Introduction

If you are a U. S. citizen working for the U.S. Government, including the foreign service, and you are stationed abroad, your income tax filing requirements are generally the same as those for citizens and residents living in the United States. You are taxed on your worldwide income, even though you live and work abroad.

However, you may receive certain allowances and have certain expenses that you generally do not have while living in the United States. This publication explains:

• Many of the allowances, reimbursements, and property sales you are likely to have, and whether or not you must report them as income on your tax return, and
• Many of the expenses you are likely to have, such as moving expenses and foreign taxes, and whether or not you can deduct them on your tax return.

U.S. possessions.   This publication does not cover the rules that apply if you are stationed in American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, the Virgin Islands, or Puerto Rico. That information is in Publication 570, Tax Guide for Individuals With Income From U.S. Possessions.

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

You can e-mail us while visiting our web site at www.irs.gov/help/email2.html.

You can write to us at the following address:

Internal Revenue Service
Technical Publications Branch
W:CAR:MP:FP:P
1111 Constitution Ave. NW
Washington, DC 20224

We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.

Useful Items You may want to see:

Publication

• 54   Tax Guide for U.S. Citizens and Resident Aliens Abroad
• 463   Travel, Entertainment, Gift, and Car Expenses
• 514   Foreign Tax Credit for Individuals
• 521   Moving Expenses
• 523   Selling Your Home

Form (and Instructions)

• Schedule A   (Form 1040) Itemized Deductions
• 1116   Foreign Tax Credit
• 2106   Employee Business Expenses
• 2106-EZ   Unreimbursed Employee Business Expenses
• 3903   Moving Expenses
• 4868   Application for Automatic Extension of Time To File U.S. Individual Income Tax Return
• TD F 90-22.1   Report of Foreign Bank and Financial Accounts

See How To Get Tax Help, near the end of this publication, for information about getting these publications and forms.

Filing Information

If you are a U.S. citizen or resident living or traveling outside the United States, you are generally required to file income tax returns in the same way as those residing in the United States. However, the special rules explained in the following discussions may apply to you.

When To File and Pay

If you file on the basis of a calendar year, the due date for filing your return and paying your tax is April 15 of the following year. If you get an extension, you are allowed additional time to file and, in some circumstances, pay your tax. You must pay interest on any tax not paid by the regular due date.

If the due date for any tax related act, such as filing a return or paying taxes, falls on a Saturday, Sunday, or legal holiday, you can do that act on the next business day.

Your return is considered filed on time if it is postmarked by the U.S. Postal Service, or dated by a designated delivery service, on or before the due date (including extensions). See your tax form instructions for a list of private delivery services that have been designated by the IRS to meet this timely mailing as timely filing/paying rule for tax returns and payments.

If your return is filed late, the postmark or delivery service date does not determine the date of filing. In that case, your return is considered filed when it is received by the IRS.

Automatic 2-month extension.   You can get an automatic 2-month extension (to June 15, for a calendar year return) to file your return and pay your tax if you are a U.S. citizen or resident and, on the regular due date of your return, you are living outside the United States and Puerto Rico and your main place of business or post of duty is outside the United States and Puerto Rico. To get this extension, you must attach a statement to your return explaining how you qualified.

Married taxpayers.   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, the extension applies only to the spouse who qualifies.

Automatic 4-month extension.   You can get an automatic 4-month extension (to August 15, for calendar year returns) to file your return by filing Form 4868. You must file Form 4868 by the due date for your income tax return.

If you qualify for the automatic 2-month extension, the 4-month extension allows you an additional 2 months (until August 15) to file your return. You must file Form 4868 by June 15, the due date for your return as extended by the 2-month extension. Write Taxpayer Abroad across the top of Form 4868.

You should estimate and pay any additional tax you owe when you file Form 4868 to avoid being charged a late-payment penalty. The late-payment penalty applies if, through withholding, etc., you paid less than 90% of your actual tax liability by the original due date of your income tax return. Even if the late-payment penalty does not apply, you will be charged interest on any unpaid tax liability from the original due date of the return until the tax is paid.

