IRS Form 673: How U.S. Expats Can Claim Exemption From U.S. Income Tax Withholding

ByRandall Brody, Enrolled Agent Updated on Expat Tax Forms Guide
Form 673

U.S. citizens working abroad may qualify to reduce or stop federal income tax withholding from wages earned overseas. IRS Form 673 helps you do that when your foreign wages qualify for the Foreign Earned Income Exclusion or the foreign housing exclusion under Section 911.

IRS Form 673 does not go to the IRS. You give it to your U.S. employer so your employer can adjust federal income tax withholding on eligible foreign earned income.

This form can improve cash flow during the year, but it also creates risk if you claim the exemption too early or later fail to qualify. Before you file IRS Form 673 with your employer, make sure you understand who can use it, how it works, and what it does not cover.

What Is IRS Form 673?

You can use IRS Form 673 only if you are a U.S. citizen working abroad and you expect to qualify for the Foreign Earned Income Exclusion or the foreign housing exclusion.

The form tells your U.S. employer that you expect part or all of your foreign wages to qualify for the Foreign Earned Income Exclusion or foreign housing exclusion. Your employer can then stop or reduce federal income tax withholding on those wages.

For tax year 2026, the maximum Foreign Earned Income Exclusion is $132,900 per qualifying person. The 2025 limit is $130,000. These limits change each year for inflation.

IRS Form 673 only affects federal income tax withholding. It does not apply to Social Security, Medicare, state tax, or other payroll withholding obligations.

Who Can File IRS Form 673?

You can use IRS Form 673 only if you are a U.S. citizen working abroad, have (or expect to have) a tax home in a foreign country, and expect to qualify for the Foreign Earned Income Exclusion or the foreign housing exclusion under the physical presence test or the bona fide residence test.

To qualify for the Foreign Earned Income Exclusion, you generally need foreign earned income, a tax home in a foreign country, and must meet one of these tests:

  • Physical Presence Test: You meet the physical presence test when you spend at least 330 full days in a foreign country or countries during any 12-month period. This test focuses on the number of days abroad. It does not depend on your intent to live abroad permanently.
  • Bona Fide Residence Test: You meet the bona fide residence test when you qualify as a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year. This test looks at your facts and circumstances, including your housing, work arrangement, local ties, and intent to remain abroad.

Can Resident Aliens Use IRS Form 673?

No. The IRS states that IRS Form 673 can only be used by U.S. citizens.

A resident alien may still qualify for the Foreign Earned Income Exclusion in some cases, but they cannot use IRS Form 673 to stop withholding through a U.S. employer. Instead, they generally claim the exclusion when filing their U.S. tax return with Form 2555.

How to File IRS Form 673?

IRS Form 673 works like a withholding instruction for your employer. Here’s how the process usually works:

  1. You review whether your foreign wages may qualify under Section 911.
  2. You complete IRS Form 673 with your expected foreign earned income and qualifying period abroad.
  3. You give the completed form to your U.S. employer.
  4. Your employer adjusts federal income tax withholding based on the form.
  5. You still file your annual U.S. tax return and claim the exclusion using Form 2555.

Your employer keeps the form. You do not send IRS Form 673 directly to the IRS.

What Does IRS Form 673 Not Cover?

IRS Form 673 does not:

  • Eliminate your need to file a U.S. tax return
  • Automatically prove you qualify for the Foreign Earned Income Exclusion
  • Stop Social Security or Medicare tax by itself
  • Cover income that does not qualify as foreign earned income
  • Apply to self-employment income
  • Replace Form 2555
  • Remove foreign account reporting requirements, such as FBAR or FATCA reporting

If you work abroad as an employee of a U.S. company, your wages may still face Social Security and Medicare withholding. This depends on your facts, employer setup, and whether a totalization agreement applies.

What Income Can IRS Form 673 Apply To?

IRS Form 673 applies to eligible wages earned for services performed outside the United States. Examples may include:

  • Salary from a U.S. employer while working overseas
  • Bonuses tied to foreign work
  • Allowances connected to foreign employment
  • Housing amounts that may qualify under the foreign housing exclusion

It does not apply to income such as:

  • Investment income
  • Pension income
  • Rental income
  • U.S.-source wages
  • Self-employment income
  • Dividends or capital gains

Only earned income from work performed abroad can qualify for the Foreign Earned Income Exclusion.

What Are The Risks Of Filing IRS Form 673?

IRS Form 673 can help reduce withholding, but it can create tax problems when used incorrectly. The biggest risk comes from claiming the exemption before you actually qualify. For example, you may expect to meet the physical presence test but return to the United States too early. You may also change jobs, move back to the U.S., or lose foreign residence status before the year ends.

If you do not qualify, you may owe federal income tax when you file your return. You may also face underpayment penalties if too little tax was withheld or paid during the year.

