russian Federation to confirm the suspension of paragraph 4 of Article

1, and Articles 5–21 and 23 of the income tax treaty between the United States and the Russian Federation, as

well as the accompanying Protocol, by mutual agreement.

The suspension of the treaty is effective both for taxes

withheld at source and in respect of other taxes on August

16, 2024. The suspension will continue until otherwise decided by the two governments.

U.S.-U.S.S.R. income tax treaty that relates to Belarus. On December 17, 2024, the United States provided

formal notice to the Republic of Belarus to confirm the

suspension of the operation of paragraph 1, subparagraph

(g), of Article III of the Convention between the United

States of America and the Union of Soviet Socialist Republics on Matters of Taxation, with related letters, by mutual agreement. The suspension is effective December 17,

2024, until December 31, 2026, and will continue until otherwise decided by the two governments.

Photographs of missing children. The IRS is a proud

partner with the National Center for Missing & Exploited

Children® (NCMEC). Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring

these children home by looking at the photographs and

calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.

renounced their citizenship and long-term residents who

have ended their residency. These provisions are discussed in chapter 4 of Pub. 519, U.S. Tax Guide for Aliens,

available at IRS.gov/Pub519.

Resident alien. A resident alien is an individual who is

not a citizen or national of the United States and who

meets either the green card test or the substantial presence test for the calendar year.

1. Green card test. You are a U.S. resident if you were

a lawful permanent resident of the United States at

any time during the calendar year. This is known as

the green card test because resident aliens hold immigrant visas (also known as green cards).

2. Substantial presence test. You are considered a

U.S. resident if you meet the substantial presence test

for the calendar year. To meet this test, you must be

physically present in the United States on at least:

a. 31 days during the current calendar year; and

b. A total of 183 days during the current year and the

2 preceding years, counting all the days of physical presence in the current year, but only one-third

the number of days of presence in the first preceding year, and only one-sixth the number of days in

the second preceding year.

Example. You were physically present in the United

States for 120 days in each of the years 1, 2, and 3. To determine if you meet the substantial presence test for year

3, count the full 120 days of presence in year 3, 40 days in

year 2 (1/3 of 120), and 20 days in year 1 (1/6 of 120). Because the total for the 3-year period is 180 days, you are

not considered a resident under the substantial presence

test for year 3.

Even if you do not meet either of these tests, you may

be able to choose to be treated as a U.S. resident for part

of the year under the first-year choice test, discussed in

Pub. 519.

For more information on resident and nonresident status, the tests for residence, and the exceptions to them,

see Pub. 519.

Filing information. Chapter 1 contains general filing information, such as:

• Whether you must file a U.S. tax return,

• When and where to file your return,

• How to report your income if it is paid in foreign currency,

Introduction

• How to treat a nonresident alien spouse as a U.S. resi-

This publication discusses special tax rules for U.S. citizens and resident aliens who live and work abroad.

If you are a U.S. citizen or resident alien, your worldwide income is generally subject to U.S. income tax, regardless of where you are living. Also, you are subject to

the same income tax filing requirements that apply to U.S.

citizens or resident aliens living in the United States.

Expatriation tax provisions apply to U.S. citizens who have

• Whether you must pay estimated tax.

Publication 54 (12-2025)

dent, and

Withholding tax. Chapter 2 discusses the withholding

of income, social security, and Medicare taxes from the

pay of U.S. citizens and resident aliens.

Self-employment tax. Chapter 3 discusses who must

pay self-employment tax.

3

Foreign earned income exclusion, foreign housing

exclusion, and foreign housing deduction. Chapter 4

discusses income tax benefits that apply if you meet certain requirements while living and working abroad. You

may qualify to treat a portion of your earned income as not

taxable by the United States. You may also be able to either deduct part of your housing expenses from your income or treat a limited amount of income used for housing

expenses as not taxable by the United States. These benefits are called the foreign earned income exclusion and

the foreign housing deduction and exclusion.

To qualify, you must have a tax home in a foreign country, earn income from personal services performed in a

foreign country, and meet either the physical presence or

bona fide residence test. These rules are explained in

chapter 4.

If you are going to elect either or both of the exclusions

or take the deduction as discussed above, you must file

Form 2555 by attaching it to your federal income tax return, Form 1040, 1040-SR, or 1040-X.

Deductions and credits. Chapter 5 discusses deductions and credits you may be able to claim on your return.

These are generally the same as if you were living in the

United States. However, you can't deduct or exclude any

item, or take a credit for any item, that is related to

amounts you exclude as foreign earned income or foreign

housing amounts. Among the topics discussed in chapter 5 are:

• Contributions to foreign organizations,

• Contributions to individual retirement arrangements

(IRAs), and

• Foreign taxes.

Tax treaty benefits. Chapter 6 discusses some benefits

that are common to most tax treaties and explains how to

get help if you think you are not receiving a treaty benefit

to which you are entitled. It also explains how to get copies of tax treaties.

How to get tax help. Chapter 7 is an explanation of how

to get information and assistance from the IRS.

Questions and answers. Frequently asked questions

and answers to those questions are presented in the back

of this publication.

Comments and suggestions. We welcome your comments about this publication and suggestions for future

editions.

You can send us comments through IRS.gov/

FormComments. Or, you can write to the Internal Revenue

Service, Tax Forms and Publications, 1111 Constitution

Ave. NW, IR-6526, Washington, DC 20224.

Although we can’t respond individually to each comment received, we do appreciate your feedback and will

consider your comments and suggestions as we revise

our tax forms, instructions, and publications. Don’t send

tax questions, tax returns, or payments to the above address.

Getting answers to your tax questions. If you have

a tax question not answered by this publication or the How

To Get Tax Help section near the end of this publication,

go to the IRS Interactive Tax Assistant page at IRS.gov/

Help/ITA where you can find topics by using the search

feature or viewing the categories listed.

Getting tax forms, instructions, and publications.

Go to IRS.gov/Forms to download current and prior-year

forms, instructions, and publications.

Ordering tax forms, instructions, and publications.

Go to IRS.gov/OrderForms to order current forms, instructions, and publications; call 800-829-3676 to order

prior-year forms and instructions. The IRS will process

your order for forms and publications as soon as possible.

Don’t resubmit requests you’ve already sent us. You can

get forms and publications faster online.

1.

Filing Information

Topics

This chapter discusses:

• Whether you have to file a return,

• When to file your return and pay any tax due,

• How to treat foreign currency,

• How to file electronically,

• Where to file your return,

• When you can treat your nonresident alien spouse as

a resident, and

• When you may have to make estimated tax payments.

Useful Items

You may want to see:

Publication

3

3

Armed Forces' Tax Guide

334 Tax Guide for Small Business (For Individuals

Who Use Schedule C)

334

501 Dependents, Standard Deduction, and Filing

Information

501

505 Tax Withholding and Estimated Tax

505

519 U.S. Tax Guide for Aliens

519

570 Tax Guide for Individuals With Income from U.S.

Territories

570

970 Tax Benefits for Education

970

4

Chapter 1

Filing Information

Publication 54 (12-2025)

Form (and Instructions)

even if your gross income is below the amount listed for

your filing status in the Instructions for Form 1040 and

Form 1040-SR. For more information on net earnings from

self-employment, see Pub. 334, Tax Guide for Small Business (For Individuals Who Use Schedule C), available at

IRS.gov/Pub334.

1040 U.S. Individual Income Tax Return

1040

1040-ES Estimated Tax for Individuals

1040-ES

1040-X Amended U.S. Individual Income Tax Return

1040-X

2350 Application for Extension of Time To File U.S.

Income Tax Return

65 or older. You are considered to be age 65 on the day

before your 65th birthday. For example, if your 65th birthday is on January 1, you are considered 65 for the prior

year.

2350

2555 Foreign Earned Income

2555

4868 Application for Automatic Extension of Time To

File U.S. Individual Income Tax Return

4868

8822 Change of Address

8822

All of these forms, instructions, and publications can be

downloaded from IRS.gov. See chapter 7 for information

about getting these publications and forms.

Filing and Payment Due Dates

Filing Requirements

Caution: The filing and payment requirements discussed below are for U.S. individual income tax return,

Form 1040 and Form 1040-SR, filers. If you have filing and

payment requirements for other forms, follow the filing and

payment instructions contained in the instructions for the

specific form(s) you are required to file. To find the instructions for the specific form(s) you are required to file, go to

IRS.gov/FormsPubs and enter the form number in the

search box.

If you are a U.S. citizen or resident alien, the rules for

filing income, estate, and gift tax returns and for paying estimated tax are generally the same whether you are living

in the United States or abroad.

Your income, filing status, and age generally determine

whether you must file an income tax return. Generally, you

must file an income tax return for any year in which your

worldwide gross income is at least the amount shown for

your filing status in Charts A through C under Filing Requirements in the Instructions for Form 1040 and 1040SR.

Note: If you are married and entitled to file jointly, use the

married filing jointly threshold unless your spouse has filed

a separate return or another taxpayer claims your spouse

as a dependent.

Gross income. This includes all income you receive in

the form of money, goods, property, and services that is

not exempt from tax.

For purposes of determining whether you must file a return, gross income includes any income that you can exclude as foreign earned income or as a foreign housing

amount.

If you are self-employed, your gross income includes

the amount on Part I, line 7, of Schedule C (Form 1040),

available at IRS.gov/ScheduleC.

Self-employed individuals. If your net earnings from

self-employment are $400 or more, you must file a return

Publication 54 (12-2025)

Residents of U.S. territories. If you are (or were) a

bona fide resident of a U.S. territory, you may be required

to file Form 8898, Statement for Individuals Who Begin or

End Bona Fide Residence in a U.S. Territory. See the

Instructions for Form 8898 for more information.

Chapter 1

If you file on a calendar-year basis, the regular due date

for filing your income tax return (Form 1040 or Form

1040-SR) is April 15 of the following year. If you file on a

fiscal-year basis (a year ending on the last day of any

month except December), the due date is 3 months and

15 days after the close of your fiscal year.

In general, the tax shown on your return should be paid

by the due date of the return, without regard to any extension of time for filing the return.

When the due date for doing any act for tax purposes—filing a return, paying taxes, etc.—falls on a Saturday, Sunday, or legal holiday, the due date is delayed until

the next business day.

For more information on when to file your income tax

return,

go

to

IRS.gov/Individuals/InternationalTaxpayer/US-And-Resident-Aliens-Abroad.

Caution: A tax return delivered by the U.S. mail or a

designated delivery service that is postmarked or dated

by the delivery service on or before the due date is considered to have been filed on or before that date. Go to

IRS.gov/PDS for the current list of designated services.

Extensions

You can get an extension of time to file your income tax return. In some circumstances, you can also get an extension of time to file and pay any tax due.

However, if you pay the tax due after the regular due

date, interest will be charged from the regular due date

until the date the tax is paid.

This publication discusses four extensions:

• an automatic 2-month extension,

• an automatic 6-month extension,

• an additional extension for taxpayers out of the country, and

• an extension of time to meet residency tests.

Filing Information

5

If you served in a combat zone or qualified hazardous

duty area, see Pub. 3, Armed Forces' Tax Guide, available

at IRS.gov/Pub3, for a discussion of extensions of deadlines.

Automatic 2-month extension. You are allowed an automatic 2-month extension to file your income tax return

and pay federal income tax if you are a U.S. citizen or resident alien, and on the regular due date of your return:

• You are living outside the United States and Puerto

date.

• You are in military or naval service on duty outside the

United States and Puerto Rico.

Even if you are allowed an extension, you will have to

pay interest on any tax not paid by the regular due date of

your return.

Extension for married taxpayers who reside outside of the U.S. If you file a joint return, either you or

your spouse can qualify for the automatic extension. If you

and your spouse file separate returns, this automatic extension applies only to the spouse who qualifies for it.

How to request an automatic 2-month extension.

To use this automatic 2-month extension, you must attach

a statement to your income tax return explaining which situation listed earlier qualified you for the extension.

Previous 2-month extension. If you cannot file your

income tax return within the automatic 2-month extension

period (June 15 for calendar-year taxpayers), you can

generally get an additional 4 months to file your return, for

a total of 6 months (to October 15 for calendar-year taxpayers). The 2-month period and the 6-month period start

on April 15, the regular due date. You have to request the

additional 4 months by the due date allowed by the automatic 2-month extension (June 15 for calendar-year taxpayers).

How to request the additional 4-month extension.

To obtain this 4-month extension, complete and file Form

4868, Application for Automatic Extension of Time to File

U.S. Individual Income Tax Return, available at IRS.gov/

Form4868. Ensure the box for line 8 stating you are out of

the country and are a U.S. citizen or resident is checked.

The additional 4 months of time to file (unlike the original 2-month extension) is not an extension of time to pay.

You must make an accurate estimate of your tax based on

the information available to you. If you find you cannot pay

the full amount due with Form 4868, you can still get the

extension. You will owe interest on the unpaid amount

from the original due date of the return (April 15 for calendar-year taxpayers).

You may also be charged a penalty for paying the tax

late unless you have reasonable cause for not paying your

tax when due. Penalties for paying the tax late are assessed from the original due date of your return, unless

you qualify for the automatic 2-month extension. In that situation, penalties for paying late are assessed from the extended due date of the payment (June 15 for calendar-year taxpayers).

Chapter 1

Caution: Exceptions to eligibility for an automatic

6-month extension. You cannot use the automatic

6-month extension of time to file if:

• You want the IRS to figure your tax, or

• You are under a court order to file by the regular due

Rico and your main place of business or post of duty

is outside the United States and Puerto Rico, or

6

Automatic 6-month extension. If you are not able to

file your income tax return by the regular due date (April

15 for calendar-year taxpayers), you can generally get an

automatic 6-month extension of time to file (but not of time

to pay).

How to request the automatic 6-month extension.

To get this automatic extension, you must file Form 4868.

The form must show your properly estimated tax liability

based on the information available to you.

When to file. Generally, you must request the

6-month extension by the regular due date of your return.

Additional extension of time for taxpayers out of the

country. In addition to the 6-month extension, taxpayers

who are out of the country can request a discretionary

2-month additional extension of time to file their income

tax return (to December 15 for calendar-year taxpayers).

How to request the additional extension. To request this extension, you must send the IRS a letter explaining the reasons why you need the additional 2

months. Send the letter by the extended due date (October 15 for calendar-year taxpayers).

You will not receive any notification from the IRS unless

your request is denied.

The discretionary 2-month additional extension is not

available to taxpayers who have an approved extension of

time to file on Form 2350, Application for Extension of

Time to File U.S. Income Tax Return, available at IRS.gov/

Form2350, discussed next.

