Dear Dave: About That Foreign Earned Income

Dear Dave,

A few couple of weeks ago you were talking with a young 24-year-old about to leave the military but was considering going back to Afghanistan as a civilian contractor air traffic controller. The question about taxable or non-taxable income came up, and you mentioned that the guy should check with his tax advisor about taxes on foreign earned income.

Dave, when a US citizen earns money in a foreign country, they can exclude the first $104,100 (for 2018) from their US taxes. When we lived overseas (which we did for 20 years as missionaries), we never had to pay taxes on those earnings.  The exclusion is inflation adjusted, so it goes up over time.

The sweetest part of this is that you can thus contribute to Roth IRAs or Roth 401(k)s and never pay taxes – because the liability for a year’s taxes doesn’t carry forward. If you earn your income in a foreign nation, you exclude the first $104K, but it was as if you had been taxed. Roth prevented your earnings from being taxed as they grew. That’s a sweet deal.

You can learn more about the foreign earned income exclusion here and here.

So you see Dave, working overseas as a US citizen does have advantages.  That 24-year-old air traffic controller would make some serious bank if he takes his job overseas.

Until later,

Thad

Leave a Reply

Your email address will not be published. Required fields are marked *