MINISTER AND MISSIONARY TAXES
FOREIGN EARNED INCOME EXCLUSION
There is a tax incentive for working abroad. Up to $92,900 in 2011 of income earned abroad may escape US income taxes if you meet certain conditions. This figure is adjusted each year. The exclusion does not apply to investment income. To claim the exclusion you must satisfy a foreign residence or physical presence test.
Once you elect the exclusion, that election remains in effect for all future years unless you revoke it. If you revoke the election, you cannot elect the exclusion again during the next five years without IRS consent.
To qualify as a bona fide resident of a foreign country, the taxpayer must reside in that country for an uninterrupted period that includes an entire tax year which is from January 1 through December 31.
The physical presence test is easier to satisfy than the bona fide residence test. The taxpayer must be physically present in a foreign country at least 330 full days in a period of 12 consecutive months. They do not have to be in a calendar year. This test is based only on how long the taxpayer stays in a foreign country.
To claim the exclusion, the taxpayer must file Form 2555 with his timely filed Form 1040 tax return.