Certain employees or defense contractors working at DoD or military installations overseas might have potential tax related issues due to the Foreign Earned Income Exclusion.

Those employees could have been suggested to leave this off of their tax returns, ultimately requiring that worker to pay much more in taxes than they would actually owe. Understanding when and how the FEIE applies can be a confusing topic for a worker, but a growing group of those working abroad for defense contractors are discovering that they could have claimed this exclusion on their tax returns and are interested in the possibility of how to fix it after the fact.

What Are the Tax Problems That Defense Contractors Might Experience?

There are three primary tax issues that defense contractors working overseas have reported. First of all, the employee might have been inaccurately informed that they could not take the FEIE on their income taxes, which could have saved some of these taxpayers substantial money.

Second, these employees might have been forced to sign a Consent to Disclose agreement waiving their right to shield tax details from their employer. Finally, that there are some allegations that the IRS might have colluded with defense contractors to ensure that employees did not claim the FEIE on their taxes.

There are some accusations that one IRS agent will share in confidential taxpayer details with human resources departments of some of these defense contracting companies. Employees who worked at a US military installation in Australia, referred to as Pine Gap, might be the one most likely to have experienced these tax problems.

What Is The FEIE?

This is the biggest tax advantage available to US expats. It allows overseas workers to exempt thousands of dollars in income from taxation. For several recent tax years, the FEIE allowed a taxpayer to avoid paying income tax on more than $100,000 of income.

The February 2018 Bipartisan Budget Act altered the tax requirement for certain eligible taxpayers. This enabled them to take the FEIE even if their living residence was in the United States and that law applied for the year 2018 and beyond.

What Is the Dollar Amount Limit for the FEIE?

The foreign earned income exclusion can be claimed on an income tax return for 2018, which means that taxpayers can choose to exclude their income earned abroad from gross income up to a certain dollar amount. In 2018, that dollar amount was $103,900.

Will I Automatically Get The FEIE?

A US income tax return must be filed by the applicable worker with form 2555-EZ or form 2555 attached since the FEIE is not automatic. The worker must submit this additional documentation to receive it.

This article is not legal advice. It is presented
for informational purposes only.