Physical Presence Test

PHYSICAL PRESENCE TEST

The Physical Presence Test is one of the two tests US Americans and green card holders living abroad can use to qualify to claim the Foreign Earned Income Exclusion, the Foreign Housing Exclusion, or the Foreign Housing Deduction. If your tax home is in a foreign country, the Physical Presence Test or the Bona Fide Resident Test can be used by an expat to maximize the exclusion of their foreign earned income and avoid double taxation.

What are the requirements to meet the physical presence test?

To meet the physical presence test, you must

1. You must be physically present in a foreign country or countries for at least 330 full calendar days during a period of 12 consecutive months

2. Be a US citizen and resident alien

How to count the days:

  • The 330 full days do not have to be consecutive
  • You do not have to be in a foreign country just for job purposes, you can be on vacation
  • The days must be within a foreign country or countries
  • Days in in the US for illness, family problems, vacation, employer’s order do not count

What is considered a full day?

A full day is considered to be a full 24 hour period beginning at midnight.

  • If you leave the US or return to the US, the time spent on or over international waters does not count.
  • Any 24 period spent not within a foreign country or countries does not count (such as travel on a ship between two foreign countries)
  • If you travel between two foreign countries and just transit through the US and spend less than 24 hours in the US, you are considered to be traveling over areas not within a foreign country

What are the rules to determine the 12-month period?

The IRS provides four rules to determine a 12-month period

  1. Your 12-month period can begin with any day of the month. It ends the day before the same calendar day, 12 months later
  2. Your 12-month period must be made up of consecutive months. Any 12-month period can be used if the 330 days in a foreign country fall within that period
  3. You do not have to begin your 12-month period with your first full day in a foreign country or to end it with the day you leave. You can choose the 12-month period that gives you the greatest exclusion
  4. In determining whether the 12-month period falls within a longer stay in the foreign country, 12-month periods can overlap one another

What if I don’t meet the 12-month period for a tax year?

In the year of a move to a foreign country, it is not always possible to meet the 12-month period in a calendar year. In this case, the IRS offers US citizen and resident alien taxpayers who expect to file the Form 2555 or Form 2555-EZ  and need additional time to meet either the bona fide residence test or the physical presence test to claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction. This extension can go beyond the normal filing extension due date of October 15th to meet either of the two tests!! To request an extension under these conditions, you must complete the Form 2350, Application for Extension of Time To File U.S. Income Tax Return. To file the Form 2350, you must:

  • Be a US citizen or resident alien
  • You expect to qualify after the due date of your return (normally April 15) for the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction
  • Your tax home must be in foreign country or countries throughout the time period for your bona fide or physical presence
  • Pay any taxes due by April 15
  • File the form on or before due date of your return  - April 15th or if you are “out of country” on April 15th, on or before June 15th , but do it early enough to finish your return on time because the extension could potentially not be approved
  • If the extension is approved, the extension will be valid until 30 days the date you expect to meet either the bona fide residence test or the physical presence test or if you allocate moving expenses you could be given an extension to 90 days after the end of the year following the year you move