Form 2555 and Form 2555-EZ Form 2555 can be used to claim the foreign earned income exclusion.It must be used to claim the foreign housing exclusion or deduction.In some circumstances you can use Form 2555-EZ to claim theforeign earned income exclusion. You must attach Form 2555to your Form 1040 or 1040X ifyou claim the foreign housing exclusion or the foreign housingdeduction. If you cannot use Form 2555-EZ, you must attach Form2555 if you claim the foreign earned income exclusion. Form 2555 showshow you qualify for the bona fide residence test or physical presencetest, how much of your earned income is excluded, and how to figurethe amount of your allowable housing exclusion or deduction. Unlessyou completely and correctly provide all the information, there willbe delays in processing your original tax return or your claim forrefund (Form 1040X). Do not submit Form 2555 by itself. See theinstructions for Form 2555 if you are not sure about the informationrequested. Form 2555-EZ Form 2555-EZ is a form that has fewer lines than Form 2555.You can use this form if all seven of the following apply. You are a U.S. citizen or a resident alien. Your total foreign earned income for the year is $74,000 orless. All of your foreign earned income for the year is reportedon Form 1040, line 7. You are filing a calendar year return that covers a 12-monthperiod. You did not have any self-employment income for theyear. You did not have any business or moving expenses for theyear. You are not claiming the foreign housing exclusion ordeduction. Form 2555 If you claim exclusion under the bona fide residence test, youshould fill out Parts II, IV, and V of Form 2555 as well as Part I. Infilling out Part II, be sure to give your visa type and the period ofyour bona fide residence. Frequently, these items are overlooked. If you claim exclusion under the physical presence test, you shouldfill out Parts III, IV, and V of Form 2555 as well as Part I. Whenfilling out Part III, be sure to insert the beginning and ending datesof your 12-month period and the dates of your arrivals and departuresas requested in the travel schedule. In addition, you must fill out Part VI if you are claiming anexclusion or deduction of foreign housing amounts. Also fill out PartIX if you are claiming the foreign housing deduction. If you areclaiming the foreign earned income exclusion, fill out Part VII.Finally, if you are claiming the foreign earned income exclusion, theforeign housing exclusion, or both, fill out Part VIII. If you and your spouse each qualify under the bona fide residencetest or the physical presence test to claim the foreign earned incomeexclusion, the foreign housing exclusion, or the foreign housingdeduction, you must each file a separate Form 2555 to claimthese benefits. See the discussion earlier under Married CouplesLiving Apart. Illustrated Example Jim and Judy Adams are married and have two dependent children.They are both U.S. citizens and they file a joint U.S. income taxreturn. Each one has a tax home in a foreign country and each meetsthe physical presence test for all of 1999. They both can excludetheir foreign earned income up to the limit. Jim is a petroleum engineer. He works primarily in the Persian Gulfregion. For 1999, his salary, which was entirely from foreign sources,amounted to $71,000. In addition, his employer provided him an annualhousing allowance of $18,000, which he used to maintain a rentedapartment at his tax home in Country X for the period he was notworking at remote drilling sites. At various times during the year, Jim worked at remote oil drillingsites in nearby countries. While he worked at these remote sites, hisemployer provided him lodging and meals at nearby camps. Satisfactoryhousing was not available on the open market near these drillingsites, and the lodging was provided in common areas that normallyaccommodated 10 or more employees and were not available to thegeneral public. The fair market value of the lodging he was providedin these camps was $2,000, and the value of the meals was $1,000. After he made an adequate accounting, Jim was reimbursed by hisemployer for part of his travel expenses and other employee businessexpenses. Jim had $2,500 of unreimbursed employee business expensesfor travel, meals, and lodging that were allocable to his foreignearned income. Because of adverse conditions in Country X, Judy and the childrenlived in Paris, France, while Jim worked in the Middle East. Judy hada job as an executive secretary with a U.S. company in Paris. Herearnings from this job were $44,000 in 1999. These earnings weresubject to French income tax. The Adams family rented an apartment in Paris during 1999 for Judyand the children. They paid $1,000 a month rent, including utilities,or $12,000 for the year. The Adamses choose to treat the expenses forthe Paris apartment as those for a qualified second foreign household,because conditions at Jim's tax home in Country X are considered to beadverse. They include the $12,000 Paris housing expenses with Jim's$18,000 Country X housing expenses and this results in a larger totalhousing exclusion. Jim and Judy had taxable U.S. interest income of $7,500 in 1999.The Adamses had no other income for the year and do not itemizedeductions. The Adamses report their income, figure their foreign earned incomeexclusions and foreign housing exclusion, and figure their tax asshown on the accompanying filled-in forms. First, they list their income on the front of Form 1040.Their combined salaries, includingJim's $18,000 housing allowance, amount to $133,000. They enter thison line 7 and their interest income of $7,500 (including a list ofpayers and amounts on Schedule B (Form 1040)--not illustrated) online 8a. At this point, Jim will complete Form 2555and Judy will complete Form2555-EZ to figure their foreign earned income and housingexclusions. On Jim's Form 2555, Part IV, he lists his salary on line19, his housing allowance on line 22e, and the fair market value ofmeals and lodging provided in camps by his employer on lines 21a and21b. This last item, totaling $3,000, is not shown as income on Form1040. Jim subtracts it on line 25 of Form 2555. Jim combines his housing expenses, $18,000, with the qualifiedexpenses for the second household that he maintains for his wife andchildren, $12,000, and enters total housing expenses of $30,000 online 28. He puts a base amount of $9,865 on line 30 and subtracts thatamount to arrive at a total foreign housing amount of $20,135 on line31. He figures an exclusion of $20,135 (attributable to the amountsprovided by his employer) on line 34. TaxTip: Although Judy could claim a separate housing exclusion for theexpenses of the Paris apartment rather than combining those expenseswith Jim's housing expenses, she does not do so because she would haveto reduce her expenses by a separate base housing amount. Also, herforeign earned income is less than the $74,000 maximum foreign earnedincome exclusion, so claiming a separate housing exclusion would notresult in any tax benefit. Jim figures his foreign earned income exclusion in Part VII of Form2555. Because his foreign earned income minus his housing exclusion isless than the maximum exclusion of $74,000, Jim is only entitled toexclude $68,865 for 1999 ($89,000 - $20,135 = $68,865). When Jim combines the exclusion of $68,865 with his housingexclusion of $20,135 he comes up with a total exclusion of $89,000 inPart VIII. None of his unreimbursed employee business expenses are allowablebecause they are all allocable to excluded income. However, theAdamses are still entitled to the full standard deduction for amarried couple filing jointly. Judy completes a Form 2555-EZ to figure her foreign earnedincome exclusion. Her foreign earned income is well below the maximumexcludable amount ($74,000). On Judy's Form 2555-EZ, Part IV,she lists her salary on line 17. She figures an exclusion of $44,000on line 18. The Adamses enter their combined exclusions of $133,000 on line 21,Form 1040. They identify this item to the left of the entry space.Their adjusted gross income on line 33 is $7,500, their interestincome, which does not qualify for exclusion. After subtracting their standard deduction of $7,200 and $2,750 foreach of their four exemptions, Jim and Judy arrive at a taxable incomeof zero on page 2 of Form 1040. They owe no tax for the year. Form 1040, pages 1 and 2 for James and Judith Adams Form 2555, pages 1 and 2 for James Adams Form 2555, page 3 for James Adams Form 2555-EZ, pages 1 and 2 for Judith Adams