If you are working abroad for a U.S. employer, you may be eligible to have your federal income tax withholding reduced by the expected tax benefit for the foreign earned income exclusion and foreign housing exclusion.
File IRS Form 673 To Claim Exemption From U.S. Income Tax Withholding
IRS Form 673, Statement for Claiming Exemption From Withholding on Foreign Earned Income Eligible for the Exclusion(s) Provided by Section 911 can be completed and provided to your U.S. employer to claim an exemption from U.S. income tax withholding on wages earned abroad to the extent of the foreign earned income exclusion and foreign housing exclusion.
Who Can File IRS Form 673
U.S. citizens claiming Section 911 exemption for foreign earned income and qualified housing expenses. Resident aliens are not allowed to file Form 673.
How To File IRS Form 673
Similar to the Form W-4, the Form 673 is provided to your U.S. employer. The IRS Form 673 authorizes your employer to not withhold federal income tax from wages you earn while working abroad. However, it doesn’t apply to Medicare and Social Security tax withholding. There is no exemption applicable for these taxes while you are employed by a U.S. employer.
IRS Form 673 Risks
There are risks that must be considered when filing the Form 673. Namely, if you end up not qualifying for the Section 911 exemption (the “foreign earned income exclusion”), then you will owe tax on your income tax return. In addition, you may also have a penalty for the underpayment of taxes during the reporting tax year.
If you provide the Form 673 to your employer, it is important to be certain that you will qualify for the foreign earned income exclusion.
Our goal at Tax Samaritan is to provide the best counsel, advocacy and personal service for our clients. We are not only tax preparation and representation experts, but strive to become valued business partners. Tax Samaritan is committed to understanding our client’s unique needs; every tax situation is different and requires a personal approach in providing realistic and effective solutions.
If you are working for a U.S. employer overseas and need assistance with the preparation of your Form 673, U.S. tax return or determining your qualification for the foreign earned income exclusion, please click on the button below for a free quote and/or free 30-minute consultation.
Tax Samaritan is a team of Enrolled Agents with over 25 years of experience focusing on US tax preparation and representation. We maintain this tax blog where all articles are written by Enrolled Agents. Our main objective is to educate US taxpayers on their tax responsibilities and the selection of a tax professional. Our articles are also designed to help taxpayers looking to self prepare, providing specific tips and pitfalls to avoid.
When looking for a tax professional, choose carefully. We recommend that you hire a credentialed tax professional such as Tax Samaritan that is an Enrolled Agent (America’s Tax Experts). If you are a US taxpayer overseas, we further recommend that you seek a professional who is experienced in expat tax preparation, like Tax Samaritan (most tax professionals have limited to no experience with the unique tax issues of expat taxpayers).
Randall Brody is an enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics.
Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.