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           Publication 516
           (Rev. September 2015)                                 Contents
           Cat. No. 15020M                                       Reminders . . . . . . . . . . . . . . . . . . . 1
Department 
of the                                                           Introduction . . . . . . . . . . . . . . . . . . 1
Treasury
Internal   U.S. Government                                       U.S. Tax Return . . . . . . . . . . . . . . . . 2
Revenue                                                          Filing Information . . . . . . . . . . . . . 2
Service                                                          U.S. Government Payments            . . . . . . 3
           Civilian                                              Allowances, Differentials, and 
                                                                       Special Pay . . . . . . . . . . . . . . 3
                                                                 Deductions and Credits — 
           Employees                                                   Business Expenses       . . . . . . . . . 4
                                                                 Deductions and Credits — 
                                                                       Nonbusiness Expenses . . . . . . . 6
           Stationed 
                                                                 Local (Foreign) Tax Return . . . . . . . . . 7
           Abroad                                                Index . . . . . . . . . . . . . . . . . . . . . . 8

                                                                 Future Developments
                                                                 For  the  latest  information  about  developments 
                                                                 related  to  Publication  516,  such  as  treaties 
                                                                 effective  after  it  was  published,  go  to 
                                                                 www.irs.gov/pub516.

                                                                 Reminders
                                                                 Combat zone participants.       If you were a civil
                                                                 ian  who  served  in  a  combat  zone  or  qualified 
                                                                 hazardous  duty  area  in  support  of  the  U.S. 
                                                                 Armed Forces, you can get certain extensions 
                                                                 of deadlines for filing tax returns, paying taxes, 
                                                                 filing claims for refund, and doing certain other 
                                                                 taxrelated acts. For details, see Publication 3, 
                                                                 Armed Forces' Tax Guide.
                                                                 Death  due  to  terrorist  or  military  action.
                                                                 U.S. income taxes are forgiven for a U.S. Gov
                                                                 ernment civilian employee who dies as a result 
                                                                 of  wounds  or  injuries  incurred  while  employed 
                                                                 by  the  U.S.  Government.  The  wounds  or  inju
                                                                 ries must have been caused by terrorist or mili
                                                                 tary action directed against the United States or 
                                                                 its  allies.  The  taxes  are  forgiven  for  the  de
                                                                 ceased employee's tax years beginning with the 
                                                                 year  immediately  before  the  year  in  which  the 
                                                                 wounds or injury occurred and ending with the 
                                                                 year of death.
                                                                 If the deceased government employee and 
                                                                 the employee's spouse filed a joint return, only 
                                                                 the decedent's part of the joint tax liability is for
                                                                 given.
                                                                 For  additional  details,  see  Publication  559, 
                                                                 Survivors, Executors, and Administrators.
                                                                 Form 8938.  If you have or had foreign financial 
                                                                 assets,  you  may  have  to  file  Form  8938  with 
                                                                 your return. See Foreign Bank Accounts, later.

                                                                 Introduction
                                                                 If  you  are  a  U.S.  citizen  working  for  the  U.S. 
           Get forms and other information faster and easier at: Government, including the foreign service, and 
           • IRS.gov (English)                                   you are stationed abroad, your income tax filing 
           • IRS.gov/Spanish (Español)                           requirements  are  generally  the  same  as  those 
           • IRS.gov/Chinese                                     for  citizens  and  residents  living  in  the  United

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States. You are taxed on your worldwide in 514 Foreign Tax Credit for Individuals international private delivery service before
come, even though you live and work abroad. 519 U.S. Tax Guide for Aliens midnight of the last date prescribed for filing.
However, you may receive certain allowan See your tax form instructions for a list of pri
ces and have certain expenses that you gener 521 Moving Expenses vate delivery services that have been designa
ted by the IRS to meet this “timely mailing as
ally do not have while living in the United 523 Selling Your Home timely filing/paying” rule for tax returns and pay
States. This publication explains:
Many of the allowances, reimbursements, Form (and Instructions) ments.
and property sales you are likely to have,
and whether you must report them as in Schedule A (Form 1040) Itemized If your return is filed late, the postmark or
come on your tax return, and Deductions delivery service date does not determine the
Many of the expenses you are likely to 1040 U.S. Individual Income Tax Return date of filing. In that case, your return is consid
have, such as moving expenses and for ered filed when it is received by the IRS.
eign taxes, and whether you can deduct 1116 Foreign Tax Credit
them on your tax return. 2106 Employee Business Expenses Extensions
U.S. possessions. This publication does not 2106-EZ Unreimbursed Employee You may be able to get an extension of time to
cover the rules that apply if you are stationed in Business Expenses file your return and pay your tax.
American Samoa, Guam, the Commonwealth of 3903 Moving Expenses
the Northern Mariana Islands, the Virgin Is Automatic 2-month extension. You can get
lands, or Puerto Rico. That information is in 4868 Application for Automatic Extension an automatic 2month extension (to June 15, for
Publication 570, Tax Guide for Individuals With of Time To File U.S. Individual a calendar year return) to file your return and
Income From U.S. Possessions. Income Tax Return pay your tax if you are a U.S. citizen or resident
Comments and suggestions. You can send 8938 Statement of Specified Foreign and, on the regular due date of your return, you
us comments from www.irs.gov/formspubs/. Financial Assets are living outside the United States and Puerto
Rico and your main place of business or post of
Click on “More Information” and then on “Give FinCEN Form 114 Report of Foreign duty is outside the United States and Puerto
us feedback.” Bank and Financial Accounts (FBAR) Rico. To get this extension, you must attach a
Or you can write to: statement to your return explaining how you
qualified. You will owe interest on any tax not
Internal Revenue Service How To Get paid by the regular due date of your return.