Extension of time to meet residency tests. Generally,

you cannot get an extension of more than 6 months. If you

are outside the United States and meet certain requirements, you may be able to get a longer extension.

You can get an extension of more than 6 months to file

your income tax return if you need the time to meet either

the bona fide residence test or the physical presence test

to qualify for the foreign earned income exclusion and the

foreign housing exclusion or deduction. The tests, exclusions, and deduction are explained in chapter 4.

You should request an extension if all three of the following apply.

1. You are a U.S. citizen or resident alien.

2. You expect to meet either the bona fide residence

test, or the physical presence test, but not until after

your tax return is due.

3. Your tax home is in a foreign country (or countries)

throughout your period of bona fide residence or

physical presence, whichever applies.

Filing Information

Publication 54 (12-2025)

If you are granted an extension, it will generally be for

30 days beyond the date on which you can reasonably expect to qualify for an exclusion or deduction under the

bona fide residence test or the physical presence test.

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.

How to request the extension of time to meet residency tests. To obtain an extension, file Form 2350 by:

Note: Returns with a foreign address can be e-filed.

Extensions can be filed through IRS Free File with no

income limit for extensions. For additional information, go

to

IRS.gov/Filing/Get-An-Extension-To-File-Your-TaxReturn.

• Giving it to a local IRS representative or other IRS employee,

• Filing electronically via e-file, or

• Mailing it.

How to e-file. There are three ways

you can e-file.

See the instructions for Form 2350 for the mailing address.

You must file Form 2350 by the due date for filing your

return. Generally, if both your tax home and your abode

are outside the United States and Puerto Rico on the regular due date of your return and you file on a calendar-year basis, the due date for filing your return is June

15.

What if tests are not met. If you obtain an extension,

and unforeseen events make it impossible for you to meet

the bona fide residence test or the physical presence test,

file your income tax return as soon as possible to limit interest charged on any tax due after the regular due date of

the return.

Caution: File your extension request early in order to

allow for the timely filing of your return if your request is

denied. You may be subject to a penalty if you file late and

additional tax is due.

Return filed before test is met. If you file a return

before you meet the bona fide residence test or the physical presence test, you must report your worldwide income

and pay tax on that income. If you later meet either of the

tests, file Form 1040-X, Amended U.S. Individual Income

Tax Return, available at IRS.gov/Form1040X , to claim the

foreign earned income exclusion, and the foreign housing

exclusion or foreign housing deduction.

How To File and Pay

Filing options. There are two options for filing tax returns and extensions:

1. By mail, or

2. By e-file

Filing by mail. International tax returns and extensions are mailed to specific addresses. To locate the mailing address for the form you are filing, go to IRS.gov/

Filing/International-Where To File Form 1040 Addresses

For Taxpayers And Tax Professionals. See How to request

the additional extension, earlier, for Form 2350.

Filing by E-file. IRS e-file is the fastest, easiest, and

most convenient way to file your income tax return electronically.

Publication 54 (12-2025)

Chapter 1

1. Use your personal computer.

2. Use a volunteer. Many programs offering free tax help

can e-file your return.

3. Use a tax professional. Most tax professionals can

e-file your return.

These methods are explained in detail in the instructions

for your tax return.

For additional information on when to file, how to file,

and where to file your tax return, go to IRS.gov/Individuals/

International-Taxpayers/US-Citizens-And-Resident-AliensAbroad.

Payment options. There are multiple options for payments of tax. For information on payment options, go to

IRS.gov/Payments. For information on foreign electronic

payments, go to IRS.gov/Individuals/InternationalTaxpayers/Foreign-Electronic-Payments-Tax-Type-Codes.

Foreign Currency

You must express the amounts you report on your U.S. tax

return in U.S. dollars. If you receive all or part of your income, or pay some or all of your expenses, in foreign currency, you must translate the foreign currency into U.S.

dollars. How you do this depends on your functional currency. Your functional currency is generally the U.S. dollar

unless you are required to use the currency of a foreign

country.

You must make all federal income tax determinations in

your functional currency. The U.S. dollar is the functional

currency for all taxpayers except some qualified business

units (QBUs). A QBU is a separate and clearly identified

unit of a trade or business that maintains separate books

and records.

For additional information on foreign currency, currency

exchange rates, qualified business units, and links to currency exchange rates and resources, see IRS.gov/

Individuals/International-Taxpayers/Foreign-CurrencyAnd-Currency-Exchange-Rates, and IRS.gov/Individuals/

International-Taxpayers/Yearly-Average-CurrencyExchange-Rates.

Filing Information

7

Blocked Income

You must generally report your foreign income in terms of

U.S. dollars and, with one exception (see Fulbright Grant,

later), you must pay taxes due on it in U.S. dollars.

If, because of restrictions in a foreign country, your income is not readily convertible into U.S. dollars or into

other money or property that is readily convertible into

U.S. dollars, your income is “blocked” or “deferrable” income. You can report this income in one of the following

two ways.

• Report the income and pay your federal income tax

with U.S. dollars that you have in the United States or

in some other country.

All income must be reported in U.S. dollars. In most cases,

the tax must also be paid in U.S. dollars. If, however, at

least 70% of your Fulbright grant has been paid in nonconvertible foreign currency (blocked income), you can use

the currency of the host country to pay the part of the U.S.

tax that is based on the blocked income.

Paying U.S. tax in foreign currency. To qualify for this

method of payment, you must prepare a statement that

shows the following information.

vertible foreign currency.

unblocked.

If you choose to postpone the reporting of the income,

you must file an information return with your tax return. For

this information return, you should use another Form 1040

or 1040-SR labeled “Report of Deferrable Foreign Income,

pursuant to Rev. Rul. 74-351.” You must declare on the information return that you will include the deferrable income in your taxable income for the year that it becomes

unblocked. You must also state that you waive any right to

claim that the deferrable income was includible in your income for any earlier year. For detailed information, see

Revenue Ruling 74-351, 1974-2 C.B. 144.

You must report your income on your information return

using the foreign currency in which you received that income. If you have blocked income from more than one foreign country, include a separate information return for

each country.

Income becomes unblocked and reportable for tax purposes when it becomes convertible, or when it is converted, into U.S. dollars or into other money or property that is

convertible into U.S. currency. Also, if you use blocked income for your personal expenses or dispose of it by gift,

bequest, or devise, you must treat it as unblocked and reportable.

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 3115, Application for Change in Accounting

Method, available at IRS.gov/Form3115. You must also request permission from the IRS on Form 3115 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

Chapter 1

Fulbright Grant

• You were a Fulbright grantee and were paid in noncon-

• Postpone the reporting of the income until it becomes

8

3115 for information on changing your accounting

method.

• The total grant you received during the year and the

amount you received in nonconvertible foreign currency.

• At least 70% of the grant was paid in nonconvertible

foreign currency.

The statement must be certified by the U.S. educational

foundation or commission paying the grant or other person having control of grant payments to you.

You should prepare at least two copies of this statement. Attach one copy to your Form 1040 or 1040-SR and

keep the other copy for identification purposes when you

make a tax deposit of nonconvertible foreign currency.

Figuring actual tax. 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.

Adjusted gross

income that is

blocked income

Total adjusted

gross income

×

Total U.S. tax

=

Tax on blocked

income

You must attach all of the following to the return.

• A copy of the certified statement discussed earlier.

• 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.S. dollars.

• 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 Payments

(discussed later), figure the amount you can pay to the

IRS in nonconvertible foreign currency using the following

formula.

Filing Information

Publication 54 (12-2025)

Adjusted gross

income that is blocked

income

Total adjusted

gross income

× Total estimated U.S. tax =

Estimated tax on

blocked income

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.

Deposit of foreign currency with disbursing officer.

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.

Estimated tax installments. 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 Payments, later.

Deposit receipt. 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.S. dollars) should be attached to your Form 1040 or 1040-SR or

payment voucher from Form 1040-ES, Estimated Tax for

Individuals, available at IRS.gov/Form1040ES. Keep the

copy for your records.

Where To File—U.S. Territories

Resident of the U.S. Virgin Islands (USVI). If you are a

bona fide resident of the USVI during your entire tax year,

you are generally not required to file a U.S. return. However, you must file a return with the USVI.

For more information on how to file your USVI tax return, go to BIR.VI.gov.

Send your return to:

Resident of Guam. If you are a bona fide resident of

Guam during your entire tax year, you should file a return

with Guam.

For more information on how to file your Guam tax return, go to Guamtax.com.

Send your return to:

Guam Department of Revenue and Taxation

Taxpayer Services Division

P.O. Box 23607

Barrigada, GU 96921

However, if you have income from sources within Guam

and you are a U.S. citizen or resident alien, but not a bona

fide resident of Guam during the entire tax year, you

should file a return with the United States. File your U.S.

return utilizing the filing options, mentioned earlier.

See Pub. 570 for information about filing Guam returns.

Resident of the Commonwealth of the Northern Mariana Islands (CNMI). If you are a bona fide resident of

the CNMI during your entire tax year, you should file a return with the CNMI.

For more information on how to file your CNMI tax return, go to Finance.gov.MP/Revenue-Taxation.php.

Send your return to:

Division of Revenue and Taxation

Commonwealth of the Northern Mariana Islands

P.O. Box 5234, CHRB

Saipan, MP 96950

However, if you have income from sources within the

CNMI and you are a U.S. citizen or resident alien, but not

a bona fide resident of the CNMI during the entire tax year,

you should file a return with the United States. File your

U.S. return utilizing the filing options, mentioned earlier.

See Pub. 570 for information about filing CNMI returns.

U.S. Virgin Islands Bureau

of Internal Revenue

6115 Estate Smith Bay

St. Thomas, Virgin Islands 00802

Non-USVI resident with USVI income. If you are a U.S.

citizen or resident alien and you have income from sources in the USVI or income effectively connected with the

conduct of a trade or business in the USVI, and you are

not a bona fide resident of the USVI during your entire tax

year, you must file identical tax returns with the United

States and the USVI. File the original return with the United States and file a signed copy of the U.S. return (including all attachments, forms, and schedules) with the Virgin

Islands Bureau of Internal Revenue.

You must complete Form 8689, Allocation of Individual

Income Tax to the U.S. Virgin Islands, available at IRS.gov/

Form8689, and attach a copy to both your U.S. return and

Publication 54 (12-2025)

your USVI return. File your U.S. return utilizing the filing

options, mentioned earlier.

For Information about filing USVI returns, see Pub. 570,

Tax Guide for Individuals With Income from U.S. Territories, available at IRS.gov/Pub570.

Chapter 1

Note: Puerto Rico and American Samoa have their own

separate and independent tax systems. Although their tax

laws are modeled on the U.S. Internal Revenue Code,

there are certain differences in law and tax rates. See Pub.

570 for information about tax obligations in Puerto Rico

and American Samoa.

For more information on how to file your Puerto Rico tax

return, go to Hacienda.PR.gov/.

For more information on how to file your American Samoa tax return, go to the American Samoa Tax Office’s

website, available at Americansamoa.gov/Tax-Office.

Filing Information

9

Social Security Number (SSN)

Nonresident Alien Spouse

Treated as a Resident

If you choose to treat your nonresident alien spouse as a

U.S. resident, your spouse must have either an SSN or an

individual taxpayer identification number (ITIN).

If, at the end of your tax year, you are married and one

spouse is a U.S. citizen or resident alien and the other is a

nonresident alien, you can choose to treat the nonresident

as a U.S. resident. This election includes the situation 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.

If you make this choice, the following two rules apply.

• You and your spouse are treated, for income tax pur-

poses and purposes of wage withholding, as U.S. residents for the tax year in which the election is made

and all future tax years until the election is terminated

for one of the reasons listed in Table 1-1, later, or suspended because neither spouse is a citizen or resident of the United States at any time during a year.

• You must file a joint income tax return for the year you

To get an SSN for a nonresident alien spouse, apply at

an office of the U.S. Social Security Administration (SSA)

or U.S. consulate. For more information, go to SSA.gov, or

call 800-772-1213.

If the nonresident alien spouse is not eligible to get an

SSN, the spouse can file Form W-7, Application for IRS Individual Taxpayer Identification Number, available at

IRS.gov/FormW7, with the IRS to apply for an ITIN when

you timely file the joint return on which you choose to treat

your nonresident alien spouse as a U.S. resident. Follow

the Instructions for Form W-7 to submit your Form W-7

and file your return.

ITIN renewal. Your spouse may need to renew the ITIN.

For more information, go to IRS.gov/ITIN.

How To Make the Choice

make the choice and attach a statement as described

under How To Make the Choice, later.

This means that neither of you can claim under any tax

treaty not to be a U.S. resident for a tax year for which the

choice is in effect.

Example 1. Pat Smith, a U.S. citizen, is married to

Norman, a nonresident alien. 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.

Example 2. 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.

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.S. citizen or resident alien

on the last day of your tax year and that you choose to

be treated as U.S. residents for the entire tax year.

• The name, address, and SSN (or ITIN) of each

spouse. (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 1040-X. Attach Form 1040

or 1040-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.S. income

tax return or 2 years from the date you paid your income

tax for that year, whichever is later.

Tip: If you do not choose to treat your nonresident

alien spouse as a U.S. resident, you may be able to use

head of household filing status. 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.

501, Dependents, Standard Deduction, and Filing Information, available at IRS.gov/Pub501.

10

Chapter 1

Filing Information

Publication 54 (12-2025)

Suspending the Choice

The choice to be treated as a resident alien does not apply to any later tax year if neither of you is a U.S. citizen or

resident alien at any time during the later tax year.

Example. Dick Brown was a resident alien on December 31, 2020, and married to Judy, a nonresident alien.

They chose to treat Judy as a resident alien and filed joint

income tax returns for 2020 and 2021. On January 10,

2022, Dick became a nonresident alien. Judy had remained a nonresident alien. Because Dick was a resident

alien during part of 2022, Dick and Judy can file joint or

separate returns for that year. Neither Dick nor Judy was a

resident alien at any time during 2023 and their choice is

suspended for that year. For 2023, both are treated as

nonresident aliens. If Dick becomes a resident alien again

in 2024, their choice is no longer suspended and both are

treated as resident aliens.

Ending the Choice

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 1-1.

If the choice is ended for any of the reasons listed in Table 1-1, neither spouse can make a choice in any later tax

year.

Estimated Tax Payments

The requirements for determining who must pay estimated

tax are the same for a U.S. citizen or resident abroad as

for a taxpayer in the United States.

In general, you don’t have to make estimated tax payments if you expect that your current year Form 1040 or

1040-SR will show a tax refund or a tax balance due of

less than $1,000. For more information on whether you

are required to make estimated tax payments, see Form

1040–ES, Estimated Tax for Individuals, available at

IRS.gov/Form1040ES and Pub. 505, Tax Withholding and

Estimated Tax, available at IRS.gov/Pub505.

