If you established close enough ties to a foreign country while working overseas, you may be able to take advantage of the "foreign earned income exclusion", which lets you exclude annually up to $91,500 in income you earned working abroad. Use this form to calculate and report this tax benefit if you meet the tests at the top of the form. If you don't meet all the tests, you can use Form 2555 instead.
You and your spouse should each fill out your own Form 2555 or Form 2555-EZ if you both qualify for the tax benefits, even if you are filing jointly.
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If you are (1) a U.S. citizen or (2) a U.S. resident alien who is a citizen or national of a country with which the U.S. has an income tax treaty, one way you can qualify for the tax benefits covered by Form 2555-EZ is if you were a "bona fide resident" of a foreign country for all of 2010. There is no hard and fast rule for bona fide residency. One important factor is whether you intended to stay in the foreign country for an indefinite period. If so, you are more likely to qualify than if you intended to leave as soon as you completed a temporary job there. Not surprisingly, if you submit a statement to the authorities of the foreign country where you earned income disclaiming residency, and the authorities hold that you are not a resident of that country for income tax purposes, the IRS will not regard you as a bona fide resident of the other country.
To qualify under the physical presence test, you must be a U.S. citizen or resident alien and be out of the U.S. for at least 330 full days during a period of 12 months in a row. The 330 days do not have to be consecutive. If you are a nonresident alien married to a U.S. citizen or resident alien and you have elected to be treated as a resident for U.S. tax purposes, you may use the physical presence test, too.
In addition to satisfying either the bona fide residence test or the physical presence test, you must also maintain a foreign "tax home" during the time you are satisfying the test. Your tax home is your regular or principal place of business or employment, regardless of where you maintain a family residence. However, if your abode is in the U.S. (for example, if you work on an offshore oil rig and return to the U.S. when you are off-duty), you cannot have a foreign tax home. Merely maintaining a dwelling in the U.S. does not necessarily mean that your abode is in the U.S.
Foreign earned income means wages, salaries, professional fees, and other compensation received for personal services you performed in a foreign country during the period for which you meet the tax home test and either the bona fide residence or physical presence test.
Do not include:
pension and annuity income; or
amounts that are actually a distribution of corporate earnings or profits; or
wages paid by the U.S. government or one of its agencies; or
amounts paid for services performed in 2009, unless it relates to your last 2009 payroll period; or
any portion of your 2009 moving expense deduction allocable to 2010 that is included in your 2010 gross income; or
alimony.
If you receive income in 2010 that you actually earned in 2009, do not report the income on line 17. Instead, if the income would have been excludable if received in 2009, attach a statement to Form 2555-EZ showing how you figured the exclusion. Enter the exclusion amount on the form to the left of line 18 and write next to it "Exclusion of Income Earned in 2009". You may have to amend your 2009 return if you claimed any tax benefit on that return related to the income you are excluding.