Tax Forms and Publications Division
1111 Constitution Ave. NW, IR6526 Tax Information Married taxpayers. If you file a joint return,
Washington, DC 20224 either you or your spouse can qualify for the au
See How To Get Tax Help in the instructions for tomatic extension. If you and your spouse file
We respond to many letters by telephone. your income tax return for information about separate returns, the extension applies only to
Therefore, it would be helpful if you would in getting the publications and forms, listed earlier. the spouse who qualifies.
clude your daytime phone number, including You can also get tax assistance through the In
the area code, in your correspondence. ternet or your smart phone. IRS.gov and Additional extension. You can apply for an
IRS2Go are ready when you are — 24 hours a additional extension of time to file your return by
Although we cannot respond individually to day, 7 days a week. filing Form 4868. You must file Form 4868 by
each comment received, we do appreciate your the due date for your income tax return.
feedback and will consider your comments as Generally, you must file it by April 15. How
we revise our tax products. ever, if you qualify for the automatic 2month
U.S. Tax Return
Ordering forms and publications. Visit extension, you generally must file Form 4868 by
www.irs.gov/formspubs/ to download forms and June 15. Check the box on line 8 of Form 4868.
publications. You can also go to www.irs.gov/ Payment of tax. You should estimate and
orderforms to order current and prioryear Filing Information
pay any additional tax you owe when you file
forms, publications, and instructions. Your order If you are a U.S. citizen or green card holder liv Form 4868 to avoid being charged a latepay
should arrive within 10 business days. If you ing or traveling outside the United States, you ment penalty. The latepayment penalty applies
prefer, write to the address below and receive a are generally required to file income tax returns if, through withholding, etc., you paid less than
response within 10 days after your request is in the same way as those residing in the United 90% of your actual tax liability by the original
received. States. However, the special rules explained in due date of your income tax return. Even if the
the following discussions may apply to you. See latepayment penalty does not apply, you will
Internal Revenue Service also Tax Treaty Benefits, later. be charged interest on any unpaid tax liability
1201 N. Mitsubishi Motorway from the original due date of the return until the
Bloomington, IL 617056613 tax is paid.
When To File and Pay
Electronic filing. You can file for the addi
Tax questions. If you have a tax question, Most individual tax returns cover a calendar tional extension by phone, using your home
check the information available at www.irs.gov/ year, January through December. The regular computer, or through a tax professional. See
uac/Tax-Law-Questions. We cannot answer tax due date for these tax returns is April 15 of the Form 4868 for more information.
questions sent to either of the previous ad following year. If April 15 falls on a Saturday,
dresses. Sunday, or legal holiday, your tax return is con Limit on additional extensions. You gener
sidered timely filed if it is filed by the next busi ally cannot get a total extension of more than 6
Useful Items ness day that is not a Saturday, Sunday, or le months. However, if you are outside the United
You may want to see: gal holiday. If you get an extension, you are States and meet certain tests, you may be able
allowed additional time to file and, in some cir to get a longer extension.
Publication cumstances, pay your tax. You must pay inter For more information, see Publication 54.
est on any tax not paid by the regular due date.
54 Tax Guide for U.S. Citizens and
Resident Aliens Abroad Your return is considered filed on time if it is Foreign Bank Accounts
mailed from and officially postmarked in a for
463 Travel, Entertainment, Gift, and Car eign country on or before the due date FinCEN Form 114. You must file Form 114,
Expenses (including extensions), or given to a designated Report of Foreign Bank and Financial Accounts
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(FBAR), if you had any financial interest in, or true whether they are paid from appropriated or area as discussed in Publication 3. Pay
signature or other authority over a bank, securi nonappropriated funds. These earnings are not differentials include:
ties, or other financial account in a foreign coun eligible for the foreign earned income exclusion Post differentials,
try. You do not need to file the report if the as or the foreign housing exclusion/deduction. Special incentive differentials, and
sets are with a U.S. military banking facility
operated by a financial institution or if the com Danger pay.
bined assets in the account(s) are $10,000 or Tax Treaty Benefits
less during the entire year. Foreign areas allowances. Certain foreign
Form 114 is filed electronically with the Fi Most income tax treaties contain an article relat areas allowances are tax free. Your employer
nancial Crimes Enforcement Network (Fin ing to remuneration from government services. should not have included these allowances as
CEN). See the filing instructions at Even if you are working in a foreign country with wages on your Form W2.
www.bsaefiling.fincen.treas.gov/main.html. which the United States has an income tax Taxfree foreign areas allowances are allow
treaty in force and the treaty article that applies ances (other than post differentials) received
Form 8938. You also may be required to file to government services says that your govern under the following laws.
Form 8938 with your U.S. income tax return to ment pay is taxable only in the foreign country, Title I, chapter 9, of the Foreign Service
report your interest in foreign bank accounts the treaty will likely contain a “saving clause”, Act of 1980.
and other specified foreign financial assets. For which provides that the United States may tax Section 4 of the Central Intelligence
taxpayers living abroad, you generally do not its citizens and its residents as if the treaty had Agency Act of 1949, as amended.
have to file Form 8938 unless the total value of not come into effect. In some treaties, the gov Title II of the Overseas Differentials and Al
your specified foreign financial assets is more ernment service article is an exception to the lowances Act.
than $200,000 ($400,000 if married filing jointly) saving clause, but often only for individuals who Subsection (e) or (f) of the first section of
on the last day of the tax year or more than are not U.S. citizens or green card holders. the Administrative Expenses Act of 1946,
$300,000 ($600,000 if married filing jointly) at Consequently, if you are a U.S. citizen or green as amended, or section 22 of that Act.