Foreign earned income exclusion. 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. See the Instructions for Form 1040 and

complete the Foreign Earned Income Tax Worksheet to

figure the estimated tax on your nonexcluded 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

2555.

Other Forms You May Have To

File

Forms That Must Be Filed With the

Treasury Department (FinCEN)

FinCEN Form 114. You must file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), if

you had any financial interest in, or signature or other authority over, a bank, securities, or other financial account

in a foreign country. You do not need to file the report if the

assets are with a U.S. military banking facility operated by

a financial institution, or if the combined assets in the account(s) are $10,000 or less during the entire year.

Table 1-1. Options for Ending the Choice To Treat Nonresident Alien Spouse as a Resident

Revocation

Either spouse can revoke the choice for any tax year.

The revocation must be made by the due date for filing the tax return for that tax year.

The spouse who revokes the choice must attach a signed statement declaring that the choice is being revoked. The statement

revoking the choice must include the following.

• The name, address, and SSN (or TIN) of each spouse.

• The name and address of any person who is revoking the choice for a deceased spouse.

• A list of any states, foreign countries, and U.S. territories that have community property laws in which either spouse is

domiciled or where real property is located from which either spouse receives income.

If the spouse revoking the choice does not have to file a return and does not file a claim for refund, send the statement to the Internal

Revenue Service Center where the last joint return was filed.

Death

The death of either spouse ends the choice, beginning with the first tax year following the year in which the spouse died.

If the qualifying surviving spouse is a U.S. citizen or resident alien and is entitled to the joint tax rates as a qualifying surviving

spouse, the choice will not end until the close of the last year for which these joint rates may be used.

If both spouses die in the same tax year, the choice ends on the first day after the close of the tax year in which the spouses died.

Divorce or legal

separation

A divorce or legal separation ends the choice as of the beginning of the tax year in which the legal separation occurs.

Inadequate records

The IRS can end the choice for any tax year that either spouse has failed to keep adequate books, records, and other

information necessary to determine the correct income tax liability, or to provide adequate access to those records.

Publication 54 (12-2025)

Chapter 1

Filing Information

11

FinCEN Form 114 is filed electronically with the Financial Crimes Enforcement Network (FinCEN). The due date

for FBAR filings is April 15. FinCEN will grant an automatic

extension to October 15 if you are unable to meet the

FBAR annual due date of April 15. The FBAR due date

coincides with the filing due date for the current year Form

1040 or 1040-SR. For more information on foreign bank

and financial accounts reporting requirements, go to

IRS.gov/Businesses/Small-Businesses-Self-Employed/

Report-Of-Foreign-Bank-And-Financial-Accounts-FBAR.

FinCEN Form 105. You must file FinCEN Form 105, Report of International Transportation of Currency or Monetary Instruments (CMIR), if you physically transport, mail,

ship, or cause to be physically transported, mailed, or

shipped, into or out of the United States, currency or other

monetary instruments totaling more than $10,000 at one

time. Certain recipients of currency or monetary instruments must also file FinCEN Form 105.

More information about the filing of FinCEN Form 105

can be found on the U.S. Customs and Border Protection

(CBP) website at CBP.gov/Travel/International-Visitors/

Kbyg/Money. The form is either completed online on the

U.S. Customs and Border Protection's website, available

at Fincen105.CBP.DHS.gov, or by requesting a paper

copy from a CBP officer.

Form 8621. A U.S. person that is a direct or indirect

shareholder of a passive foreign investment company

(PFIC) files Form 8621, Passive Foreign Investment Company or Qualified Electing Fund, if they:

• Receive certain direct or indirect distributions from a

PFIC,

• Recognize a gain on a direct or indirect disposition of

• Are reporting information with respect to a QEF or

section 1296 mark-to-market election,

Form 8938. You must file Form 8938, Statement of

Specified Foreign Financial Assets, 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, any 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.S. person.

For more information, go to IRS.gov/Form8938.

Form 5471. Certain U.S. persons who are officers, directors, or shareholders in certain foreign corporations must

file Form 5471, Information Return of U.S. Persons With

Respect To Certain Foreign Corporations, and schedules

to satisfy the reporting requirements of sections 6038 and

6046, and the related regulations for each applicable foreign corporation. For more information, go to IRS.gov/

Form5471.

Form 926. U.S. citizens or residents, domestic corporations, or domestic estates or trusts must file Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation, to report any exchanges or transfers of tangible or

intangible property that are described in section 6038B(a)

(1)(A) of the Internal Revenue Code to a foreign corporation. For more information, go to IRS.gov/Form926.

Chapter 1

Form 8858. Certain U.S. persons that own a foreign disregarded entity (FDE) or foreign branch (FB) directly or, in

certain circumstances, indirectly or constructively must file

Form 8858, Information Return of U.S. Persons With Respect to Foreign Disregarded Entities (FDEs) and Foreign

Branches (FBs), and schedules to satisfy the reporting requirements of sections 6011, 6012, 6031, and 6038, and

related regulations. For more information, go to IRS.gov/

Form8858.

PFIC stock,

Forms That Must Be Filed With the

IRS With Form 1040

12

Form 8865. A U.S. person must file Form 8865, Return

of U.S. Persons With Respect to Certain Foreign Partnerships, to report the information required under section

6038 (reporting with respect to controlled foreign partnerships), section 6038B (reporting of transfers to foreign

partnerships), or section 6046A (reporting of acquisitions,

dispositions, and changes in foreign partnership interests). For more information, go to IRS.gov/Form8865.

• Are making an election reportable in Part II of the form,

or

• Are required to file an annual report pursuant to section 1298(f).

Note: If you are an individual taxpayer that owns a

mutual fund or ETF that is not domiciled in the United

States, you may have a Form 8621 obligation.

For more information, go to IRS.gov/Form8621.

Forms 8964-ELE and 8964-TRA. If you own one or

more qualified business units (QBUs), you may have a

Form 8964-ELE and 8964-TRA filing requirement. These

forms implement the reporting requirements in the final

Treasury Regulations under section 987.

Form 8964-ELE. Form 8964-ELE is used to make or

revoke elections under the section 987 regulations. The

form is used to satisfy the reporting requirements of Regulations sections 1.987-1(g).

For more information, go to IRS.gov/Form8964ELE.

Form 8964-TRA. Form 8964-TRA is used to report

the section 987 transition information required under Regulations section 1.987-10(k).

The following persons have a requirement to file Form

8964-TRA:

• An owner of the section 987 QBU on the transition

date. Form 8964-TRA should be filed for the tax year

beginning on the transition date.

Filing Information

Publication 54 (12-2025)

• A deferral QBU owner or the owner of an outbound

loss QBU if the deferral event or outbound loss event

occurred before the transition date. Form 8964-TRA

should be filed for the tax year beginning on the transition date.

• An owner of a terminating QBU.

For more information, go to IRS.gov/Form8964TRA.

Form 8854. Section 877A applies to U.S. citizens who

have relinquished their citizenship, and long-term residents who have ended their residency (expatriated) on or

after June 17, 2008. Form 8854, Initial and Annual Expatriation Statement, is used by expatriates to certify compliance with tax obligations in the 5 years before expatriation

and to comply with their initial and annual information reporting obligations under section 6039G.

Note: Individuals who expatriated for immigration purposes after June 3, 2004, and before June 17, 2008, but

who have not previously filed a Form 8854, continue to be

treated as U.S. citizens or U.S. lawful permanent residents

for U.S. income tax purposes until they file a Form 8854.

See section 7701(n), as in effect before June 17, 2008.

For more information, go to IRS.gov/Form8854.

Forms That Must Be Filed With the

IRS Separately From Form 1040

Form 3520. U.S. persons (and executors of estates of

U.S. decedents) file Form 3520, Annual Return To Report

Transactions With Foreign Trusts and Receipt of Certain

Foreign Gifts, to report:

• Certain transactions with foreign trusts,

• Ownership of foreign trusts under the rules of Internal

Revenue Code sections 671 through 679, and

• Receipt of certain large gifts or bequests from certain

foreign persons.

For more information, go to IRS.gov/Form3520.

Form 3520-A. A foreign trust with at least one U.S.

owner files Form 3520-A, Annual Information Return of

Foreign Trust With a U.S. Owner, annually to provide information about:

• The trust,

• Its U.S. beneficiaries, and

• Any U.S. person who is treated as an owner of any

portion of the foreign trust.

For more information, go to IRS.gov/Form3520A.

Other Issues Related To the Failure To

Timely File Complete and Accurate

International Information Returns

With the IRS by the Due Date

In addition to the penalties, failure to timely file complete

and accurate international information returns by the due

date can result in:

• Suspension and/or extension of the assessment statute of limitations date (ASED) for Form 1040, and

• Reduction in allowed foreign tax credit (Form 1116).

For information on specific returns that are impacted,

see the instructions for the forms you are required to file.

2.

Withholding Tax

Topics

This chapter discusses:

• Withholding income tax from the pay of U.S. citizens,

• Withholding tax at a flat rate, and

• Social security and Medicare taxes.

Useful Items

You may want to see:

Publication

505 Tax Withholding and Estimated Tax

505

Form (and Instructions)

673 Statement for Claiming Exemption From

Withholding on Foreign Earned Income Eligible

for the Exclusion Provided by Section 911

W-4 Employee's Withholding Allowance Certificate

W-9 Request for Taxpayer Identification Number and

Certification

673

W-4

W-9

See chapter 7 for information about getting this publication

and these forms.

Penalties

Income Tax Withholding

In general, penalties are assessed when there is a failure

to timely file complete and accurate international information returns, and when there is a failure to timely furnish required information. For information on specific penalties,

see the instructions for the forms you are required to file.

For more information on penalties, see IRS.gov/Penalties.

U.S. employers must generally withhold U.S. income tax

from the pay of U.S. citizens working abroad unless the

employer is required by foreign law to withhold foreign income tax.

Publication 54 (12-2025)

Chapter 2

Foreign earned income exclusion. Your employer

does not have to withhold U.S. income taxes from wages

Withholding Tax

13

you earn abroad if it is reasonable to believe that you will

exclude them under the foreign earned income exclusion

or the foreign housing exclusion.

Your employer should withhold taxes from any wages

you earn for working in the United States.

Statement. 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 providing

your estimated housing cost exclusion.

Form 673, Statement for Claiming Exemption from

Withholding on Foreign Earned Income Eligible for the Exclusion(s) Provided by Section 911, available at IRS.gov/

Form673, is an acceptable statement. You can use Form

673 only if you are a U.S. citizen. You do not have to use

the form and can prepare your own statement. For more

information, see Form 673.

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.

Foreign tax credit. If you plan to take a foreign tax

credit, you may be able to adjust your withholding on Form

W-4. 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-4.

Withholding from pension payments. U.S. payers of

benefits from employer-deferred compensation plans, individual retirement plans, and commercial annuities must

generally withhold income tax from payments delivered

outside of the United States. 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.S. territory, or

30% Flat Rate Withholding

Generally, U.S. source gross income that is not effectively

connected to a U.S. trade or business, such as U.S.

source dividends and royalties, is subject to withholding

tax at a flat 30% (or lower treaty) rate if paid to nonresident

aliens. If you are a U.S. citizen or resident alien and this

tax is withheld in error from payments to you because you

have a foreign address, you should notify the payer of the

income to stop the withholding. Use Form W-9 to notify

the payer.

You can claim the tax withheld in error as a withholding

credit on your tax return if the amount isn’t adjusted by the

payer. See the Instructions for Form 1040 and Form 1040SR for how to claim the credit.

Social security benefits paid to residents. If you are a

lawful permanent resident (green card holder) and a flat

30% tax was withheld in error on your social security benefits, you must file Form 1040 or 1040-SR with the Internal

Revenue Service Center at the address listed under How

To File and Pay, earlier, to determine if you are entitled to

a refund. The following information must be submitted with

your Form 1040 or 1040-SR.

• A copy of Form SSA-1042–S, Social Security Benefit

Statement.

• A copy of your “green card.”

• A signed declaration that includes the following state-

ments.

“I am a U.S. lawful permanent resident and my green

card has been neither revoked nor administratively or

judicially determined to have been abandoned. I am

filing a U.S. income tax return for the tax year as a resident alien reporting all of my worldwide income. I

have not claimed benefits for the tax year under an income tax treaty as a nonresident alien.”

Social Security and Medicare

Taxes

• Certify to the payer that you are not a U.S. citizen or

Social security and Medicare taxes may apply to wages

paid to an employee regardless of where the services are

performed.

Check your withholding. Before you report U.S. income tax withholding on your tax return, you should carefully review all information documents, such as Form W-2

and the Form 1099 information returns. Compare other records, such as final pay records or bank statements, with

Form W-2 or Form 1099 to verify the withholding on these

forms. Check your U.S. income tax withholding even if you

pay someone else to prepare your tax return. You may be

assessed penalties and interest if you claim more than

your correct amount of withholding allowances.

General Information

resident alien or someone who left the United States

to avoid tax.

14

Chapter 2

In general, U.S. social security and Medicare taxes do not

apply to wages for services you perform as an employee

outside the United States unless one of the following exceptions applies.

1. You perform the services on or in connection with an

American vessel or aircraft (defined later) and either:

a. You entered into your employment contract within

the United States, or

Withholding Tax

Publication 54 (12-2025)

b. The vessel or aircraft touches at a U.S. port while

you are employed on it.

2. The service is designated as employment for U.S. social security and Medicare tax purposes under Bilateral Social Security (Totalization) Agreements (discussed later).

3. You are working for an American employer (defined

later).

4. 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.S. Department of the Treasury.

American vessel or aircraft. 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.S. citizens, residents, or

corporations. An American aircraft is an aircraft registered

under the laws of the United States.

American employer.

any of the following.

An American employer includes

• The U.S. Government or any of its instrumentalities.

• An individual who is a resident of the United States.

• A partnership of which at least two-thirds of the partners are U.S. residents.

• A trust of which all the trustees are U.S. residents.

• A corporation organized under the laws of the United

States, any U.S. state, or the District of Columbia, Puerto Rico, the USVI, 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.S. Government (or

any instrumentality thereof) and a member of a domestically controlled group of entities which includes such foreign person.

Foreign affiliate. A foreign affiliate of an American employer is any foreign entity in which the American employer has at least a 10% interest, directly or through one

or more entities. For a corporation, the 10% interest must

be in its voting stock. For any other entity, the 10% interest

must be in its profits.

Form 2032, Contract Coverage Under Title II of the Social Security Act, available at IRS.gov/Form2032, is used

by American employers to extend social security coverage

to U.S. citizens and resident aliens working abroad for foreign affiliates of American employers. Once you enter into

an agreement, coverage cannot be terminated.