Before giving IRS Form 673 to your employer, review your travel schedule, work location, tax home, and expected income. A small mistake can lead to a surprise tax bill.

When Should You Avoid Filing IRS Form 673?

You should be careful about filing IRS Form 673 if your situation may change during the year. You may want to wait or speak with an expat tax professional if:

  • You’re not sure you will meet the 330-day rule
  • You frequently travel back to the United States
  • You recently moved abroad
  • Your employer may transfer you back to the U.S.
  • Your income may exceed the exclusion limit
  • You live in a country with high foreign taxes and may benefit more from the Foreign Tax Credit
  • You have self-employment income or foreign business ownership
  • You have state tax residency concerns

IRS Form 673 should match your actual tax plan. It should not be used only to stop withholding without reviewing your full U.S. tax picture.

IRS Form 673 vs. Form 2555: What’s The Difference?

IRS Form 673 helps reduce or stop federal income tax withholding during the year. You give it to your employer.
Form 2555 claims the Foreign Earned Income Exclusion on your annual U.S. tax return. You file it with your Form 1040.

You may use both forms in the same year. Form 673 handles payroll withholding. Form 2555 handles the actual tax return claim. If you give Form 673 to your employer but fail to file Form 2555 with your return, the IRS may not allow the exclusion.

How To File IRS Form 673 With Your Employer

To file IRS Form 673, complete the form and give it to your employer or payroll department. Before submitting it, confirm these details:

  • Your foreign work location
  • Your qualifying period abroad
  • Whether you plan to use the physical presence test or bona fide residence test
  • Your estimated foreign earned income
  • Your expected housing exclusion, if any
  • Whether your employer understands that the form only applies to federal income tax withholding

Keep a copy of the completed form for your records. You should also keep travel logs, employment records, housing documents, and foreign residency records in case the IRS later questions your exclusion.

Do You Still Need To File A U.S. Tax Return?

Yes. IRS Form 673 does not remove your filing requirement.

U.S. citizens must generally report worldwide income, even while living abroad. If you claim the Foreign Earned Income Exclusion, you must file a U.S. tax return and attach Form 2555.

You may also need to file other forms depending on your foreign accounts, investments, business ownership, or foreign assets.

Frequently Asked Questions

IRS Form 673 is used by U.S. citizens working abroad to claim an exemption from federal income tax withholding on eligible foreign earned income. You give the form to your U.S. employer. It does not get filed directly with the IRS.

No. IRS Form 673 only applies to federal income tax withholding on eligible foreign earned income. It does not automatically stop Social Security, Medicare, state tax, or other payroll withholding.

No. IRS Form 673 can only be used by U.S. citizens. Some resident aliens may qualify for the Foreign Earned Income Exclusion, but they generally claim it on their tax return using Form 2555.

Yes. IRS Form 673 only affects withholding during the year. You still need to file Form 2555 with your U.S. tax return to claim the Foreign Earned Income Exclusion.

You may owe federal income tax when you file your return. You may also owe penalties and interest if not enough tax was withheld or paid during the year.

No. IRS Form 673 applies to wages paid by an employer. Self-employed expats cannot use it to stop withholding, but they may still qualify for the Foreign Earned Income Exclusion on Form 2555.

Work With An Expat Tax Specialist Before You File IRS Form 673

IRS Form 673 can help U.S. citizens working abroad keep more money in each paycheck. But it only works when your income, travel schedule, and tax position support the claim.

If you file the form and later fail to qualify for the Foreign Earned Income Exclusion, you may owe tax, penalties, and interest when your return is filed.

At Tax Samaritan, we help Americans abroad review their eligibility, prepare accurate expat tax returns, and avoid costly withholding mistakes. If you work overseas for a U.S. employer and need help with IRS Form 673, Form 2555, or your full expat tax return, request a free quote today.

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Every effort has been made to provide accurate and current tax information. This article is not a substitute for professional tax advice based on your individual circumstances. Tax law changes frequently. Please consult a qualified tax professional before making decisions based on this content.

Wrapping It Up

If you’re investing outside the U.S. or considering foreign investments, make sure that you understand the U.S. tax implications. This will help to reduce unnecessary interest and income tax. Remember that the tax rules for U.S. expats are complex and can be confusing. Check with a tax professional to ensure you’re always on top of your tax obligations.

Tax Samaritan aims to provide our clients with the best counsel, advocacy, and personal service. We are not only expat tax preparation and representation experts but strive to become valued business partners. Tax Samaritan understands our clients’ unique needs; every tax situation requires a personal approach to providing realistic and effective solutions.

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Randall Brody

All About Randall Brody

Randall is the Founder of Tax Samaritan, a boutique firm specializing in the preparation of taxes and the resolution of tax problems for Americans living abroad, as well as the other unique tax issues that apply to taxpayers. Here, they help taxpayers save money on their tax returns.

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