any time during the tax year. For more informa card holder, you will generally not be entitled to These allowances cover such expenses as:
tion, see Form 8938 and its instructions. reduce your U.S. tax on your government pay. If Certain repairs to a leased home,
you are neither a U.S. citizen nor green card
holder, and you are treated as a resident of the Education of dependents in special situa
U.S. Government Payments treaty country under the treaty residence article tions,
(after application of the socalled “tiebreaker” Motor vehicle shipment,
Wages earned for performing services outside rule), then you may be entitled to benefits under Separate maintenance for dependents,
the United States is foreign income, regardless the government service article. Review the Temporary quarters,
of your employer. If you are a U.S. citizen or treaty text carefully.
resident alien, you must report all income from Transportation for medical treatment, and
worldwide sources on your tax return unless it is U.S. citizens must always file Form Travel, moving, and storage.
exempt by U.S. law. This applies to earned in TIP 1040. Non-U.S. citizens who are
come (such as wages) as well as unearned in treated as a resident of a treaty coun- Allowances received by foreign service employ
come (such as interest, dividends, and capital try under the treaty residence article (after appli- ees for representation expenses are also tax
gains). If you are a nonresident alien, your in cation of the so-called “tie-breaker” rule) may free under the above provisions.
come from sources outside the United States is file Form 1040NR and attach Form 8833.
not subject to U.S. tax. Cost-of-living allowances. If you are sta
If you pay or accrue taxes to the foreign tioned outside the continental United States or
country on your pay, you may be able to relieve in Alaska, your gross income does not include
Foreign Earned double taxation with a foreign tax credit. Most costofliving allowances (other than amounts
Income Exclusion income tax treaties contain an article providing received under Title II of the Overseas Differen
relief from double taxation. Many treaties con tials and Allowances Act) granted by regula
Employees of the U.S. Government are not en tain special foreign tax credit rules for U.S. citi tions approved by the President of the United
titled to the foreign earned income exclusion or zens who are residents of a treaty country. For States. The costofliving portion of any other al
the foreign housing exclusion/deduction under more information on the mechanics of the for lowance (for example, a living and quarters al
section 911 because “foreign earned income” eign tax credit, see Foreign Taxes, later. lowance) is not included even if the underlying
does not include amounts paid by the U.S. Gov allowance is included in gross income.
ernment as an employee. But see Other Em- Costofliving allowances are not included on
ployment, later. Allowances, Differentials, your Form W2.
and Special Pay Federal court employees. If you are a
Special Situations federal court employee, the preceding para
Most payments received by U.S. Government graph also applies to you. The costofliving al
In the following two situations, your pay is from civilian employees for working abroad, including lowance must be granted by rules similar to reg
the U.S. Government and does not qualify for pay differentials, are taxable. However, certain ulations approved by the President.
the foreign earned income exclusion. foreign areas allowances, cost of living allowan
ces, and travel allowances are tax free. The fol American Institute in Taiwan. If you are an
U.S. agency reimbursed by foreign country. lowing discussions explain the tax treatment of employee of the American Institute in Taiwan,
If you are a U.S. Government employee paid by allowances, differentials, and other special pay allowances you receive are exempt from U.S.
a U.S. agency to perform services in a foreign you receive for employment abroad. tax if they are equivalent to taxexempt allowan
country, your pay is from the U.S. Government ces received by civilian employees of the U.S.
and does not qualify the foreign earned income Pay differentials. Pay differentials you receive Government.
exclusion or the foreign housing exclusion/ as financial incentives for employment abroad
deduction. This is true even if the U.S. agency are taxable. Your employer should have inclu Federal reemployment payments after serv-
is reimbursed by the foreign government. ded these differentials as wages on your Form ing with an international organization. If you
W2, Wage and Tax Statement. are a federal employee who is reemployed by a
Employees of post exchanges, etc. If you Generally, pay differentials are given for em federal agency after serving with an interna
are an employee of an Armed Forces post ex ployment under adverse conditions (such as tional organization, you must include in income
change, officers' and enlisted personnel club, severe climate) or because the post of duty is any reemployment payments you receive.
Embassy commissary, or similar instrumentality located in a hazardous or isolated area that These payments are equal to the difference be
of the U.S. Government, the earnings you re may be outside the United States. The area tween the pay, allowances, post differential,
ceive are paid by the U.S. Government. This is does not have to be a qualified hazardous duty and other monetary benefits paid by the
Publication 516 (September 2015) Page 3

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international organization and the pay and other other income provided you meet either the bona Your home for tax purposes (tax
benefits that would have been paid by the fed fide residence test or the physical presence TIP home) is your regular post of duty re-
eral agency had you been detailed to the inter test. In addition, if your spouse is a U.S. citizen gardless of where you maintain your
national agency. or resident alien who earns income in a foreign family home. Your tax home is not limited to the
country that is paid by a private employer or is Embassy, consulate, or duty station. It includes
Allowances or reimbursements for travel from selfemployment, he or she may also qual the entire city or general area in which your prin-
and transportation expenses. See How To ify for the exclusion or the deduction. For more cipal place of employment is located.