Bilateral Social Security (Totalization)

Agreements

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.S. social security.

For more information on specific agreements, go to

SSA.gov/International/Agreement_Descriptions.html and

IRS.gov/TotalizationAgreements.

Covered by United States only. If your pay in a foreign

country is subject only to U.S. social security tax and is exempt from foreign social security tax, your employer

should get a certificate of coverage from the SSA’s Office

of Earnings and International Operations. Employers can

request a certificate of coverage online at SSA.gov/

international/CoC_link.html.

Covered by foreign country only. 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.S. social security

tax, you or your employer should get a statement from the

authorized official or agency of the foreign country verifying that your pay is subject to social security coverage in

that country.

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.S. SSA’s Office of Earnings and International Operations at the website listed earlier. The

statement should indicate that your wages aren’t covered

by the U.S. social security system.

This statement should be kept by your employer because it establishes that your pay is exempt from U.S. social security tax.

Only wages paid on or after the effective date of the totalization agreement can be exempt from U.S. social security tax.

Excludable meals and lodging. Social security tax

doesn’t apply to the value of meals and lodging provided

to you for the convenience of your employer if it is reasonable to believe that you will be able to exclude the value

from your income.

Publication 54 (12-2025)

Chapter 2

Withholding Tax

15

your filing status). See Form 8959, Additional Medicare

Tax, available at IRS.gov/Form8959, for additional information.

3.

Employed by a U.S. Church

Self-Employment Tax

If you were employed by a U.S. church or a qualified

church-controlled organization that chose exemption from

social security and Medicare taxes and you received wages of $108.28 or more from the organization, the

amounts paid to you are subject to self-employment tax.

However, you can choose to be exempt from social security and Medicare taxes if you are a member of a recognized religious sect. See Pub. 517, Social Security and

Other Information for Members of the Clergy and Religious Workers, available at IRS.gov/Pub517, for more information about church employees and self-employment

tax.

Topics

This chapter discusses:

• Who must pay self-employment tax,

• Who is exempt from self-employment tax,

• Who can defer self-employment tax payments, and

• Which self-employed individuals can take the

refundable income tax credits for sick and family

leave.

Useful Items

Effect of Exclusion

You may want to see:

Publication

334 Tax Guide for Small Business

334

517 Social Security and Other Information for

Members of the Clergy and Religious Workers

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.

517

Form (and Instructions)

Form 1040-SS U.S. Self-Employment Tax Return

Form 1040-SS

Form 4361 Application for Exemption From

Self-Employment Tax for Use by Ministers,

Members of Religious Orders and Christian

Science Practitioners

Form 4361

Example. You are in business abroad as a consultant

and qualify for the foreign earned income exclusion. Your

foreign earned income is $95,000, your business deductions total $27,000, and your net profit is $68,000. You

must pay self-employment tax on your net profit of

$68,000, even though you are qualified for the foreign

earned income exclusion.

Members of the Clergy

Schedule SE (Form 1040) Self-Employment Tax

Schedule SE (Form 1040)

See chapter 7 for information about getting these publications and forms.

Who Must Pay

Self-Employment Tax?

If you are a self-employed U.S. citizen or resident, the

rules for paying self-employment tax are generally the

same whether you are living in the United States or

abroad.

The self-employment tax is a social security and Medicare tax on net earnings from self-employment. You must

pay self-employment tax if your net earnings from self-employment are at least $400.

For information on the maximum amount of self-employment net earnings that is subject to the social security

portion of self-employment tax, see the instructions for

Schedule SE (Form 1040), available at IRS.gov/

ScheduleSE. All net earnings from self-employment 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

16

Chapter 3

If you are a member of the clergy, you are treated as

self-employed for self-employment tax purposes. Your

U.S. self-employment tax is based upon net earnings from

self-employment figured without regard to the foreign

earned income exclusion or the foreign housing exclusion.

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 4361, Application for Exemption From Self-Employment Tax for Use By Ministers, Members of Religious Orders and Christian Science Practitioners, available at

IRS.gov/Form4361, to apply for this exemption.

This subject is discussed in further detail in Pub. 517.

Income From U.S. Territories

If you are a U.S. citizen or resident alien and you own and

operate a business in a U.S. territory (Puerto Rico, Guam,

the CNMI, American Samoa, or the USVI), you must pay

tax on your net earnings from self-employment (if they are

$400 or more) from those sources. You must pay the

self-employment tax whether or not the income is exempt

from U.S. income taxes (or whether or not you must

Self-Employment Tax

Publication 54 (12-2025)

otherwise file a U.S. income tax return). Unless your situation is described below, attach Schedule SE (Form 1040)

to your U.S. income tax return.

If you do not have to file Form 1040 or 1040-SR with the

United States and you are a resident of any of the U.S. territories listed in the preceding paragraph, figure your

self-employment tax on Form 1040-SS, U.S. Self-Employment Tax Return (Including the Additional Child Tax Credit

for Bona Fide Residents of Puerto Rico), available at

IRS.gov/Form1040SS, for additional information.

See Filing options, earlier, for filing information.

Exemption From Dual-Country

Social Security and Medicare

Taxes

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, earlier.

If your self-employment earnings should be exempt

from foreign social security tax and subject only to U.S.

self-employment tax, you should request a certificate of

coverage from the U.S. SSA’s Office of Earnings and International Operations. The certificate will establish your exemption from the foreign social security tax.

You can request a certificate of coverage online at

SSA.gov/international/CoC_link.html.

4.

Foreign Earned Income

Exclusion, Foreign

Housing Exclusion, and

Foreign Housing

Deduction

Topics

This chapter discusses:

• Requirements for the foreign earned income

exclusion, the foreign housing exclusion, and the

foreign housing deduction,

• How to determine the amount of the foreign earned

income exclusion,

• How to determine the amount of the foreign housing

exclusion and the foreign housing deduction,

• Effect of making valid exclusions and taking the

deduction, and

• Effect of revocation of exclusions.

Useful Items

You may want to see:

Publication

514 Foreign Tax Credit for Individuals

514

516 U.S. Government Civilian Employees Stationed

Abroad

516

519 U.S. Tax Guide for Aliens

519

570 Tax Guide for Individuals With Income From

U.S. Territories

570

596 Earned Income Credit (EIC)

596

Form (and Instructions)

1040-X Amended U.S. Individual Income Tax Return

1040-X

2555 Foreign Earned Income

2555

See chapter 7 for information about getting these publications and forms.

Who Qualifies for the

Exclusions and the Deduction?

If you meet certain requirements, you may qualify for the

foreign earned income exclusion, the foreign housing

exclusion, and/or the foreign housing deduction.

Publication 54 (12-2025)

Chapter 4 Foreign Earned Income Exclusion, Foreign

Housing Exclusion, and Foreign Housing Deduction

17

If you are a U.S. citizen or resident alien living and

working abroad, you are taxed on your worldwide income.

However, you may qualify to exclude from income a portion of your foreign earnings. In addition, you may qualify

to exclude or deduct certain foreign housing amounts. See

Foreign Earned Income Exclusion and Foreign Housing

Exclusion, later.

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.

Requirements

To claim the foreign earned income exclusion, the foreign

housing exclusion, and/or the foreign housing deduction,

you must meet the following requirements.

1. Tax home. You must have a tax home in a foreign

country (or countries). Generally, your tax home is your

principal place of business, employment, or post of duty,

regardless of where you maintain your family home. For

more details on the concept of tax home, see IRS.gov/

FEIE-TaxHome.

2. Foreign country (or countries). You must live in or

be present in a foreign country (or countries). A foreign

country includes any territory under the sovereignty of a

government other than that of the United States. However,

a foreign country does not include international waters

and the airspace above them. For details on the definition

of a foreign country, see IRS.gov/FEIE-TaxHome.

3. Foreign earned income. You must have wages, salaries, self-employment income, etc., received for performing personal services in a foreign country (or countries).

For details on the classification of earned income, see

IRS.gov/FEIE-FEI.

4. Bona fide residence and physical presence tests.

a. Bona fide residence. You must be a bona fide resident

of a foreign country (or countries) for an uninterrupted period that includes an entire tax year. You use the bona fide

residence test only if you are either:

• a U.S. citizen, or

• a U.S. resident alien who is a citizen or national of a

country with which the United States has an income

tax treaty in effect.

You do not automatically acquire bona fide resident status

merely by living in a foreign country or countries for 1 year.

For more details and examples, see IRS.gov/FEIEBonaFideResidence.

b. Physical presence. Alternatively, U.S. citizens and resident aliens must be physically present in a foreign country

(or countries) for 330 full days during a period of 12 consecutive months. The 330 days don’t have to be consecutive. The physical presence test is based only on how long

you stay in a foreign country or countries. This test doesn’t

depend on the kind of residence you establish, your intentions about returning, or the nature and purpose of your

18

stay abroad. For details and examples, see IRS.gov/FEIEPhysicalPresence.

c. Exceptions to the bona fide residence and physical

presence requirements. 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. For more information, see People who failed to meet

eligibility requirements because of adverse conditions in a

foreign country, earlier, and also IRS.gov/Individuals/

International-Taxpayers/Exceptions-To-The-Bona-FideResidence-And-The-Physical-Presence-Tests.

5. Valid election. You must make, or have in effect, a

valid election by attaching Form 2555, Foreign Earned Income, with your income tax return or amended income tax

return. For details, see the instructions for Form 2555,

available at IRS.gov/Form2555.

Effect of Choosing the Exclusions

and Deduction

Once you choose the foreign earned income exclusion

election or foreign housing exclusion election, that choice

remains in effect for that year and all later years unless

you revoke it. This means you must make the same choice

in a subsequent year. Otherwise, it will be considered as a

revocation of your foreign earned income exclusion election or foreign housing exclusion election for that year.

Foreign tax credit or deduction. Once you've made a

foreign earned income exclusion election or foreign housing exclusion election, you can't take a foreign tax credit or

deduction for foreign taxes on income you choose to exclude. See Pub. 514, Foreign Tax Credit for Individuals,

available at IRS.gov/Pub514, for more information.

Note: If you're a high wage earner, it is possible to

take the foreign earned income exclusion up to the limitation for the year. Then, you can take a foreign tax credit for

any foreign taxes paid on the portion of the wage that

wasn't excluded under the foreign earned income exclusion.

Additional child tax credit. Similarly, if you've made a

foreign earned income exclusion election, or foreign housing exclusion election, or taken the foreign housing deduction, you can't take the additional child tax credit in the

same year. For more information on this credit, see

Schedule 8812 (Form 1040), Credits for Qualifying Children and Other Dependents, available at IRS.gov/

Schedule8812.

Earned income credit. If you elect the foreign earned

income exclusion, you don’t qualify for the earned income

credit for the year. For more information on this credit, see

Pub. 596, Earned Income Credit, available at IRS.gov/

Pub596.

Note: Should you decide to take a foreign tax credit or

deduction, the additional child tax credit, or the earned income credit in a subsequent year, your foreign earned

Chapter 4 Foreign Earned Income Exclusion, Foreign

Housing Exclusion, and Foreign Housing Deduction

Publication 54 (12-2025)

income exclusion election or foreign housing exclusion

election would be considered revoked for that year. For

more details on other deductions and credits, see Deductions and Credits, later.

Effect of Revoking the Exclusions

You can revoke your choice for any year. You may revoke

in several different ways. You may revoke by attaching a

statement that you are revoking one or more previously

made choices to your return or amended return for the first

year that you do not wish to claim the exclusion(s). You

must specify which choice(s) you are revoking. You must

revoke separately a choice to exclude foreign earned income and a choice to exclude foreign housing amounts.

Alternatively, if you decide to take the foreign tax credit,

additional child tax credit, or earned income credit in a

subsequent year, you will be considered to have revoked

your prior choice.

Note: You do not need to revoke a prior choice just because you have no foreign earned income or foreign housing costs for the year.

If you revoked a choice and within 5 years again wish to

choose the same exclusion, you must apply for IRS approval. You do this by requesting a ruling from the IRS. Requests can be submitted by fax, encrypted email, or mail.

See section 8.05(6).04(1)–(3) of Revenue Procedure

2024-1, 2024-01 I.R.B. 42, available at IRS.gov/irb/

2024-01_IRB#REV-PROC-2024-1. For fax requests,

transmissions of full packages with a cover sheet can be

faxed to 844-249-6231. For email requests, the IRS encourages use of secure electronic facsimile method, or

encrypted email attachment to lbi.irt.info@irs.gov.

Mail your request for a ruling, in duplicate, to:

Associate Chief Counsel (International)

Internal Revenue Service

Attn: CC:PA:LPD:DRU

P.O. Box 7604

Ben Franklin Station

Washington, DC 20044

In deciding whether to approve your request to re-elect,

the IRS will consider any facts and circumstances that

may be relevant. These may include a period of residence

in the United States, a move from one foreign country to

another foreign country with different tax rates, a substantial change in the tax laws of the foreign country of residence or physical presence, and a change of employer.

For more information, go to IRS.gov/Individuals/

International-Taxpayers/Revoking-Your-Choice-ToExclude-Foreign-Earned-Income.

If a private delivery service is used, the address

is:

Associate Chief Counsel (International)

Internal Revenue Service

Attn: CC:PA:LPD:TSS, Room 5336

1111 Constitution Ave. NW

Washington, DC 20224

Foreign Earned Income

Exclusion

Limit on Excludable Amount

You may be able to exclude up to the maximum amount allowed for the specific tax year of your foreign earned income.

You cannot exclude more than the smaller of:

• The maximum annual exclusion amount allowed for

the specific tax year, or

• Your foreign earned income for the tax year minus

your foreign housing exclusion (discussed later).

If both you and your spouse work abroad and have a

tax home in a foreign country, and each of you meets either the bona fide residence test or the physical presence

test, you can each choose the foreign earned income exclusion. You both don’t need to meet the same test. Each

of you can exclude up to the maximum annual exclusion

amount allowed for the year, for a total of twice the maximum annual exclusion amount for that year.

Foreign Housing Exclusion and

Deduction

In addition to the foreign earned income exclusion, you

can also claim an exclusion and/or a deduction from gross

income for your housing amount if your tax home is in a

foreign country and you qualify for the exclusions and deduction under either the bona fide residence test or the

physical presence test.

The housing exclusion applies only to amounts considered paid for with employer-provided amounts. The housing deduction applies only to amounts paid for with

self-employment earnings.

If you are married and you and your spouse each qualifies under one of the tests, see Married Couples, later.

Housing Amount

Your housing amount is the total of your housing expenses

for the year minus the base housing amount.