Electronic filing.   If you do not qualify for the automatic 2-month extension, you can file for the 4-month extension by phone, using tax software, or through a tax professional. See Form 4868 for more information.

Extension beyond 4 months.   If the automatic 4-month extension does not give you enough time, you may be able to get additional time to file.

You can apply for an extension beyond the 4-month period by writing a letter to the IRS or by filing Form 2688, Application for Additional Extension of Time To File U.S. Individual Income Tax Return. You should request the extension early so that, if your request is denied, you will still be able to file on time.

You generally cannot get a total extension of more than 6 months. However, if you are outside the United States and meet certain tests, you may be able to get a longer extension.

For more information see Publication 54.

Combat zone participants.   If you were a civilian who served in a combat zone or qualified hazardous duty area in support of the U.S. Armed Forces, you can get certain extensions of deadlines for filing tax returns, paying taxes, filing claims for refund, and doing certain other tax-related acts. For details, see Publication 3, Armed Forces' Tax Guide.

Death due to terrorist or military action.   U.S. income taxes are forgiven for a U.S. Government civilian employee who dies as a result of wounds or injuries incurred while employed by the U.S. Government outside the United States. The wounds or injuries must have been caused by terrorist or military action directed against the United States or its allies. The taxes are forgiven for the deceased employee's tax years beginning with the year immediately before the year in which the wounds or injury occurred and ending with the year of death.

If the deceased government employee and the employee's spouse filed a joint return, only the decedent's part of the joint tax liability is forgiven.

For additional details, see Publication 559, Survivors, Executors, and Administrators.

Foreign Bank Accounts

You must file Form TD F 90-22.1 if at any time during the year you had an interest in, or signature or other authority over, a bank account, securities account, or other financial account in a foreign country. This applies if the combined assets in the account(s) were more than $10,000. Do not include accounts in a U.S. military banking facility operated by a U.S. financial institution.

File the completed form, by June 30 of the following year, with the Department of the Treasury at the address shown on that form. Do not attach it to Form 1040.

Foreign Income

If you are a U.S. citizen or resident with income from sources outside the United States, you must report all that income on your tax return unless it is exempt by U.S. law. This applies to earned income (such as wages) as well as unearned income (such as interest, dividends, and capital gains).

Foreign earned income exclusion and foreign housing exclusion and deduction.   Certain taxpayers can exclude or deduct income earned in foreign countries. However, the foreign earned income and housing exclusions and the foreign housing deduction do not apply to the income you receive as an employee of the U.S. Government.

U.S. agency reimbursed by foreign country.   If you are a U.S. Government employee paid by a U.S. agency to perform services in a foreign country, your pay is from the U.S. Government and does not qualify for the exclusions or the deduction. This is true even if the U.S. agency is reimbursed by the foreign government.

Employees of post exchanges, etc.   If you are an employee of an Armed Forces post exchange, officers' and enlisted personnel club, embassy commissary, or similar instrumentality of the U.S. Government, the earnings you receive are paid by the U.S. Government. This is true whether they are paid from appropriated or nonappropriated funds. These earnings are not eligible for the foreign earned income and housing exclusions or the foreign housing deduction.

Other employment.   If you are a U.S. citizen or resident employed abroad by the U.S. Government and you also receive income from a private employer or self-employment, you may qualify to claim the exclusions or the deduction applicable to this other income. To qualify, you must meet either the bona fide residence test or the physical presence test. Your spouse who is a U.S. citizen or resident alien may also qualify if he or she earns income in a foreign country that is paid by a private employer or is from self-employment. Amounts paid by the United States or its agencies to you if you are not their employee may also qualify for the exclusions or the deduction.

Additional information.   For more information on the foreign earned income and housing exclusions and foreign housing deduction, see Publication 54.

Allowances, Differentials, and Other Special Pay

Most payments received by U.S. Government civilian employees for working abroad, including pay differentials, are taxable. However, certain foreign areas allowances, cost of living allowances, and travel allowances are tax free. The following discussions explain the tax treatment of allowances, differentials, and other special pay you receive for employment abroad.