Report Business Expenses, later, for a discus information, see Publication 54.
sion on whether a reimbursement or allowance Traveling away from home. You are traveling
for travel or transportation is included in your in The tax treaty rules relating to income from per away from home if you meet both of the follow
come. sonal services generally apply to income from ing requirements.
private employment. As discussed above, the
Lodging furnished to a principal represen- saving clause applies to you if you are a U.S. Your duties require you to be away from
tative of the United States. If you are a princi citizen or if you are a resident of the United the general area of your tax home substan
pal representative of the United States sta States under the treaty residence article (after tially longer than an ordinary day's work.
tioned in a foreign country, you do not have to application of the socalled “tiebreaker” rule). You need to get sleep or rest to meet the
demands of your work while away from
include in income the value of lodging (including home. This requirement is not satisfied by
utilities) provided to you as an official residence. Sale of personal property. If you have a gain
However, amounts paid by the U.S. govern from the sale of your personal property (such as merely napping in your car.
ment for your usual costs of operating and an automobile or a home appliance), whether You do not have to be away from your tax home
maintaining your household are taxable. If directly or through a favorable exchange rate in for a whole day or from dusk to dawn as long as
amounts are withheld from your pay to cover converting the proceeds to U.S. dollars, the ex your relief from duty is long enough to get nec
these expenses, you cannot exclude or deduct cess of the amount received in U.S. dollars over essary sleep or rest.
those amounts from your income. the cost or other basis of the property is a capi
tal gain. Capital gains are reported on Sched Temporary assignment. If your assignment
Peace Corps. If you are a Peace Corps volun ule D (Form 1040), Capital Gains and Losses. or job away from your tax home is temporary,
teer or volunteer leader, some allowances you However, losses from sales of your personal your tax home does not change. You are con
receive are taxable and others are not. property, whether directly or through an unfav sidered to be away from home for the whole pe
orable exchange rate, are not deductible. riod, and your travel expenses are deductible.
Taxable allowances. The following allow Generally, a temporary assignment in a single
ances must be included on your Form W2 and Sale of your home. All or part of the gain on location is one that is realistically expected to
reported on your return as wages. the sale of your main home, within or outside last (and does in fact last) for one year or less.
If you are a volunteer leader, allowances the United States, may be taxable. Losses are However, if your assignment or job is indefi
paid to your spouse and minor children not deductible. nite, the location of the assignment or job be
while you are training in the United States. You may be able to exclude from income comes your new tax home and you cannot de
The part of living allowances designated any gain up to $250,000 ($500,000 on a joint re duct your travel expenses while there. An
by the Director of the Peace Corps as ba turn). Generally, you must have owned and assignment or job in a single location is consid
sic compensation. This is the part for per used the home as your main residence for two ered indefinite if it is realistically expected to
sonal items such as domestic help, laundry of the five years preceding the date of sale. last for more than one year, whether or not it ac
and clothing maintenance, entertainment You can choose to have the 5year test pe tually lasts for more than one year.
and recreation, transportation, and other riod for ownership and use suspended during You must determine whether your assign
miscellaneous expenses. any period you or your spouse is serving on ment is temporary or indefinite when you start
Leave allowances. qualified official extended duty as a member of work. If you expect employment to last for one
Readjustment allowances or “termination the Foreign Service of the United States, as an year or less, it is temporary unless there are
payments.” employee of the intelligence community, or as facts and circumstances that indicate other
an employee or volunteer of the Peace Corps. wise. Employment that is initially temporary may
Taxable allowances are considered received by For detailed information on selling your become indefinite due to changed circumstan
you when credited to your account. home, see Publication 523. ces. A series of assignments to the same loca
Example. Gary Carpenter, a Peace Corps tion, all for short periods but that together cover
volunteer, gets $175 a month during his period Deductions and Credits a long period, may be considered an indefinite
assignment.
of service, to be paid to him in a lump sum at — Business Expenses
the end of his tour of duty. Although the allow Exception for federal crime investiga
ance is not available to him until the end of his You may deduct certain expenses such as tions or prosecutions. If you are a federal
service, Gary must include it in his income on a travel expenses, transportation expenses, and employee participating in a federal crime inves
monthly basis as it is credited to his account. other expenses connected to your employment. tigation or prosecution, you may be able to de
Nontaxable allowances. These generally duct travel expenses even if you are away from
include travel allowances and the part of living Travel Expenses your tax home for more than one year. This ex
allowances for housing, utilities, food, clothing, ception to the oneyear rule applies if the Attor
and household supplies. These allowances Subject to certain limits, you can deduct your ney General certifies that you are traveling for
should not be included on your Form W2. unreimbursed ordinary and necessary expen the federal government in a temporary duty sta
These allowances are tax free whether paid by ses of traveling away from home in connection tus to prosecute, or provide support services for
the U.S. Government or the foreign country in with the performance of your official duties. the investigation or prosecution of, a federal
which you are stationed. These expenses include such items as travel crime.
costs, meals, lodging, baggage charges, local
transportation costs (such as taxi fares), tips, Limit on meals and entertainment. You can
Other Income and dry cleaning and laundry fees. generally deduct only 50% of the cost of your
unreimbursed businessrelated meals and en
Other employment. If, in addition to your U.S. tertainment. However, the limit does not apply
government pay, you receive income from a pri to expenses reimbursed under a U.S. Govern
vate employer or selfemployment, you may ment expense allowance arrangement.
qualify to claim the foreign earned income ex
clusion and the foreign housing exclusion and Individuals subject to hours of service
deduction under section 911 based on this limits. You can deduct 80% of your

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unreimbursed businessrelated meal expenses Commuting. You cannot deduct your trans Foreign service representation expenses. If
if the meals take place during or incident to any portation costs of going between your home you are an employee of the U.S. Foreign Serv
period subject to the Department of Transporta and your regular business location. These costs ice and your position requires you to establish
tion's hours of service limits. are personal commuting expenses. and maintain favorable relations in foreign
Individuals subject to the Department of If you have one or more regular business lo countries, you may receive a nontaxable allow
Transportation's “hours of service” limits include cations but must work at a temporary location, ance for representation expenses. If your ex
the following. you can deduct the costs of commuting to that penses are more than the allowance you re
Certain air transportation workers (such as temporary place of work. ceive, you can deduct the excess expenses as
pilots, crew, dispatchers, mechanics, and If you work at two or more places in the an itemized deduction on Schedule A (Form
control tower operators) who are under same day, you can deduct your expenses of 1040) if you meet one of the following condi
Federal Aviation Administration regula getting from one place of work to the other. tions.