Publication 54 (12-2025)

Chapter 4 Foreign Earned Income Exclusion, Foreign

Housing Exclusion, and Foreign Housing Deduction

19

Base housing amount. The computation of the base

housing amount is tied to the maximum foreign earned income exclusion. That amount is 16% of the maximum annual exclusion amount allowed for the specific tax year, or

the daily amount (maximum annual exclusion amount allowed, divided by 365 days, or 366 days for leap years),

multiplied by the number of days in your qualifying period

that fall within your tax year.

See the Limit on Housing Expenses Worksheet in Part

IV of the Instructions for Form 2555.

However, the limit will vary depending upon the location of

your foreign tax home.

A qualified individual incurring housing expenses in a

high-cost locality during a specific tax year can use housing expenses that total more than the standard limit on

housing expenses to determine the housing amount. An

individual who does not incur housing expenses in a

high-cost locality is limited to the standard limit.

The limits for high-cost localities are listed in the Instructions for Form 2555.

U.S. Government allowance. You must reduce your

housing amount by any U.S. Government allowance or

similar nontaxable allowance intended to compensate you

or your spouse for the expenses of housing during the period for which you claim a foreign housing exclusion or deduction.

Tip: You can elect to apply the current year housing

cost limits to figure your prior year housing exclusion instead of using the prior year limits. The IRS and the Department of the Treasury anticipate that you will be able to

elect to apply the subsequent year limits to figure your current year housing exclusion instead of using the current

year limits.

Exclusion of meals and lodging. You don’t include in

your income the value of meals and lodging provided to

you and your family by your employer at no charge if the

following conditions are met.

1. The meals are furnished:

a. On the business premises of your employer, and

b. For the convenience of your employer.

2. The lodging is furnished:

a. On the business premises of your employer,

b. For the convenience of your employer, and

c. As a condition of your employment.

If these conditions are met, don’t include the value of

the meals or lodging in your income, even if a law or your

employment contract says that they are provided as compensation.

Amounts you don’t include in income because of these

rules aren’t foreign earned income.

If you receive a Form W-2, excludable amounts

shouldn’t be included in the total reported in box 1 as wages.

Housing expenses. Housing expenses include your

reasonable expenses paid or incurred for housing in a foreign country for you and (if they live with you) for your

spouse and dependents.

Consider only housing expenses for the part of the year

that you qualify for the foreign earned income exclusion.

For a list of eligible housing expenses, see Part VI of the

Instructions for Form 2555.

Caution: No double benefit. You can’t include in

housing expenses the value of meals or lodging that you

exclude from gross income (see Exclusion of meals and

lodging, earlier).

Limit on housing expenses. The amount of qualified

housing expenses eligible for the housing exclusion and

housing deduction is limited. The standard limit is generally 30% of the maximum foreign earned income exclusion

(computed on a daily basis), multiplied by the number of

days in your qualifying period that fall within your tax year.

20

Second foreign household. Ordinarily, if you maintain two foreign households, your reasonable foreign

housing expenses include only costs for the household

that bears the closer relationship (not necessarily geographic) to your tax home. However, if you maintain a second, separate household outside the United States for

your spouse or dependents because living conditions

near your tax home are dangerous, unhealthful, or otherwise adverse, include the expenses for the second household in your reasonable foreign housing expenses. You

can’t include expenses for more than one second foreign

household at the same time. For details, see the

Instructions for Form 2555.

Foreign Housing Exclusion

If you do not have self-employment income, all of your

earnings are employer-provided amounts and your entire

housing amount is considered paid for with those employer-provided amounts. This means that you can exclude (up to the limits) your entire housing amount.

Employer-provided amounts. These include any

amounts paid to you or paid or incurred on your behalf by

your employer that are taxable foreign earned income

(without regard to the foreign earned income exclusion) to

you for the year. Employer-provided amounts include:

• Your salary,

• Any reimbursement for housing expenses,

• Amounts your employer pays to a third party on your

behalf,

• The fair rental value of company-owned housing fur-

nished to you unless that value is excluded under the

rules explained earlier under exclusion of meals and

lodging,

• Amounts paid to you by your employer as part of a tax

equalization plan, and

• Amounts paid to you or a third party by your employer

for the education of your dependents.

Chapter 4 Foreign Earned Income Exclusion, Foreign

Housing Exclusion, and Foreign Housing Deduction

Publication 54 (12-2025)

Choosing the exclusion. You can choose the foreign

housing exclusion by completing the appropriate parts of

Form 2555. Rules about choosing the foreign earned income exclusion also apply to the foreign housing exclusion.

Your foreign housing exclusion is the lesser of:

• That part of your housing amount paid for with employer-provided amounts, or

• Your foreign earned income.

If you choose the foreign housing exclusion, you must figure it before figuring your foreign earned income exclusion. You cannot claim less than the full amount of the

housing exclusion to which you are entitled.

Foreign Housing Deduction

If you don’t have self-employment income, you can’t take a

foreign housing deduction.

How you figure your foreign housing deduction depends on whether you have only self-employment income

or both self-employment income and employer-provided

income. In either case, the amount you can deduct is subject to the limit described later.

Self-employed, no employer-provided amounts. If

none of your housing amount is considered paid for with

employer-provided amounts, such as when all of your income is from self-employment, you can deduct your foreign housing amount, subject to the limit described later.

Take the deduction by including it on line 24j of Schedule

1 (Form 1040).

Self-employed and employer-provided amounts. If

you are both an employee and a self-employed individual

during the year, you can exclude the portion of your foreign housing cost amount related to wage income and deduct the portion of your foreign housing cost related to

self-employment income. To find the part that you can exclude, multiply your foreign housing amount by the employer-provided amounts (discussed earlier) and then divide the result by your foreign earned income. This is the

amount you can use to figure your foreign housing exclusion. You can deduct the balance of the foreign housing

amount, subject to the limitation described later.

Example. Your foreign housing amount for the year is

$18,000. During the year, your total foreign earned income

is $100,000, of which half ($50,000) is from self-employment and half is from your services as an employee. Half

of your foreign housing amount ($18,000 ÷ 2) is considered provided by your employer. You can exclude $9,000

as a foreign housing exclusion. You can deduct the remaining $9,000 as a foreign housing deduction subject to

the following limit below.

Limitation

Your foreign housing deduction cannot be more than your

foreign earned income minus the total of:

• Your foreign earned income exclusion, plus

Publication 54 (12-2025)

• Your foreign housing exclusion.

Carryover. You can carry over to the next year any part

of your foreign housing deduction that is not allowed because of the limitation. You are allowed to carry over your

excess foreign housing deduction to the next year only. If

you can’t deduct it in the next year, you can’t carry it over

to any other year. You deduct the carryover in figuring adjusted gross income. The amount of carryover you can deduct is limited to your foreign earned income for the year

of the carryover minus the total of your foreign earned income exclusion, foreign housing exclusion, and foreign

housing deduction for that year.

Married Couples

If both you and your spouse qualify for the foreign housing

exclusion and/or the foreign housing deduction, how you

figure the benefits depends on whether you maintain separate households.

Separate Households

If you and your spouse live apart and maintain separate

households, you both may be able to claim the foreign

housing exclusion and/or the foreign housing deduction.

You both can claim the exclusion and/or the deduction if

both of the following conditions are met.

• You and your spouse have different tax homes that

aren’t within reasonable commuting distance of each

other.

• Neither spouse's residence is within reasonable commuting distance of the other spouse's tax home.

Housing exclusion. Each spouse claiming a housing

exclusion must figure separately the part of the housing

amount that is attributable to employer-provided amounts,

based on the separate foreign earned income.

One Household

If you and your spouse live in the same foreign household

and file a joint return, you may figure your housing

amounts jointly or separately. However, if you and your

spouse live in the same foreign household and you

choose to file separate returns, you must figure your housing amounts separately.

In computing the housing amounts jointly, you can combine your housing expenses and figure one base housing

amount. Either spouse (but not both) can claim the housing exclusion and/or housing deduction. However, if you

and your spouse have different periods of residence or

presence and the one with the shorter period of residence

or presence claims the exclusion and/or deduction, you

can claim as housing expenses only the expenses for that

shorter period.

In computing housing amounts separately, spouses

must figure the housing amounts separately using the

spouse's respective base house amount. Spouses may

Chapter 4 Foreign Earned Income Exclusion, Foreign

Housing Exclusion, and Foreign Housing Deduction

21

allocate all housing expenses to one spouse or allocate

housing expenses between the spouses so long as

there's no duplication of housing expenses being excluded or deducted.

Tip: Because each spouse must use their full base

housing amount in the calculation, it may be advantageous for spouses residing together and filing jointly to allocate all housing expenses to one spouse and compute

their housing cost amounts separately.

Example. Tom and Jane live together and file a joint

return. Tom was a bona fide resident of and had his tax

home in Ghana from August 17, 2024, through December

31, 2025. Jane was a bona fide resident of and had her

tax home in Ghana from September 15, 2024, through December 31, 2025.

During 2024, Tom received $75,000 of foreign earned

income and Jane received $50,000 of foreign earned income. Tom paid $10,000 for housing expenses, of which

$7,500 was for expenses incurred from September 15

through the end of the year. Jane paid $3,000 for housing

expenses in 2024, all of which were incurred during her

period of residence in Ghana.

Tom and Jane figure their housing amount jointly. If Tom

claims the housing exclusion, their housing expenses

would be $13,000 ($10,000 + $3,000) and their base

housing amount, using Tom's 2024 period of residence

(August 17–December 31, 2024), would be $7,754

($56.60 × 137 days). Tom's housing amount would be

$5,246 ($13,000 – $7,754). If, instead, Jane claims the

housing exclusion, their housing expenses would be limited to $10,500 ($7,500 + $3,000) and their base housing

amount, using Jane's period of residence (September 15–

December 31, 2024), would be $6,113 ($56.60 × 108

days). Jane's housing amount would be $4,387 ($10,500

– $6,113).

• Contributions to individual retirement arrangements

(IRAs),

• Taxes of foreign countries and U.S. territories, and

• How to report deductions.

Useful Items

You may want to see:

Publication

501 Dependents, Standard Deduction, and Filing

Information

501

514 Foreign Tax Credit for Individuals

514

523 Selling Your Home

523

526 Charitable Contributions

526

590-A Contributions to Individual Retirement

Arrangements (IRAs)

590-A

597 Information on the United States–Canada

Income Tax Treaty

597

Form (and Instructions)

1116 Foreign Tax Credit

1116

2106 Employee Business Expenses

2106

2555 Foreign Earned Income

2555

Schedule A (Form 1040) Itemized Deductions

Schedule A (Form 1040)

Schedule C (Form 1040) Profit or Loss From

Business

Schedule C (Form 1040)

SS-5 Application for a Social Security Card

SS-5

W-7 Application for IRS Individual Taxpayer

Identification Number

W-7

For more guidance on foreign earned income exclusion, foreign housing exclusion, and foreign housing deduction, see Form 2555 and its instructions, and International practice units are available for help with questions

and issues, earlier.

5.

Deductions and Credits

Topics

This chapter discusses:

• The rules concerning items related to excluded

income,

• Contributions to foreign charitable organizations,

22

Chapter 5

See chapter 7 for information about getting these publications and forms.

Items Related to Excluded

Income

U.S. citizens and resident aliens living outside the United

States are generally allowed the same deductions as citizens and residents living in the United States.

If you choose to exclude foreign earned income or

housing amounts, you cannot deduct, exclude, or claim a

credit for any item that can be allocated to or charged

against the excluded amounts. This includes any expenses, losses, and other normally deductible items that are

allocable to the excluded income. You can deduct only

those expenses connected with earning includible income.

These rules apply only to items definitely related to the

excluded earned income and they do not apply to other

Deductions and Credits

Publication 54 (12-2025)

items that aren’t definitely related to any particular type of

gross income. These rules don’t apply to items such as:

• Qualified retirement contributions,

• Alimony payments,

• Charitable contributions,

• Medical expenses,

• Mortgage interest, or

• Real estate taxes on your personal residence.

Contributions to Individual

Retirement Arrangements

(IRAs)

For purposes of these rules, your housing deduction

isn’t treated as allocable to your excluded income, but the

deduction for self-employment tax is.

If you receive foreign earned income in a tax year after

the year in which you earned it, you may have to file an

amended return for the earlier year to properly adjust the

amounts of deductions, credits, or exclusions allocable to

your foreign earned income and housing exclusions.

Example. In 2022, you had $95,600 of foreign earned

income and $9,500 of deductions allocable to your foreign

earned income. You did not have a housing exclusion. Because you excluded all of your foreign earned income, you

would not have been able to claim any of the deductions

on your 2022 return.

In 2023, you received an $18,000 bonus for work you

did abroad in 2022. You can exclude $16,400 of the bonus

because the limit on the foreign earned income exclusion

for 2022 was $112,000 and you have already excluded

$95,600. Because you must include $1,600 of the bonus

($18,000 − $16,400) for work you did in 2022 in income,

you can file an amended return for 2021 to claim $133.80

($9,500 x $1,600/$113,600) of the deductions. These are

the deductions allocable to the foreign earned income

($9,500) multiplied by the includible portion of the foreign

earned income ($1,600) and divided by the total foreign

earned income for 2022 ($113,600).

Contributions to Foreign

Charitable Organizations

If you make contributions directly to a foreign church or

other foreign charitable organization, you generally cannot

deduct them. Exceptions are explained under Canadian,

Mexican, and Israeli charities, later.

You can deduct contributions to a U.S. organization that

transfers funds to a charitable foreign organization if the

U.S. organization controls the use of the funds by the foreign organization or if the foreign organization is just an

administrative arm of the U.S. organization.

Canadian, Mexican, and Israeli charities. Under the

income tax treaties with Canada, Mexico, and Israel, you

may be able to deduct contributions to certain Canadian,

Mexican, and Israeli charitable organizations. Generally,

you must have income from sources in Canada, Mexico,

or Israel, and the organization must meet certain requirements. See Pub. 597, Information on the United

Publication 54 (12-2025)

Chapter 5

States-Canada Income Tax Treaty, available at IRS.gov/

Pub597, and Pub. 526, Charitable Contributions, available

at IRS.gov/Pub526, for more information.

Contributions to your IRAs that are traditional IRAs or Roth

IRAs are generally limited to the lesser of the maximum

annual amount for the specific tax year, or your compensation that is includible in your gross income for the tax

year. In determining compensation for this purpose, don’t

take into account amounts you exclude under either the

foreign earned income exclusion or the foreign housing

exclusion. Don’t reduce your compensation by the foreign

housing deduction.

If you are covered by an employer retirement plan at

work, your deduction for your contributions to your traditional IRAs is generally limited based on your MAGI. This

is your adjusted gross income figured without taking into

account the foreign earned income exclusion, the foreign

housing exclusion, or the foreign housing deduction. Other

modifications are also required. For more information on

contributions to IRAs, see Pub. 590-A, Contributions to Individual Retirement Arrangements (IRAs), available at

IRS.gov/Pub590A.

