How does the Foreign Earned Income Exclusion work if I live in Nicaragua?

The Foreign Earned Income Exclusion (FEIE) is a great tool for those Americans living abroad, including Nicaragua. Basically how it works is if you qualify, you can exclude up to $97,600 USD of Earned Income from tax in the US.

 

You can qualify using one of two methods, the Physical Presence Test or the Bona Fide Residence Test. For the physical presence test, you simply have to be abroad for 330 days of the year. The Bona Fide test is not based on days abroad,...

The Foreign Earned Income Exclusion (FEIE) is a great tool for those Americans living abroad, including Nicaragua. Basically how it works is if you qualify, you can exclude up to $97,600 USD of Earned Income from tax in the US.

 

You can qualify using one of two methods, the Physical Presence Test or the Bona Fide Residence Test. For the physical presence test, you simply have to be abroad for 330 days of the year. The Bona Fide test is not based on days abroad, rather it is based on your permanency in the foreign country, and your intent to return to the US (or lack thereof).

 

The FEIE has its drawbacks though... For one it only works on "earned income", thus many retirement funds (pensions, etc) will not be able to be excluded. Also, it does not exclude you from Self Employment Tax if you are self employed.

 

Hope this helps!