tions. You have a certificate from the Secretary
Interstate truck operators and bus drivers More information. For more information on of State attesting that the expenses were
who are under Department of Transporta transportation expenses, see chapter 4 of Publi incurred for the benefit of the United
tion regulations. cation 463. States, and would be reimbursable under
Certain railroad employees (such as engi appropriate legislation if the agency had
sufficient funds for these reimbursements.
neers, conductors, train crews, dispatch Other Employee The expenses, while specifically not reim
ers, and control operations personnel) who Business Expenses bursable under State Department regula
are under Federal Railroad Administration
regulations. You may be able to deduct other unreimbursed tions, were ordinary and necessary busi
Certain merchant mariners who are under expenses that are connected with your employ ness expenses incurred in the
Coast Guard regulations. ment. performance of your official duties.
To deduct any expenses for travel, en-
Primary purpose of trip must be for busi- Membership dues. You can deduct member TIP tertainment, and gifts, including those
ness. If your trip was entirely for business, your ship dues you pay to professional societies that certified by the Secretary of State, you
unreimbursed travel expenses are generally de relate to your business or profession. must meet the rules for recordkeeping and ac-
ductible. However, if you spend some of your counting to your employer. These rules are ex-
time on nonbusiness activities, part of your ex Subscriptions. You can deduct subscriptions plained in Publication 463.
penses may not be deductible. to professional publications that relate to your
If your trip was mainly personal, you cannot business or profession. Representation expenses. These are ex
deduct your travel expenses to and from your penses that further the interest of the United
destination. This applies even if you engage in Educational expenses. Generally, educa States abroad. They include certain entertain
business activities while there. However, you tional expenses are considered to be personal ment, gifts, costs of official functions, and rental
can deduct any expenses while at your destina expenses and are not deductible. However, un of ceremonial dress. They generally do not in
tion that are directly related to your business. der some circumstances, educational expenses clude costs of passenger vehicles (such as cars
are deductible as business expenses. or aircraft), printing or engraving, membership
Expenses paid for others. You generally You can deduct educational expenses as fees, or amounts a principal representative
cannot deduct travel expenses of your spouse, business expenses if the education: must pay personally to cover the usual costs of
dependents, or other individuals who go with Maintains or improves skills needed in operating and maintaining an official residence.
you on a trip. your present position, or Chapters 300 and 400 of the Standardized
Meets the express requirements of your Regulations (Government Civilians, Foreign
Home leave. The Foreign Service Act requires agency to keep your present position, sal Area) provide more detail on what expenses
U.S. citizens who are members of the foreign ary, or status. are allowable as representation expenses.
service to take a leave of absence after com
pleting 3 years of continuous service abroad. You cannot deduct educational expenses as These regulations are available on the Internet
This period is called “home leave” and can be business expenses if the education: at www.state.gov/m/a/als. Look under “Standar
used to take care of certain personal matters Is needed to enable you to meet minimum dized Regulations (DSSR)” and click on “DSSR
such as medical and dental checkups, buying a educational requirements for qualification Table of Contents.” Publication 463 and Publi
new wardrobe, and visiting relatives. in your present position, cation 529, Miscellaneous Deductions, provide
The amounts paid for your travel, meals, Is a part of a program of study that can more detail on what expenses are allowable as
and lodging while on home leave are deductible qualify you for a new position, or ordinary and necessary business expenses.
as travel or business expenses subject to the Is for travel as a form of education.
Impairment-related work expenses. If you
rules and limits discussed earlier. You must be These rules apply even if the education is re are an employee with a physical or mental disa
able to verify these amounts in order to claim quired by your agency or it maintains or im bility, you can deduct attendantcare services at
them. Amounts paid on behalf of your family proves skills required in your work. your place of work and other expenses in con
while on home leave are personal living expen See Publication 970, Tax Benefits for Edu nection with work that are necessary for you to
ses and are not deductible. cation, for more information on educational ex be able to work. Attendant care includes a
penses. reader for a blind person and a helper for a per
More information. See chapter 1 of Publica son with a physical disability. These expenses
tion 463 for more information on travel expen Educational expenses that are not are reported on Form 2106 or 2106EZ and car
ses. TIP work related, such as costs of sending ried to Schedule A (Form 1040). They are not
children to college, are personal ex- subject to the 2%ofadjusted grossincome
Transportation Expenses penses that you cannot deduct. However, you limit on miscellaneous itemized deductions.
may be eligible for other tax benefits such as
You can deduct allowable transportation expen the American opportunity and lifetime learning Loss on conversion of U.S. dollars into for-
ses that are directly related to your official du credits; contributions to a Coverdell education eign currency. The conversion of U.S. dollars
ties. Transportation expenses include the cost savings account or qualified tuition program; into foreign currency at an official rate of ex
of transportation by air, rail, bus, or taxi, and the deduction for student loan interest; and exclu- change that is not as favorable as the free mar
cost of driving and maintaining your car. They sion from income of certain savings bond inter- ket rate does not result in a deductible loss.
do not include expenses you have when travel est. These benefits are explained in Publication
ing away from home overnight. Those expen 970.
ses are deductible as travel expenses and are
discussed earlier.