Pay differentials.   Pay differentials you receive as financial incentives for employment abroad are taxable. Your employer should have included these differentials as wages on your Form W-2, Wage and Tax Statement.

Generally, pay differentials are given for employment under adverse conditions (such as severe climate) or because the location of the post of duty is outside the United States. They include:

• Post differentials,
• Special incentive differentials, and
• Danger pay.

Foreign areas allowances.    Certain foreign areas allowances are tax free. Your employer should not have included these allowances as wages on your Form W-2.

Tax-free foreign areas allowances are allowances (other than post differentials) received under the following laws.

1. Title I, chapter 9, of the Foreign Service Act of 1980.
2. Section 4 of the Central Intelligence Act of 1949, as amended.
3. Title II of the Overseas Differentials and Allowances Act.
4. Subsection (e) or (f) of the first section of the Administrative Expenses Act of 1946, as amended, or section 22 of that Act.

These allowances cover such expenses as:

• Certain repairs to a leased home,
• Education of dependents in special situations,
• Motor vehicle shipment,
• Separate maintenance for dependents,
• Temporary quarters,
• Transportation for medical treatment, and
• Travel, moving, and storage.

Allowances received by foreign service employees for representation expenses are also tax free under the above provisions.

Republic of Panama.   Employees of the Panama Canal Commission and civilian employees of the Department of Defense stationed in Panama can exclude from their income certain allowances that are comparable to the allowances (under the 4 laws listed earlier) that can be excluded by employees of the State Department stationed in Panama. However, the overseas tropical differential paid to civilian employees is taxable.

Cost-of-living allowances.   If you are stationed outside the continental United States or in Alaska, your gross income does not include cost-of-living allowances (other than amounts received under Title II of the Overseas Differentials and Allowances Act) granted by regulations approved by the President of the United States. Cost-of-living allowances are not included on your Form W-2.

Federal court employees.   If you are a federal court employee, the preceding paragraph applies to you with one change. The cost-of-living allowance must be granted by rules similar to regulations approved by the President.

American Institute in Taiwan.   If you are an employee of the American Institute in Taiwan, allowances you receive are exempt from U.S. tax if they are equivalent to tax-exempt allowances received by civilian employees of the U.S. Government.

Reemployment after serving with an international organization.   Reemployment payments received by a federal employee who is reemployed by a federal agency after serving with an international organization are taxable. These payments are equal to the difference between the pay, allowances, post differential, and other monetary benefits paid by the international organization and the pay and other benefits that would have been paid by the federal agency had the employee been detailed to the international agency.

Allowances or reimbursements for travel and transportation expenses.   See How To Report Business Expenses, later, for a discussion on whether a reimbursement or allowance is included in your income.

Lodging furnished to a principal representative of the United States.   Lodging (including utilities) furnished as an official residence to you as principal representative in a foreign country is tax free. However, amounts paid by your employer for your usual household expenses (which you must bear) are taxable. If amounts are withheld from your pay to cover these expenses, they are not deductible.

Peace Corps.    If you are a Peace Corps volunteer or volunteer leader, some allowances you receive are taxable and others are not.

Taxable allowances.   The following allowances must be included on your Form W-2 and reported on your return as wages. These include:

1. Cash allowances received during training.
2. If you are a volunteer leader, allowances paid to your spouse and minor children while you are training in the United States.
3. The part of living allowances designated by the Director of the Peace Corps as basic compensation. This is the part for personal items such as domestic help, laundry and clothing maintenance, entertainment and recreation, transportation, and other miscellaneous expenses.
4. Leave allowances.
5. Readjustment allowances or termination payments.

Taxable allowances are considered received by you when credited to your account.

Example.   Gary Carpenter, a Peace Corps volunteer, gets $175 a month during his period of service, to be paid to him in a lump sum at the end of his tour of duty. Although the allowance is not available to him until the end of his service, Gary must include it in his income on a monthly basis as it is credited to his account.

Nontaxable allowances.   These generally include travel allowances and the part of living allowances for housing, utilities, food, clothing, and household supplies. These allowances should not be included on your Form W-2. These allowances are tax free whether paid by the U.S. Government or the foreign country in which you are stationed.

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