Physical Presence Test - Explained
What is the Physical Presence Test?
If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.
- Marketing, Advertising, Sales & PR
- Accounting, Taxation, and Reporting
- Professionalism & Career Development
Law, Transactions, & Risk Management
Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
- Business Management & Operations
- Economics, Finance, & Analytics
Table of ContentsWhat is the Physical-Presence Test?How Does the Physical-Presence Test Work? Exceptions to the RuleAcademic Research on the Physical-Presence Test
What is the Physical-Presence Test?
In the United States, the Internal Revenue Service (IRS) find out whether a taxpayer is eligible for the foreign earned income exclusion using the physical presence test. The physical presence test is often done for taxpayers who are resident abroad and outside of the U.S. According to this test, a U.S expat is qualified for the foreign earned income exclusion is he has lived in a foreign country for a minimum of 330 days in 12 months. The physical presence test is carried out to avoid double taxation for U.S citizens living abroad.
Back to:ACCOUNTING & TAXATION
How Does the Physical-Presence Test Work?
When filing their tax report with the IRS, individual taxpayers who have lived in a foreign country for at least 330 days in 12 months are eligible for foreign earned income exclusion on the income they earned while in a foreign country. The physical presence test is often used in international taxation to determine the country of residence of a taxpayer for a specific tax period. Taxpayers, who are either citizens or resident aliens of U.S can enjoy the exclusion of their foreign earned income. Regardless of what the reason is for traveling to a foreign country, individuals who pass the physical presence test can qualify for the exclusion. Some taxpayers travel for visits, education, business purpose, healthcare, and other emergencies.
Exceptions to the Rule
There are certain exceptions to the coverage of the physical presence test, this means that not all taxpayers who are resident in a foreign country for 330 days in 12 months are eligible for foreign earned income exclusion. Taxpayers who a resident in a foreign country after committing a crime or violating the U.S law are not entitled to the foreign earned income exclusion. Civilian or military income received by taxpayers while they were residents in a foreign country is not regarded as a foreign earned income and therefore not qualified for the exclusion.
Academic Research on the Physical-Presence Test