IRS Form 673

Form 673, also known as the Statement for Claiming Exemption from Withholding on Foreign Earned Income Eligible for the Exclusions Provided by Section 911, is an essential document for U.S. citizens and resident aliens working abroad. This form allows eligible individuals to claim an exemption from U.S. federal income tax withholding on their foreign-earned income to the extent of the foreign earned income exclusion and foreign housing exclusion​​.

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Filing Form 673 can provide several significant advantages for U.S. expatriates, including:

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• Tax Savings: By claiming the applicable exemptions on foreign-earned income, individuals can achieve substantial tax savings.
• Prevents Over-withholding: It helps avoid overpaying taxes, thus eliminating the need to wait for a tax refund after filing your annual income tax return.
• Facilitates Financial Planning: Knowing your tax obligations upfront can aid in more accurate budgeting and financial planning for expatriates​​.

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To qualify for Form 673, individuals must be either U.S. citizens or resident aliens working outside the United States, earning income that qualifies for the exemption. The form is used to notify employers of the intent to claim the exemption, certifying that the eligibility requirements are met.

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The maximum amount of foreign earned income that can be excluded from U.S. taxes in 2024 is $126,000, but this amount can change and may vary depending on specific circumstances. It's crucial to note that Form 673 only applies to federal income tax withholding. State taxes may still apply, depending on the state in which the individual resides​​.

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To properly fill out and submit Form 673 for claiming exemptions from withholding on foreign earned income, follow these general steps based on the information provided by the IRS and other tax advisory services:

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1. Obtain Form 673: Download the latest version of Form 673 from the IRS website to ensure you have the most up-to-date form​​.

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2. Complete the Form Accurately:

• Fill in your personal information, including your name, social security number, and the tax year for which you are claiming the exemption.
• Provide detailed information about your foreign earned income and any estimated foreign housing cost exclusion or deduction, if applicable.
• Carefully read the instructions provided by the IRS for Form 673 to understand the specific requirements for claiming the foreign earned income exclusion, housing exclusion, or deduction​​.

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Certify Eligibility

Form 673 requires you to certify that you meet the eligibility requirements for the foreign earned income exclusion under the tax code. This may involve certifying that you pass either the Bona Fide Residence Test or the Physical Presence Test, demonstrating that you have been living and working outside the U.S. for the required amount of time​​.

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Sign and Date the Form

After completing the form and ensuring all information is accurate, sign and date the form to certify the information provided is true and correct.

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Submit to Your Employer

Submit the completed and signed Form 673 to your employer, not to the IRS. The purpose of this form is to notify your employer of your eligibility for the foreign income exclusions so that they can adjust your federal income tax withholdings accordingly​​​​.

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Keep Updated Records

If your circumstances change, such as a significant change in income or you return to the U.S., you may need to update and resubmit Form 673 to your employer. It's crucial to maintain accurate and current records to ensure the correct amount of tax is withheld.Key ConsiderationsWhen filling out and submitting Form 673 to an employer, it's essential to ensure all information regarding foreign-earned income and housing costs is accurate. This form doesn't need to be filed annually with the IRS but should be updated and resubmitted to the employer in case of significant changes in income or personal circumstances​​.

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When filling out and submitting Form 673 to an employer, it's essential to ensure all information regarding foreign-earned income and housing costs is accurate. This form doesn't need to be filed annually with the IRS but should be updated and resubmitted to the employer in case of significant changes in income or personal circumstances​​.

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There are several misconceptions about Form 673 that need clarification:

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• Form 673 does not exempt individuals from all U.S. tax obligations, such as social security and medicare taxes.
• The form is primarily used by U.S. citizens, but resident aliens planning to leave the U.S. for an extended period can also utilize it.
• It must be submitted for each tax year you claim the Foreign Earned Income Exclusion, not just once.
• Form 673 specifically applies to earnings like wages and salaries from working for a U.S. company abroad, not other income types like rental, dividend, pension, or interest income​​.

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Form 673 is a critical tool for U.S. citizens and resident aliens working abroad, offering a way to claim exemptions on foreign-earned income and potentially save on taxes. However, it's essential to understand the eligibility requirements, benefits, and common misconceptions associated with the form. For the most accurate and up-to-date information, always consult the IRS website or a tax professional tailored to your specific circumstances.

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