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Recordkeeping Rules ment of a deductible expense (such as the your new home. However, you cannot deduct
place, business purpose, or business relation any expenses for which you received a taxfree
If you claim a deduction for unreimbursed busi ship) in your account book, diary, or other re allowance as a U.S. Government employee.
ness expenses, you must keep timely and ade cord. However, you do have to record the infor
quate records of all your business expenses. mation elsewhere at or near the time of the To deduct moving expenses, your move
expense and have it available to fully prove that must be closely related to the start of work and
For example, you must keep records and element of the expense. you must meet the distance test and the time
supporting evidence to prove the following ele test.
ments about deductions for travel expenses (in More information. Recordkeeping is dis
cluding meals and lodging while away from cussed in detail in chapter 5 of Publication 463, Closely related to the start of work. The
home). Travel. Entertainment, Gifts, and Car Expenses. move must be closely related, both in time and
The amount of each separate expense for in place, to the start of work at the new location.
travel away from home, such as the cost of How To Report In general, you must have incurred your moving
your transportation, lodging, or meals. You Business Expenses expenses within one year from the time you first
may total your incidental expenses if you report to your new job or business.
list them in reasonable categories such as As a U.S. Government employee, your busi A move generally is not considered closely
daily meals, gasoline and oil, and taxi ness expense reimbursements are generally related in place to the start of work if the dis
fares. paid under an accountable plan and are not in tance from your new home to the new job loca
For each trip away from home, the dates cluded in your wages on your Form W2. If your tion is more than the distance from your former
you left and returned and the number of expenses are not more than the reimburse home to the new job location. A move that does
days spent on business. ments, you do not need to show your expenses not meet this requirement may qualify if you can
The destination or area of your travel, de or reimbursements on your return. show that you must live at the new home as a
scribed by the name of the city, town, or condition of employment, or you will spend less
similar designation. However, if you do not account to your em time or money commuting from the new home
The business reason for your travel or the ployer for a travel advance or if you do not re to the new job.
business benefit gained or expected to be turn any excess advance within a reasonable
gained from your travel. period of time, the advance (or excess) will be Distance test. Your new main job location
included in your wages on your Form W2. must be at least 50 miles farther from your for
How to record your expenses. Records for mer home than your old main job location was.
proof of your expenses should be kept in an ac If you are entitled to a reimbursement If you did not have an old job location, your new
count book, diary, statement of expense, or ! from your employer but you do not job location must be at least 50 miles from your
similar record. They should be supported by CAUTION claim it, you cannot deduct the expen-
former home.
other records, such as receipts or canceled ses to which that unclaimed reimbursement ap-
checks, in sufficient detail to establish the ele plies. Time test. If you are an employee, you must
ments for these expenses. You do not need to work full time for at least 39 weeks during the
duplicate information in an account book or di Form 2106 or Form 2106-EZ. You must com first 12 months after you arrive in the general
ary that is shown on a receipt as long as your plete Form 2106 or 2106EZ to deduct your ex area of your new job location.
records and receipts complement each other in penses. Also, if your actual expenses are more
an orderly manner. than your reimbursements, you can complete Deductible moving expenses. Moving ex
Each expense should be recorded sepa Form 2106 or 2106EZ to deduct your excess penses that can be deducted include the rea
rately in your records. However, some items expenses. Generally, you must include all of sonable costs of:
can be totaled in reasonable categories. You your expenses and reimbursements on Form Moving household goods and personal ef
can make one daily entry for categories such as 2106 or 2106EZ and carry your allowable ex fects (including packing, crating, intransit
taxi fares, telephone calls, meals while away pense to Schedule A (Form 1040). Your allowa storage, and insurance) of both you and
from home, gas and oil, and other incidental ble expense is then generally subject to the members of your household, and
costs of travel. You may record tips separately 2%ofadjustedgrossincome limit. Transportation and lodging for yourself and
or with the cost of the service. members of your household for one trip
Form 2106EZ. You may be able to use from your former home to your new home
Documentary evidence generally is re Form 2106EZ instead of the more complex (including costs of getting passports).
quired to support all lodging expenses Form 2106 for reporting unreimbursed em
RECORDS while traveling away from home. It is ployee business expenses. You can use Form The cost of your meals is not a deduc-
also required for any other expense of $75 or 2106EZ if you meet both of the following condi ! tible moving expense.
more, except transportation charges if the evi tions. CAUTION
dence is not readily available. Documentary evi You are not reimbursed by your employer
dence is a receipt, paid bill, or similar proof suf for any expenses. (Amounts your employer The costs of moving household goods in
ficient to support an expense. It ordinarily will be included in your wages on your Form W2 clude the reasonable expenses of moving
considered adequate if it shows the amount, are not considered reimbursements.) household goods and personal effects to and
date, place, and essential business character of If you claim car expenses, you use the from storage. For a foreign move, the costs also
the expense. standard mileage rate. include expenses of storing the goods and ef
fects for part or all of the period that your new
A canceled check by itself does not job location abroad continues to be your main
Deductions and Credits job location.
! prove a business cost. You must have
CAUTION other evidence to show that the check — Nonbusiness Expenses Expenses must be reasonable. You can
was used for a business purpose.