Taxes of Foreign Countries and

U.S. Territories

You can take either a credit or a deduction for income

taxes paid to a foreign country or a U.S. territory. Taken as

a deduction, foreign income taxes reduce your taxable income. Taken as a credit, foreign income taxes reduce your

tax liability. You must treat all foreign income taxes the

same way. If you take a credit for any foreign income

taxes, you cannot deduct any foreign income taxes. However, you may be able to deduct other foreign taxes. See

Deduction for Other Foreign Taxes, later.

There is no rule to determine whether it is to your advantage to take a deduction or a credit for foreign income

taxes. In most cases, it is to your advantage to take foreign

income taxes as a tax credit, which you subtract directly

from your U.S. tax liability, rather than as a deduction in

figuring taxable income. However, if foreign income taxes

were imposed at a high rate and the proportion of foreign

income to U.S. income is small, a lower final tax may result

from deducting the foreign income taxes. In any event, you

should figure your tax liability both ways and then use the

one that is better for you.

You can choose to claim a credit or to change from

claiming a deduction to claiming a credit at any time during the period within 10 years from the regular due date for

filing the return (without regard to any extension of time to

Deductions and Credits

23

file) for the tax year in which the taxes were actually paid

or accrued. You can also choose to claim a deduction or

to change from claiming a credit to claiming a deduction at

any time during the period within 3 years from the time you

filed the return or 2 years from when you paid the tax,

whichever is later. This 10-year or 3-year (or 2-year) period may be extended by an agreement. You make or

change your choice on your tax return (or on an amended

return) for the year your choice is to be effective.

Foreign income taxes. These are generally income

taxes you pay to any foreign country or U.S. territory.

Foreign income taxes on U.S. return. Foreign income

taxes can only be taken as a credit on Schedule 3 (Form

1040), line 1, or as an itemized deduction on Schedule A

(Form 1040). These amounts cannot be included as withheld income taxes on Form 1040 or 1040-SR, line 25.

Foreign taxes paid on excluded income. You cannot

take a credit or deduction for foreign income taxes paid on

earnings you exclude from tax under any of the following.

• Foreign earned income exclusion.

• Foreign housing exclusion.

• Territory exclusion.

The foreign income tax for which you can claim a credit

is the amount of legal and actual tax liability you pay or accrue during the year. The amount for which you can claim

a credit is not necessarily the amount withheld by the foreign country. You can’t take a foreign tax credit for income

tax you paid to a foreign country that would be refunded

by the foreign country if you made a claim for refund.

Subsidies. If a foreign country returns your foreign tax

payments to you in the form of a subsidy, you cannot claim

a foreign tax credit based on these payments. This rule

applies to a subsidy provided by any means that is determined, directly or indirectly, by reference to the amount of

tax, or to the base used to figure the tax.

Some ways of providing a subsidy are refunds, credits,

deductions, payments, or discharges of obligations. A

credit is also not allowed if the subsidy is given to a person

related to you, or persons who participated in a transaction or a related transaction with you.

Limit

If your wages are completely excluded, you can’t deduct

or take a credit for any of the foreign taxes paid on your

wages.

If only part of your wages is excluded, you can’t deduct

or take a credit for the foreign income taxes allocable to

the excluded part. You find the taxes allocable to your excluded wages by applying a fraction to the foreign taxes

paid on foreign earned income received during the tax

year. The numerator (top number) of the fraction is your

excluded foreign earned income received during the tax

year minus deductible expenses allocable to that income

(not including the foreign housing deduction). The denominator (bottom number) of the fraction is your total foreign

earned income received during the tax year minus all deductible expenses allocable to that income (including the

foreign housing deduction).

If foreign law taxes both earned income and some other

type of income and the taxes on the other type can’t be

separated, the denominator of the fraction is the total

amount of income subject to foreign tax minus deductible

expenses allocable to that income.

Caution: If you take a foreign tax credit for tax on income you could have excluded under your choice to exclude foreign earned income or your choice to exclude foreign housing costs, one or both of the choices may be

considered revoked.

Credit for Foreign Income Taxes

If you take the foreign tax credit, you may have to file Form

1116, Foreign Tax Credit (Individual, Estate, or Trust),

available at IRS.gov/Form1116, with Form 1040 or

1040-SR. Form 1116 is used to figure the amount of foreign tax paid or accrued that can be claimed as a foreign

24

tax credit. Don’t include the amount of foreign tax paid or

accrued as withheld federal income taxes on Form 1040

or 1040-SR, line 25.

Chapter 5

The foreign tax credit is limited to the part of your total U.S.

tax that is in proportion to your taxable income from sources outside the United States compared to your total taxable income. The allowable foreign tax credit can’t be more

than your actual foreign tax liability.

Exemption from limit. You won’t be subject to this limit

and won’t have to file Form 1116 if you meet all three of

the following requirements.

• Your only foreign source income for the year is passive

income (dividends, interest, royalties, etc.) that is reported to you on a payee statement (such as a Form

1099-DIV or 1099-INT).

• Your foreign taxes for the year that qualify for the credit

are not more than $300 ($600 if you are filing a joint

return) and are reported on a payee statement.

• You elect this procedure.

If you make this election, you can’t carry back or carry

over any unused foreign tax to or from this year.

Separate limit. You must figure the limit on a separate

basis with regard to section 951A category income, foreign branch category income, passive category income,

general category income, section 901(j) income, certain

income re-sourced by treaty, and any lump-sum distributions from an employer benefit plan for which the special

averaging treatment is used to determine your tax (see the

Instructions for Form 1116).

Figuring the limit. In figuring taxable income in each

category, you take into account only the amount that you

must include in income on your federal tax return. Don’t

take any excluded amount into account.

Deductions and Credits

Publication 54 (12-2025)

To determine your taxable income in each category, deduct expenses and losses that are definitely related to that

income.

Other expenses (such as itemized deductions or the

standard deduction) not definitely related to specific items

of income must be apportioned to the foreign income in

each category by multiplying them by a fraction. The numerator (top number) of the fraction is your gross foreign

income in the separate limit category. The denominator

(bottom number) of the fraction is your gross income from

all sources. For this purpose, gross income includes income that is excluded under the foreign earned income

provisions but does not include any other exempt income.

You must use special rules for deducting interest expenses. For more information on allocating and apportioning

your deductions, see Pub. 514, Foreign Tax Credit for Individuals, available at IRS.gov/Pub514.

Recapture of foreign losses. If you have an overall foreign loss and the loss reduces your U.S. source income

(resulting in a reduction of your U.S. tax liability with respect to U.S. source income), you must recapture the loss

in later years when you have taxable income from foreign

sources. This is done by treating a part of your taxable income from foreign sources in later years as U.S. source

income. This reduces the numerator of the limiting fraction

and the resulting foreign tax credit limit.

Recapture of domestic losses. If you have an overall

domestic loss and the loss reduces your foreign source income (resulting in a reduction in the amount of foreign tax

credit you can claim for taxes paid during that year), you

must recapture the loss in later years when you have U.S.

source taxable income. This is done by treating a part of

your taxable income from U.S. sources in later years as

foreign source income. This increases the numerator of

the limitation fraction and the resulting foreign tax credit

limit.

Foreign tax credit carryback and carryover. The

amount of foreign income tax not allowed as a credit because of the limit can be carried back 1 year and carried

forward 10 years.

Schedule B (Form 1116) is used to reconcile your

prior-year foreign tax carryover with your current year foreign tax carryover. The schedule replaces the previous attachment requirement for Part III, line 10, of Form 1116.

For more information, see the Instructions for Schedule B

and the instructions for Form 1116, line 10, at Form 1116.

Deduction for Foreign Income Taxes

Instead of taking the foreign tax credit, you can deduct foreign income taxes as an itemized deduction on Schedule A (Form 1040), available at IRS.gov/ScheduleA.

You deduct only foreign income taxes paid on income

that is subject to U.S. tax. You can’t deduct foreign taxes

paid on earnings you exclude from tax under any of the

following.

• Foreign earned income exclusion.

• Foreign housing exclusion.

Publication 54 (12-2025)

Chapter 5

• Territory exclusion.

Example. You are a U.S. citizen and qualify to exclude

your foreign earned income. Your excluded wages in

Country X are $70,000 on which you paid income tax of

$10,000. You received dividends from Country X of

$2,000 on which you paid income tax of $600.

You can deduct the $600 tax payment because the dividends relating to it are subject to U.S. tax. Because you

exclude your wages, you cannot deduct the income tax of

$10,000.

If you exclude only a part of your wages, see the earlier

discussion under foreign taxes paid on excluded income.

Deduction for Other Foreign Taxes

You cannot deduct other foreign taxes, such as real property or personal property taxes, unless you incurred the

expenses in a trade or business or in the production of income.

On the other hand, you can generally deduct real property or personal property taxes when you pay them to U.S.

territories. But if you claim the territory exclusion, see Pub.

570.

The deduction for foreign taxes other than foreign income taxes isn’t related to the foreign tax credit. You can

take deductions for these miscellaneous foreign taxes and

also claim the foreign tax credit for income taxes imposed

by a foreign country.

How To Report Deductions

If you exclude foreign earned income or housing amounts,

how you show your deductions on your tax return and how

you figure the amount allocable to your excluded income

depend on whether the expenses are used in figuring adjusted gross income (Form 1040 or 1040-SR, line 11) or

are itemized deductions.

If you have deductions used in figuring adjusted gross

income, enter the total amount for each of these items on

the appropriate lines and schedules of Form 1040 or

1040-SR. Generally, you figure the amount of a deduction

related to the excluded income by multiplying the deduction by a fraction, the numerator of which is your foreign

earned income exclusion and the denominator of which is

your foreign earned income. Enter the amount of the deduction(s) related to excluded income on line 44 of Form

2555.

If you have itemized deductions related to excluded income, enter on Schedule A (Form 1040) only the part not

related to excluded income. You figure that amount by

subtracting from the total deduction the amount related to

excluded income. Generally, you figure the amount that is

related to the excluded income by multiplying the total deduction by a fraction, the numerator of which is your foreign earned income exclusion and the denominator of

which is your foreign earned income. Attach a statement

to your return showing how you figured the deductible

amount.

Deductions and Credits

25

Example 1. You are a U.S. citizen employed as an accountant. Your tax home is in Germany for the entire tax

year. You meet the physical presence test. Your foreign

earned income for the year was $129,875 and your investment income was $8,890. After excluding $120,000, your

adjusted gross income is $18,765.

Generally, mortgage interest is deductible on Schedule A (Form 1040). You paid mortgage interest on your foreign home of $15,000. Your mortgage is under $750,000.

Reduce the $15,000 of your mortgage interest by 92.3%

(0.923) ($13,845) because you excluded 92.3% (0.923)

($120,000/$129,875) of your foreign earned income.

The remaining mortgage interest of $1,155 can be deducted on line 8a or 8b of Schedule A (Form 1040).

Example 2. You are a U.S. citizen, have a tax home in

Spain, and meet the physical presence test. You are

self-employed and personal services produce the business income. Your gross income was $121,842, business

expenses were $67,695, and net income (profit) was

$54,147. You choose the foreign earned income exclusion

and exclude $120,000 of your gross income. Because

your excluded income is 98.48% (0.9848) of your total income, 98.48% (0.9848) of your business expenses are

not deductible. Report your total income and expenses on

Schedule C (Form 1040). On Form 2555, you will show

the following.

• Line 20a, $121,842, gross income.

• Lines 42 and 43, $120,000, foreign earned income exclusion.

• Line 44, $66,666 (98.48% (0.9848) × $67,695), business expenses attributable to the exclusion.

Example 3. Assume in Example 2 that both capital

and personal services combine to produce the business

income. No more than 30% of your net income or $16,244

($54,147 x 30% (0.30)), assuming that this amount is a

reasonable allowance for your services, is considered

earned and can be excluded. Your exclusion of $16,244 is

13.33% of your gross income ($16,244 ÷ $121,842). Because you excluded 13.33% of your net income, $9,024

(13.33% (0.1333) x $67,695) of your business expenses

is attributable to the excluded income and is not deductible.

Example 4. You are a U.S. citizen, have a tax home in

Brazil, and meet the physical presence test. You are

self-employed and both capital and personal services

combine to produce business income. Your gross income

was $146,000, business expenses were $172,000, and

your net loss was $26,000. A reasonable allowance for the

services you performed for the business is $77,000. Because you incurred a net loss, the earned income limit of

30% of your net profit does not apply. The $77,000 is foreign earned income. If you choose to exclude the

$77,000, you exclude 52.74% of your gross income

($77,000 ÷ $146,000), and 52.74% of your business expenses ($90,713) is attributable to that income and is not

deductible. Show your total income and expenses on

Schedule C (Form 1040). On Form 2555, exclude $77,000

and show $90,713 on line 44. Subtract line 44 from

26

Chapter 6

line 43, and enter the difference as a negative (in parentheses) on line 45. Because this amount is negative, enter

it as a positive (no parentheses) on line 8d of Schedule 1

(Form 1040), and combine it with your other income to arrive at total income on line 9 of Schedule 1 (Form 1040).

Tip: In Example 4, if this was the first year you were eligible to claim the foreign earned income exclusion, you

probably would not want to do so because you have a net

loss. However, if you have a valid election in place from an

earlier year and decide not to take the exclusion, you will

be considered to have revoked your election and cannot

claim the exclusion again for the next 5 tax years without

IRS approval. See Effect of Choosing the Exclusions and

Deduction in chapter 4.

Example 5. You are a U.S. citizen, have a tax home in

Panama, and meet the bona fide residence test. You have

been performing services for clients as a partner in a firm

that provides services exclusively in Panama. Capital investment is not material in producing the partnership's income. Under the terms of the partnership agreement, you

are to receive 50% of the net profits. The partnership received gross income of $248,000 and incurred operating

expenses of $102,250. Of the net profits of $145,750, you

received $72,875 as your distributive share.

You choose to exclude $120,000 of your share of the

gross income. Because you exclude 96.77% (0.9677)

($120,000 ÷ $124,000) of your share of the gross income,

you cannot deduct $49,474, which is 96.77% (0.9677) of

your share of the operating expenses (96.77% (0.9677) ×

$51,125). Report $72,875, your distributive share of the

partnership net profit, on Schedule E (Form 1040). On

Form 2555, show $120,000 on line 42 and show $49,474

on line 44. Your exclusion on Form 2555 is $70,521.

6.

Tax Treaty Benefits

Topics

This chapter discusses:

• Some common tax treaty benefits,

• How to get help in certain situations, and

• How to get copies of tax treaties.

