Amount of Exclusion
The maximum exclusion is $95,100 for 2012 ($97,600 for 2013, increasing annually based on the inflation rate) plus the "housing exclusion".
The amount of exclusion that a taxpayer is entitled to is equal to the lesser of foreign earned income for the year or the maximum exclusion, divided by the total number of days (365 or 366) in the year times the number of "qualifying days". The exclusion is then reduced by 1/2 of self-employment tax.
The "housing exclusion" is the amount of housing expenses in excess of 16% of the exclusion limit, computed on a daily basis. It is also based on the number of qualifying days, and is limited to a specific dollar amount based on the location of housing.
The exclusion is limited to income earned by a taxpayer for performance of services outside the U.S. This includes salary, bonus, and self-employment income. Where income relates to services both in the U.S. and outside the U.S., the income must be apportioned.
Special rules apply to Foreign Service and military personnel.
Read more about this topic: Foreign Earned Income Exclusion
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