In addition to deductible business expenses, deduct only those expenses that are reasona
Your records must be timely. Record the el you may be entitled to deduct certain other ex ble for the circumstances of your move. For ex
ements for the expense in your account book or penses. ample, the costs of traveling from your former
home to your new one should be by the short
other record at or near the time of the expense. est, most direct route available by conventional
A timelykept record has more value than state Moving Expenses transportation.
ments prepared later when, generally, there is a
lack of accurate recall. If you changed job locations or started a new Members of your household. A member
job, you may be able to deduct the reasonable of your household includes anyone who has
Confidential information. You do not need to expenses of moving yourself, your family, and both your former home and new home as his or
put confidential information relating to an ele your household goods and personal effects to her home. It does not include a tenant or
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employee unless you can claim that person as ($4,000), and utility costs ($2,100). Adam did from U.S. tax, you will not be able to claim a
a dependent. not have any other expenses related to provid foreign tax credit.
ing a home for himself. If, because of the limit on the credit, you
Retirees. You can deduct the costs of moving Adam must reduce his deductions for home cannot use the full amount of qualified foreign
to the United States when you permanently re mortgage interest and real estate taxes. He fig taxes paid or accrued in the tax year, you are
tire if both your former main job location and for ures a reasonable way to reduce them is to mul allowed to carry the excess back 1 year and
mer home were outside the United States and tiply them by a fraction: its numerator is $6,300 then forward 10 years.
its possessions. You do not have to meet the (the total housing and utility allowance) and its
time test described earlier. denominator is $8,400 (the total of all payments Exemption from limit. You can elect to not
to which the housing and utility allowance ap be subject to the foreign tax limit if you meet all
Survivors. You can deduct moving expenses plies). The result is . Adam reduces his other34 the following conditions.
for a move to the United States if you are the wise allowable home mortgage interest deduc Your only foreign income is passive in
spouse or dependent of a person whose main tion by $3,000 (the $4,000 he paid × ) and his 34 come, such as interest, dividends, and roy
job location at the time of death was outside the otherwise allowable real estate tax deduction alties.
United States and its possessions. The move by $1,050 (the $1,400 he paid × ). He can de34 The total of all your foreign taxes is not
must begin within 6 months after the decedent's duct $1,000 of his mortgage interest ($4,000 − more than $300 ($600 for joint tax returns).
death. It must be from the decedent's former $3,000) and $350 of his real estate taxes The foreign income and taxes are reported
home outside the United States, and that home ($1,400 − $1,050) when he itemizes his deduc to you on a payee statement, such as
must also have been your home. You do not tions. Form 1099DIV, Dividends and Distribu
have to meet the time test described earlier. tions, or 1099INT, Interest Income.
Exception to the reduction. If you receive If you make the election, you can claim a for
How to report moving expenses. Use Form a taxfree housing allowance as a member of eign tax credit without filing Form 1116. How
3903 to report your moving expenses and figure the military or the clergy, you do not have to re ever, you cannot carry back or carry over any
your allowable deduction. Claim the deduction duce your deductions for real estate tax and unused foreign tax to or from this year. See the
as an adjustment to income on Form 1040. home mortgage interest expenses you are oth instructions for the appropriate line in the Tax
(You cannot deduct moving expenses on Form erwise entitled to deduct. and Credits section of Form 1040.
1040A or Form 1040EZ.)
Required statement. If you receive a
Reimbursements. Generally, you must in taxfree housing allowance and have real estate Foreign tax deduction. If you choose to de
clude reimbursements of, or payments for, non tax or home mortgage interest expenses, attach duct all foreign income taxes on your U.S. in
deductible moving expenses in gross income a statement to your tax return. The statement come tax return, itemize the deduction on
for the year paid. You also must include in gross must contain all of the following information. Schedule A (Form 1040). You cannot deduct
income reimbursements paid to you under a The amount of each type of taxfree in foreign taxes paid on income you exclude under
nonaccountable plan. However, there is an ex come you received, such as a taxfree the foreign earned income or housing exclu
ception for the taxfree foreign areas allowan housing allowance or taxfree representa sions.
ces described earlier under Allowances, Differ- tion allowance.
entials, and Special Pay. The amount of otherwise deductible ex Example. Dennis and Christina are married
penses attributable to each type of taxfree and live and work in Country X. Dennis works
Additional information. For additional infor income. for the U.S. Government and Christina is em
mation about moving expenses, see Publication The amount attributable to each type of ployed by a private company. They pay income
521. taxfree income that was not directly attrib tax to Country X on Christina's income only.
utable to that type of taxfree income. Dennis and Christina file a joint tax return
An explanation of how you determined the and exclude all of Christina's income. They can
Other Itemized Deductions amounts not directly attributable to each not claim a foreign tax credit or take a deduction
You may be able to claim other itemized deduc type of taxfree income. for the taxes paid to Country X.
tions not connected to your employment. The statement must also indicate that none Deduction for other foreign taxes. The
of the amounts deducted on your return are in deduction for foreign taxes other than foreign
Contributions. You can deduct contributions any way attributable to taxfree income. income taxes is not related to the foreign tax
to qualified organizations created or organized credit. You can take deductions for these mis
in or under the laws of the United States or its cellaneous foreign taxes and also claim the for
possessions. You cannot deduct contributions Foreign Taxes eign tax credit for income taxes paid to a foreign
you make directly to foreign organizations (ex country.
cept for certain Canadian, Israeli, and Mexican If you pay or accrue taxes to a foreign govern You can deduct real property taxes you pay
charities), churches, and governments. For ment, you generally can choose to either claim that are imposed on you by a foreign country.
more information, see Publication 526, Charita them as a credit against your U.S. income tax li You take this deduction on Schedule A (Form
ble Contributions. ability or deduct them as an itemized deduction 1040). You cannot deduct other foreign taxes,
when figuring your taxable income. such as personal property taxes, unless you in
Real estate tax and home mortgage inter- curred the expenses in a trade or business or in
est. If you receive a taxfree housing allow Do not include the foreign taxes paid the production of income.
ance, your itemized deductions for real estate ! or accrued as withheld income taxes
taxes and home mortgage interest are limited. CAUTION in the Payments section of Form 1040.