Useful Items

You may want to see:

Publication

597 Information on the United States–Canada

Income Tax Treaty

597

901 U.S. Tax Treaties

901

Tax Treaty Benefits

Publication 54 (12-2025)

See chapter 7 for information about getting these publications.

Purpose of Tax Treaties

The United States has bilateral income tax treaties, also

known as conventions, with many countries. See Table 3

under the list of tax treaty tables at IRS.gov/TreatyTables

for a list of countries with which the United States has an

income tax treaty in effect.

Under these treaties, citizens and residents of the United States who are subject to taxes imposed by the foreign countries may be entitled to certain credits, deductions, exemptions, and reductions in the rate of taxes of

those foreign countries. If a foreign country with which the

United States has a treaty imposes a tax on you, you may

be entitled to benefits under the treaty.

Treaty benefits are generally available to residents of

the United States. They are generally not available to U.S.

citizens who do not reside in the United States. However,

certain treaty benefits and safeguards, such as the nondiscrimination provisions, are available to U.S. citizens residing in the treaty countries. U.S. citizens residing in a foreign country may also be entitled to benefits under that

country's tax treaties with third countries.

Certification of U.S. residency. Use Form 8802, Application for United States Residency Certification, available

at IRS.gov/Form8802, to request certification of U.S. residency for purposes of claiming benefits under a tax treaty.

Certification can be requested for the current and any

prior calendar years.

Tip: You should examine the specific treaty articles to

find if you are entitled to a tax credit, tax exemption, reduced rate of tax, or other treaty benefit or safeguard.

For more information on tax treaties, go to IRS.gov/

TreatyTables.

Common Benefits

Some common tax treaty benefits are explained below.

The credits, deductions, exemptions, reductions in rate,

and other benefits provided by tax treaties are subject to

conditions and various restrictions. Benefits provided by

certain treaties are not necessarily provided by others.

Personal service income. If you are a U.S. resident

who is in a treaty country for a limited number of days in

the tax year and you meet certain other requirements, the

payment you receive for personal services performed in

that country may be exempt from that country's income

tax.

Professors and teachers. If you are a U.S. resident,

the payment you receive for the first 2 or 3 years that you

are teaching or doing research in a treaty country may be

exempt from that country's income tax.

Publication 54 (12-2025)

Chapter 6

Students, trainees, and apprentices. If you are a

U.S. resident, amounts you receive from the United States

for study, research, or business, professional, and technical training in a treaty country may be exempt from a treaty

country's income tax.

Some treaties exempt non-compensatory grants, allowances, and awards received from governmental and certain nonprofit organizations. Also, under certain circumstances, a limited amount of pay received by students,

trainees, and apprentices for the performance of services

in a treaty country may be exempt from the income tax of

many treaty countries.

Pensions and annuities. If you are a U.S. resident,

nongovernment pensions and annuities you receive may

be exempt from the income tax of treaty countries.

Investment income. If you are a U.S. resident, investment income, such as interest and dividends, that you receive from sources in a treaty country may be exempt from

that country's income tax or taxed at a reduced rate.

Several treaties provide exemption for capital gains

(other than from sales of real property in most cases) if

specified requirements are met.

Relief from double taxation. In general, most treaties relieve double taxation through U.S. domestic law provisions that allow you to take a credit against or deduction

from U.S. tax based on the tax paid to the treaty country.

Nondiscrimination provisions. Most U.S. tax treaties provide that the treaty country cannot discriminate by

imposing more burdensome taxes on U.S. citizens who

are residents of the treaty country than it imposes on its

own citizens in the same circumstances.

Saving clauses. U.S. treaties contain saving clauses

that provide that the treaties do not affect the U.S. taxation

of its own citizens and residents. As a result, U.S. citizens

and residents cannot generally use the treaty to reduce

their U.S. tax liability.

However, most treaties provide exceptions to saving

clauses that allow certain provisions of the treaty to be

claimed by U.S. citizens or residents, such as the non-discrimination provisions. It is important that you examine the

applicable saving clause to determine if an exception applies.

More information on treaties. Pub. 901, U.S. Tax Treaties, available at IRS.gov/Pub901, contains an explanation

of treaty provisions that apply to amounts received by

teachers, students, workers, and government employees

and pensioners who are alien nonresidents or residents of

the United States. Because treaty provisions are generally

reciprocal, you can usually substitute “U.S.” for the name

of the treaty country whenever it appears, and vice versa

when “U.S.” appears in the treaty exemption discussions

in Pub. 901.

Pub. 597, Information on the United States–Canada Income Tax Treaty, available at IRS.gov/Pub597, contains

an explanation of a number of frequently used provisions

of the United States–Canada income tax treaty.

Tax Treaty Benefits

27

Competent Authority

Assistance

Taxpayer Assistance Inside the

United States

If you are a U.S. citizen or resident alien, you can request

assistance from the U.S. competent authority if you think

that the actions of the United States, a treaty country, or

both, cause or will cause you to incur a tax situation not intended by the treaty between the two countries. You

should read any treaty articles, including the mutual

agreement procedure article, that apply in your situation.

If you have questions about a tax issue; need help preparing your tax return; or want to download free publications,

forms, or instructions, go to IRS.gov to find resources that

can help you right away.

The U.S. competent authority cannot consider requests

involving countries with which the United States does not

have a tax treaty.

Instructions for how to prepare and submit a request

are available at IRS.gov/CompetentAuthority.

Your request for competent authority consideration

should be addressed to:

Commissioner

Large Business and International Division

1111 Constitution Ave. NW

Washington, DC 20224

SE:LB:TTPO:APMA:TAIT:K

NCA 570-03

(Attention: TAIT)

Preparing and filing your tax return. After receiving all

your wage and earnings statements (Forms W-2, W-2G,

1099-R, 1099-MISC, 1099-NEC, etc.); unemployment

compensation statements (by mail or in a digital format) or

other government payment statements (Form 1099-G);

and interest, dividend, and retirement statements from

banks and investment firms (Forms 1099), you have several options to choose from to prepare and file your tax return. You can prepare the tax return yourself, see if you

qualify for free tax preparation, or hire a tax professional to

prepare your return.

Free options for tax preparation. Your options for preparing and filing your return online or in your local community, if you qualify, include the following.

Obtaining Copies of Tax

Treaties

• Free File. This program lets you prepare and file your

You can get complete information about treaty provisions

from the taxing authority in the country from which you receive income or from the treaty itself. You can obtain the

text of most U.S. treaties at IRS.gov/Businesses/

International-Businesses/United-States-Income-TaxTreaties-A-to-Z. Additional information on tax treaties is

available at IRS.gov/Individuals/International-Taxpayers/

Tax-Treaties.

federal individual income tax return for free using software or Free File Fillable Forms. However, state tax

preparation may not be available through Free File. Go

to IRS.gov/FreeFile to see if you qualify for free online

federal tax preparation, e-filing, and direct deposit or

payment options.

• VITA. The Volunteer Income Tax Assistance (VITA)

program offers free tax help to people with

low-to-moderate incomes, persons with disabilities,

and limited-English-speaking taxpayers who need

help preparing their own tax returns. Go to IRS.gov/

VITA, download the free IRS2Go app, or call

800-906-9887 for information on free tax return preparation.

• TCE. The Tax Counseling for the Elderly (TCE) pro-

7.

How To Get Tax Help

If you are overseas and need tax help, see Taxpayer Assistance Outside the United States, later.

28

Tax reform. Tax reform legislation impacting federal

taxes, credits, and deductions was enacted in P.L. 119-21,

commonly known as the One Big Beautiful Bill Act on July

4, 2025. Go to IRS.gov/OBBB for more information and

updates on how this legislation affects your taxes.

Chapter 7

gram offers free tax help for all taxpayers, particularly

those who are 60 years of age and older. TCE volunteers specialize in answering questions about pensions and retirement-related issues unique to seniors.

Go to IRS.gov/TCE or download the free IRS2Go app

for information on free tax return preparation.

• MilTax. Members of the U.S. Armed Forces and qualified veterans may use MilTax, a free tax service offered by the Department of Defense through Military

OneSource. For more information, go to

MilitaryOneSource (MilitaryOneSource.mil/MilTax).

How To Get Tax Help

Publication 54 (12-2025)

Also, the IRS offers Free Fillable Forms, which can

be completed online and then e-filed regardless of

income.

Using online tools to help prepare your return. Go to

IRS.gov/Tools for the following.

• The Earned Income Tax Credit Assistant (IRS.gov/

EITCAssistant) determines if you’re eligible for the

earned income credit (EIC).

Business tax account. If you are a sole proprietor, a

partnership, or an S corporation, you can view your tax information on record with the IRS and do more with a business tax account. Go to IRS.gov/BusinessAccount for

more information.

• The Online EIN Application (IRS.gov/EIN) helps you

get an employer identification number (EIN) at no

cost.

• The Tax Withholding Estimator (IRS.gov/W4App)

makes it easier for you to estimate the federal income

tax you want your employer to withhold from your paycheck. This is tax withholding. See how your withholding affects your refund, take-home pay, or tax due.

• The Sales Tax Deduction Calculator (IRS.gov/

SalesTax) figures the amount you can claim if you

itemize deductions on Schedule A (Form 1040).

Getting answers to your tax questions. On

IRS.gov, you can get up-to-date information on

current events and changes in tax law.

• IRS.gov/Help: A variety of tools to help you get answers to some of the most common tax questions.

• IRS.gov/ITA: The Interactive Tax Assistant, a tool that

will ask you questions and, based on your input, provide answers on a number of tax topics.

• IRS.gov/Forms: Find forms, instructions, and publica-

tions. You will find details on the most recent tax

changes and interactive links to help you find answers

to your questions.

• You may also be able to access tax information in your

e-filing software.

Need someone to prepare your tax return? There are

various types of tax return preparers, including enrolled

agents, certified public accountants (CPAs), accountants,

and many others who don’t have professional credentials.

If you choose to have someone prepare your tax return,

choose that preparer wisely. A paid tax preparer is:

• Primarily responsible for the overall substantive accuracy of your return,

• Required to sign the return, and

• Required to include their preparer tax identification

number (PTIN).

Although the tax preparer always signs the return,

you're ultimately responsible for providing all the

CAUTION information required for the preparer to accurately

prepare your return and for the accuracy of every item reported on the return. Anyone paid to prepare tax returns

for others should have a thorough understanding of tax

matters. For more information on how to choose a tax preparer, go to Tips for Choosing a Tax Preparer on IRS.gov.

!

Publication 54 (12-2025)

Chapter 7

Employers can register to use Business Services Online. The Social Security Administration (SSA) offers online service at SSA.gov/employer for fast, free, and secure

W-2 filing options to CPAs, accountants, enrolled agents,

and individuals who process Form W-2, Wage and Tax

Statement; and Form W-2c, Corrected Wage and Tax

Statement.

IRS social media. Go to IRS.gov/SocialMedia to see the

various social media tools the IRS uses to share the latest

information on tax changes, scam alerts, initiatives, products, and services. At the IRS, privacy and security are our

highest priority. We use these tools to share public information with you. Don’t post your social security number

(SSN) or other confidential information on social media

sites. Always protect your identity when using any social

networking site.

The following IRS YouTube channels provide short, informative videos on various tax-related topics in English

and ASL.

• Youtube.com/irsvideos.

• Youtube.com/irsvideosASL.

Free Over-the-Phone Interpreter (OPI) Service. The

IRS is committed to serving taxpayers with limited-English

proficiency (LEP) by offering OPI services. The OPI Service is a federally funded program and is available at Taxpayer Assistance Centers (TACs), most IRS offices, and

every VITA/TCE tax return site. This service is available in

Spanish, Mandarin, Cantonese, Korean, Vietnamese,

Russian, and Haitian Creole.

Accessibility Helpline available for taxpayers with

disabilities. Taxpayers who need information about accessibility services can call 833-690-0598. The Accessibility Helpline can answer questions related to current and

future accessibility products and services available in alternative media formats (for example, braille, large print,

audio, etc.). The Accessibility Helpline does not have access to your IRS account. For help with tax law, refunds, or

account-related issues, go to IRS.gov/LetUsHelp.

Alternative media preference. Form 9000, Alternative

Media Preference, or Form 9000(SP) allows you to elect to

receive certain types of written correspondence in the following formats.

• Standard Print.

• Large Print.

• Braille.

• Audio (MP3).

• Plain Text File (TXT).

• Braille Ready File (BRF).

How To Get Tax Help

29

Disasters. Go to IRS.gov/DisasterRelief to review the

available disaster tax relief.

DirectDeposit for more information on where to find a bank

or credit union that can open an account online.

Getting tax forms and publications. Go to IRS.gov/

Forms to view, download, or print all the forms, instructions, and publications you may need. Or, you can go to

IRS.gov/OrderForms to place an order.

Reporting and resolving your tax-related identity

theft issues.

Mobile-friendly forms. You'll need an IRS Online Account (OLA) to complete mobile-friendly forms that require

signatures. You'll have the option to submit your form(s)

online or download a copy for mailing. You'll need scans of

your documents to support your submission. Go to

IRS.gov/MobileFriendlyForms for more information.

Getting tax publications and instructions in eBook

format. Download and view most tax publications and

instructions (including the Instructions for Form 1040) on

mobile devices as eBooks at IRS.gov/eBooks.

IRS eBooks have been tested using Apple's iBooks for

iPad. Our eBooks haven’t been tested on other dedicated

eBook readers, and eBook functionality may not operate

as intended.

Access your online account (individual taxpayers

only). Go to IRS.gov/Account to securely access information about your federal tax account.

• View the amount you owe and a breakdown by tax

year.

• See payment plan details or apply for a new payment

plan.

• Make a payment or view 5 years of payment history

• Tax-related identity theft happens when someone

steals your personal information to commit tax fraud.

Your taxes can be affected if your SSN is used to file a

fraudulent return or to claim a refund or credit.

• The IRS doesn’t initiate contact with taxpayers by

email, text messages (including shortened links), telephone calls, or social media channels to request or

verify personal or financial information. This includes

requests for personal identification numbers (PINs),

passwords, or similar information for credit cards,

banks, or other financial accounts.

• Go to IRS.gov/IdentityTheft, the IRS Identity Theft

Central webpage, for information on identity theft and

data security protection for taxpayers, tax professionals, and businesses. If your SSN has been lost or

stolen or you suspect you’re a victim of tax-related

identity theft, you can learn what steps you should

take.

• Get an Identity Protection PIN (IP PIN). IP PINs are

six-digit numbers assigned to taxpayers to help prevent the misuse of their SSNs on fraudulent federal income tax returns. When you have an IP PIN, it prevents someone else from filing a tax return with your

SSN. To learn more, go to IRS.gov/IPPIN.

