Hank is a U.S. citizen and is doing a three to six-year assignment as a sales executive in Paris for a French company. The assignment began this year. Hank earned $109,500 working for the French company this year but only lived in France for 180 days (out of 365 days). He will live full time in France next year. What amount of Hank's $109,500 salary this year will he be allowed to exclude from gross income in the United States (rounded to the nearest hundred dollars)?

Question

Quizplus · Accepted Answer

Hank is considered a U.S. citizen, so he will be subject to U.S. tax on his worldwide income. However, he may qualify for the foreign earned income exclusion, which allows him to exclude up to a certain amount of his foreign-earned income from U.S. tax.

To qualify for the exclusion, Hank must meet either the bona fide residence test or the physical presence test. Since Hank did not live in France for the entire year, he cannot meet the bona fide residence test. However, he may be able to meet the physical presence test if he is physically present in France for at least 330 full days in a 12-month period.

Since Hank was only in France for 180 days this year, he cannot qualify for the exclusion based on the full 330-day rule. Instead, he must prorate the maximum exclusion amount based on the number of days he was actually present in France. The maximum amount of foreign-earned income exclusion for 2020 is $107,600, so the prorated amount for Hank would be:

($107,600 ÷ 366) x 180 = $52,550

Therefore, the amount of Hank's salary that he will be allowed to exclude from gross income in the United States is $52,550 rounded to the nearest hundred dollars, which is $53,100.

Hank Is a U