More information. The foreign tax credit and
You must reduce the amount of each deduction deduction, their limits, and carryback and carry
that would otherwise be allowable by the Foreign tax credit. Your foreign tax credit is over provisions are discussed in detail in Publi
amount of each expense that is related to the subject to a limit based on your taxable income cation 514.
taxfree allowance. from foreign sources. If you choose to figure a
credit against your U.S. tax liability for the for
Example. Adam is a federal employee eign taxes, you generally must complete Form Local (Foreign)
working overseas who receives a $6,300 1116 and attach it to your U.S. income tax re
taxfree housing and utility allowance. During turn. Tax Return
the year, Adam used the allowance, with other You cannot claim a credit for foreign taxes
funds, to provide a home for himself. His expen paid on amounts excluded from gross income As a U.S. Government employee, you are ex
ses for this home totaled $8,400 and consisted under the foreign earned income or housing ex pected to observe and fulfill all tax obligations
of mortgage principal ($500), insurance ($400), clusions. If all your foreign income is exempt imposed by the host country government.
real estate taxes ($1,400), mortgage interest Check with local tax authorities to determine
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whether  you  are  considered  a  tax  resident  of      If you pay or accrue taxes to both the host           under the Vienna Convention on Diplomatic Re
your host country, whether you are required to         country and the United States, you may be able          lations.  Check  with  the  appropriate  U.S.  Em
file  a  host  country  tax  return  and  whether  you to  relieve  double  taxation  with  a  foreign  tax    bassy for more information.
owe taxes to the host country.                         credit. Most income tax treaties contain an arti
                                                       cle providing relief from double taxation. Many 
                                                       treaties  contain  special  foreign  tax  credit  rules Double Withholding
Tax Treaty Benefits                                    for  U.S.  citizens  who  are  residents  of  a  treaty If your U.S. government pay is subject to with
As discussed earlier, most income tax treaties         country. For more information about the foreign         holding  in  both  the  United  States  and  the  for
contain an article relating to remuneration from       tax credit, see Foreign Taxes, earlier.                 eign  country,  you  may  reduce  the  amount  of 
government  services.  Review  the  treaty  text                                                               U.S. tax that is withheld from your pay if you ex
carefully  to  determine  whether  your  U.S.  Gov    Other Agreements                                        pect to be entitled to a foreign tax credit on your 
ernment  remuneration  is  taxable  in  the  host                                                              U.S.  income  tax  return  on  this  income.  See 
country. You will first have to determine whether      The  United  States  may  be  a  party  to  agree      chapter  of  Publication  505,  Tax  Withholding 
you  are  a  resident  of  your  host  country  under  ments other than income tax treaties that may           and  Estimated  Tax,  for  a  worksheet  to  deter
the treaty residence article (after application of     affect  your  tax  obligations  to  the  host  country. mine  how  to  revise  Form  W4,  Employee’s 
the socalled “tiebreaker” rule).                     For  example,  consular  employees  may  be  ex        Withholding Allowance Certificate.
  If you or your spouse receives income from           empt  from  host  country  tax  under  the  Vienna 
a  private  employer  or  selfemployment,  review     Convention  on  Consular  Relations  or  bilateral 
the tax treaty rules relating to income from per      consular  agreements.  Similarly,  certain  diplo
sonal  services  to  determine  whether  that  in     matic staff may be exempt from host country tax 
come is taxable in the host country.

                   To help us develop a more useful index, please let us know if you have ideas for index entries.
Index              See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.
 
                                     Expenses, deductible     5                                                      Principal representative     4
A                                    Extension of time to file return    2 I                                         Proving expenses       6
Allowances  3                                                              Impairment-related work 
American Institute in Taiwan       3                                         expenses          5
Away from home   4                   F                                     Interest on home mortgage             7   R
                                     Federal court employees           3   International organization, U.S.          Real estate tax      7
                                     Federal crime investigations        4   reemployment after serving              Recordkeeping, business 
B                                    Filing information     2                with   3                                 expenses    6
Business expenses, how to            Foreign areas allowances          3   Itemized deductions:                      Reemployed by federal agency     3
  report 6                           Foreign bank accounts    2              Contributions      7                    Reporting:
                                     Foreign earned income and               Employee business expenses            5  Business expenses          6
                                       housing exclusions     3              Home mortgage interest             7     Moving expenses        6 7, 
C                                    Foreign income       3                  Real estate tax    7                    Representation expenses       5
Combat zone 1                        Foreign service representation 
Commuting expenses   5                 expenses         5
Contributions 7                      Foreign taxes      7                  L                                         S
Cost-of-living allowances  3         Forms:                                Lodging  4                                Sale of home 4
Credit for foreign taxes 7             1116 7                              Loss on currency conversion             5 Sale of personal property     4
Currency conversion, loss on       5   2106 6                                                                        Subscriptions        5
                                       2106EZ         6
                                       3903 7                              M
D                                      FinCEN 114        2                 Meal expenses        4                    T
Danger pay (See Pay differentials)                                         Mortgage interest      7                  Taiwan, American Institute in   3
Death due to terrorist action  1                                           Moving expenses        6 7,               Tax credit for foreign taxes   7
Deduction for foreign taxes    7     H                                                                               Temporary assignment         4
Differential pay 3                   Home, sale of      4                                                            Terrorist action      1
Dues 5                               Home leave        5                   P                                         Transportation expenses       5
                                     Home mortgage interest     7          Pay differentials    3                    Travel expenses       4
                                     Hours of service limits  4            Peace Corps volunteers              4
E                                                                          Personal property, sale of           4
Educational expenses 5                                                     Post differentials (See Pay               W
Employee business expenses         5                                         differentials)                          When to file return    2
Entertainment expenses   4                                                 Post exchanges       3

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