Ways to check on the status of your refund.

and any pending or scheduled payments.

• Access your tax records, including key data from your

• Go to IRS.gov/Refunds.

• Download the official IRS2Go app to your mobile de-

• View digital copies of select notices from the IRS.

• Approve or reject authorization requests from tax pro-

• Call the automated refund hotline at 800-829-1954.

most recent tax return, and transcripts.

fessionals.

Get a transcript of your return. With an online account, you can access a variety of information to help you

during the filing season. You can get a transcript, review

your most recently filed tax return, and get your adjusted

gross income. Create or access your online account at

IRS.gov/Account.

Tax Pro Account. This tool lets your tax professional

submit an authorization request to access your individual

taxpayer IRS OLA. For more information, go to IRS.gov/

TaxProAccount.

Using direct deposit. The safest and easiest way to receive a tax refund is to e-file and choose direct deposit,

which securely and electronically transfers your refund directly into your financial account. Direct deposit also

avoids the possibility that your check could be lost, stolen,

destroyed, or returned undeliverable to the IRS. Eight in

10 taxpayers use direct deposit to receive their refunds. If

you don’t have a bank account, go to IRS.gov/

30

Chapter 7

vice to check your refund status.

The IRS can’t issue refunds before mid-February

for returns that claimed the EIC or the additional

CAUTION child tax credit (ACTC). This applies to the entire

refund, not just the portion associated with these credits.

!

Making a tax payment. The IRS recommends paying

electronically whenever possible. Options to pay electronically are included in the list below. Payments of U.S. tax

must be remitted to the IRS in U.S. dollars. Digital assets

are not accepted. Go to IRS.gov/Payments for information

on how to make a payment using any of the following options.

• IRS Direct Pay: Pay taxes from your bank account. It’s

free and secure, and no sign-in is required. You can

change or cancel within two days of scheduled payment.

• Debit Card, Credit Card, or Digital Wallet: Choose an

approved payment processor to pay online or by

phone.

• Electronic Funds Withdrawal: Schedule a payment

when filing your federal taxes using tax return preparation software or through a tax professional.

How To Get Tax Help

Publication 54 (12-2025)

• Electronic Federal Tax Payment System: This is the

best option for businesses. Enrollment is required.

• Check or Money Order: Mail your payment to the address listed on the notice or instructions.

• Cash: You may be able to pay your taxes with cash at

a participating retail store.

• Same-Day Wire: You may be able to do same-day

wire from your financial institution. Contact your financial institution for availability, cost, and time frames.

Note: The IRS uses the latest encryption technology

to ensure that the electronic payments you make online,

by phone, or from a mobile device using the IRS2Go app

are safe and secure. Paying electronically is quick and

easy.

What if I can’t pay now? Go to IRS.gov/Payments for

more information about your options.

• Apply for an online payment agreement (IRS.gov/

OPA) to meet your tax obligation in monthly installments if you can’t pay your taxes in full today. Once

you complete the online process, you will receive immediate notification of whether your agreement has

been approved.

• Use the Offer in Compromise Pre-Qualifier to see if

you can settle your tax debt for less than the full

amount you owe. For more information on the Offer in

Compromise program, go to IRS.gov/OIC.

Filing an amended return. Go to IRS.gov/Form1040X

for information and updates.

Checking the status of your amended return. Go to

IRS.gov/WMAR to track the status of Form 1040-X amended returns.

It can take up to 3 weeks from the date you filed

your amended return for it to show up in our sysCAUTION tem, and processing it can take up to 16 weeks.

!

Understanding an IRS notice or letter you’ve received. Go to IRS.gov/Notices to find additional information about responding to an IRS notice or letter.

IRS Document Upload Tool. You may be able use the

Document Upload Tool to respond digitally to eligible IRS

notices and letters by securely uploading required documents online through IRS.gov. For more information, go to

IRS.gov/DUT.

Schedule LEP. You can use Schedule LEP (Form 1040),

Request for Change in Language Preference, to state a

preference to receive notices, letters, or other written communications from the IRS in an alternative language. You

may not immediately receive written communications in

the requested language. The IRS’s commitment to LEP

taxpayers is part of a multi-year timeline that began providing translations in 2023. You will continue to receive

communications, including notices and letters, in English

until they are translated to your preferred language.

Publication 54 (12-2025)

Chapter 7

Contacting your local TAC. Keep in mind, many questions can be answered on IRS.gov without visiting a TAC.

Go to IRS.gov/LetUsHelp for the topics people ask about

most. If you still need help, TACs provide tax help when a

tax issue can’t be handled online or by phone. All TACs

now provide service by appointment, so you’ll know in advance that you can get the service you need without long

wait times. Before you visit, go to IRS.gov/TACLocator to

find the nearest TAC and to check hours, available services, and appointment options. Or, on the IRS2Go app,

under the Stay Connected tab, choose the Contact Us option and click on “Local Offices.”

————————————————————————

Below is a message to you from the Taxpayer Advocate

Service, an independent organization established by Congress.

The Taxpayer Advocate Service (TAS)

Is Here To Help You

What Is the Taxpayer Advocate Service?

The Taxpayer Advocate Service (TAS) is an Independent

organization within the Internal Revenue Service (IRS).

TAS helps taxpayers resolve problems with the IRS,

makes administrative and legislative recommendations to

prevent or correct the problems, and protects taxpayer

rights. We work to ensure that every taxpayer is treated

fairly and that you know and understand your rights under

the Taxpayer Bill of Rights. We are Your Voice at the IRS.

How Can TAS Help Me?

TAS can help you resolve problems that you haven’t been

able to resolve with the IRS on your own. Always try to resolve your problem with the IRS first, but if you can’t, then

come to TAS. Our services are free.

• TAS helps all taxpayers (and their representatives), including individuals, businesses, and exempt organizations. You may be eligible for TAS help if your IRS

problem is causing financial difficulty, if you’ve tried

and been unable to resolve your issue with the IRS, or

if you believe an IRS system, process, or procedure

just isn't working as it should.

• To get help any time with general tax topics, visit

www.TaxpayerAdvocate.IRS.gov. The site can help

you with common tax issues and situations, such as

what to do if you make a mistake on your return or if

you get a notice from the IRS.

• TAS works to resolve large-scale (systemic) problems

that affect many taxpayers. You can report systemic issues at www.IRS.gov/SAMS. (Be sure not to include

any personal identifiable information.)

How To Get Tax Help

31

How Do I Contact TAS?

TAS has offices in every state, the District of Columbia,

and Puerto Rico. To find your local advocate’s number:

• Go to www.TaxpayerAdvocate.IRS.gov/Contact-Us,

• Check your local directory, or

• Call TAS toll free at 877-777-4778.

What Are My Rights as a Taxpayer?

The Taxpayer Bill of Rights describes ten basic rights that

all taxpayers have when dealing with the IRS. Go to

www.TaxpayerAdvocate.IRS.gov/Taxpayer-Rights

for

more information about the rights, what they mean to you,

and how they apply to specific situations you may encounter with the IRS. TAS strives to protect taxpayer rights and

ensure the IRS is administering the tax law in a fair and

equitable way.

Taxpayer Assistance Outside

the United States

Taxpayer Advocate Service (TAS). If you live outside

the United States, you can contact TAS at:

Internal Revenue Service

Taxpayer Advocate Service

City View Plaza, 48 Carr 165, 5th floor, Suite 2000

Guaynabo, PR 00968-8000

You can also contact TAS by using the following

methods.

• Telephone—15.15.56.46.827. Your call will be auto-

matically routed to Hawaii or Puerto Rico depending

on your location. If you select Spanish, your call will be

routed to the Puerto Rico office for assistance.

• Fax—304-707-9793.

• Email—tas.international@irs.gov.

For more information on TAS and contacts if you

are outside of the United States, go to

TaxpayerAdvocate.IRS.gov/Get-Help/

International/.

If you are outside the United States, you can call

267-941-1000 (English-speaking only). This number is not toll free.

Fax 681-247-3101 (for international tax account

issues only).

If you wish to write instead of calling, please address your letter to:

Internal Revenue Service

International Accounts

Philadelphia, PA 19255-0725

Additional contacts for taxpayers who live outside the United States are available at IRS.gov/help/Contact-MyLocal-Office-Internationally.

32

Publication 54 (12-2025)

Questions and Answers

This section answers tax-related questions commonly

asked by taxpayers living abroad.

1) When are U.S. income tax returns due?

the foreign earned income exclusion. You must report your

worldwide income on the return. If you paid a foreign tax

on the income earned abroad, you may be able to either

deduct this tax as an itemized deduction or claim it as a

credit against your U.S. income tax.

Generally, for calendar-year taxpayers, U.S. income tax returns are due on April 15. If you are a U.S. citizen or resident and both your tax home and your abode are outside

the United States and Puerto Rico on the regular due

date, an automatic extension is granted to June 15 for filing the return. Interest will be charged on any tax due, as

shown on the return, from April 15.

5) I am a U.S. citizen and have no taxable income

from the United States, but I have substantial income

from a foreign source. Am I required to file a U.S.

income tax return?

Filing Requirements—Where, When, and How

2) I am going abroad this year and expect to qualify

for the foreign earned income exclusion. How can I

secure an extension of time to file my return, when

should I file my return, and what forms are required?

a) You should file Form 2350 by the due date of your return to request an extension of time to file. Form 2350 is a

special form for those U.S. citizens or residents abroad

who expect to qualify for the foreign earned income exclusion or the housing exclusion or deduction under either

the bona fide residence test or physical presence test and

would like to have an extension of time to delay filing until

after they have qualified.

b) If the extension is granted, you should file your return

after you qualify, but by the approved extension date.

c) You must file your Form 1040 or 1040-SR with Form

2555.

3) My entire income qualifies for the foreign earned

income exclusion. Must I file a tax return?

Generally, yes. Every U.S. citizen or resident who receives

income must file a U.S. income tax return unless total income without regard to the foreign earned income exclusion is below an amount based on filing status. The income levels for filing purposes are discussed under filing

requirements in chapter 1.

4) I was sent abroad by my company in November of

last year. I plan to secure an extension of time on

Form 2350 to file my tax return for last year because I

expect to qualify for the foreign earned income

exclusion under the physical presence test. However,

if my company recalls me to the United States before

the end of the qualifying period and I find I will not

qualify for the exclusion, how and when should I file

my return?

If your regular filing date has passed, you should file a return, Form 1040 or 1040-SR, as soon as possible for last

year. Include a statement with this return noting that you

have returned to the United States and won’t qualify for

Publication 54 (12-2025)

However, if you pay the tax due after the regular due

date, interest will be charged from the regular due date

until the date the tax is paid.

Yes. All U.S. citizens and resident aliens are subject to

U.S. tax on their worldwide income. If you paid taxes to a

foreign government on income from sources outside the

United States, you may be able to claim a foreign tax

credit against your U.S. income tax liability for the foreign

taxes paid. Form 1116 is used to figure the allowable

credit.

6) I am a U.S. citizen who has retired, and I expect to

remain in a foreign country. Do I have any further

U.S. tax obligations?

Your U.S. tax obligation on your income is the same as

that of a retired person living in the United States. (See the

discussion on filing requirements in chapter 1 of this publication.)

7) I have been a bona fide resident of a foreign

country for over 5 years. Is it necessary for me to pay

estimated tax?

U.S. taxpayers overseas have the same requirements for

paying estimated tax as those in the United States. See

the discussion under Estimated Tax Payments in chapter 1.

Overseas taxpayers should not include in their estimated income any income they receive that is or will be exempt from U.S. taxation.

Overseas taxpayers can deduct their estimated housing deduction in figuring their estimated tax.

The first installment of estimated tax is due on April 15

of the year for which the income is earned.

8) Will a check payable in foreign currency be

acceptable in payment of my U.S. tax?

Generally, only U.S. currency is acceptable for payment of

income tax. However, if you are a Fulbright grantee, see

Fulbright Grant in chapter 1.

33

9) I have met the test for physical presence in a

foreign country and am filing returns for 2 years.

Must I file a separate Form 2555 with each return?

Yes. A Form 2555 must be filed with each Form 1040 or

1040-SR tax return on which the benefits of income

earned abroad are claimed.

10) Does a Form 2555 with a Schedule C or Form W-2

attached constitute a return?

No. The Form 2555, Schedule C, and Form W-2 are

merely attachments and do not relieve you of the requirement to file a Form 1040 or 1040-SR to show the sources

of income reported and the exclusions or deductions

claimed.

11) On Form 2350, Application for Extension of Time

To File U.S. Income Tax Return, I stated that I would

qualify for the foreign earned income exclusion

under the physical presence test. If I qualify under

the bona fide residence test, can I file my return on

that basis?

Yes. You can claim the foreign earned income exclusion

and the foreign housing exclusion or deduction under either test as long as you meet the requirements. You are

not bound by the test indicated in the application for extension of time. You must be sure, however, that you file

the Form 1040 or 1040-SR by the date approved on Form

2350 because a return filed after that date may be subject

to a failure-to-file penalty.

If you will not qualify under the bona fide residence test

until a date later than the extension granted under the

physical presence rule, apply for a new extension to a

date 30 days beyond the date you expect to qualify as a

bona fide resident.

12) I am a U.S. citizen who worked in the United

States for 6 months last year. I accepted employment

overseas in July of last year and expect to qualify for

the foreign earned income exclusion. Should I file a

return and pay tax on the income earned in the

United States during the first 6 months and then

when I qualify file another return covering the last 6

months of the year?

No. You have the choice of one of the following two methods of filing your return.

a) You can file your return when due under the regular

filing rules, report all your income without excluding your

foreign earned income, and pay the tax due. After you

have qualified for the exclusion, you can file an amended

return, Form 1040-X, accompanied by Form 2555, for a refund of any excess tax paid.

b) You can postpone the filing of your tax return by applying on Form 2350 for an extension of time to file to a

date 30 days beyond the date you expect to qualify under

either the bona fide residence test or the physical

presence test, then file your return reflecting the exclusion

34

of foreign earned income. This allows you to file only once

and saves you from paying the tax and waiting for a refund. However, interest is charged on any tax due on the

postponed tax return, but interest is not paid on refunds

paid within 45 days after the return is filed.

13) I am a U.S. citizen. I have lived abroad for a

number of years and recently realized that I should

have been filing U.S. income tax returns. How do I

correct this oversight in not having filed returns for

these years?

File the late returns as soon as possible, stating your reason for filing late. For advice on filing the returns, you

should contact an IRS representative.

14) In 2019, I qualified to exclude my foreign earned

income, bu

This text is long and has been trimmed here. Open the source document for the complete record.