Guide to Global Payroll Management

Foreign tax home
The employee's tax home must be in a foreign country for the entire period of residence
or physical presence in that country during the year.3 In general, an employee's tax home
is the location of his or her regular or principal place of business or employment. If there is
no regular or principal place of business, the employee's tax home is where the employee
regularly lives (i.e., has an abode). An employee cannot have a foreign tax home if he or
she regularly lives in the U.S. But the expatriate employee is not considered to regularly
live in the U.S. merely because the employee temporarily spends time in the U.S. (e.g., on
vacations or business trips) or maintains a house or apartment in the U.S. that is occupied
by the employee's spouse and/or dependents.4
Example 1: Yvonne, an accountant, works one month in each of six foreign
countries during a year auditing her employer's foreign affiliates and spends
the month in between each assignment back in the U.S. with her husband
and children in their family residence. Yvonne has her abode in the U.S.
during the year and cannot have a foreign tax home during that same year.
Therefore, she cannot claim either of the §911 exclusions for that year.
Government contractors supporting U.S. armed forces in designated combat
zones. Section 41116 of the Bipartisan Budget Act of 2018 changed the "tax home requirement" for eligible taxpayers, enabling government contractors supporting U.S. armed forces
in designated combat zones to claim the foreign earned income exclusion even if their
"abode" is in the United States.5 Before the law was enacted, these contractors failed to
qualify for the exclusion because their abode was in the United States.
Temporary or indefinite assignments. One factor determining whether an employee's
tax home is in the U.S. or a foreign country is whether the employee is on a temporary or
indefinite assignment. IRS regulations defining the term "tax home" give the term the same
meaning it has under the rules governing travel expenses away from "home." Under those
rules, temporary assignments are those lasting up to one year.6 The IRS has adopted a
"realistic expectation" test that focuses on whether employment in a single location is realistically expected to last for more or less than one year, rather than on the actual length of
employment at a temporary location:7
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3.
4.
5.
6.
7.

6-2

If employment away from home in a single location is realistically expected to
last (and does in fact last) for one year or less, the employment will be treated
as temporary in the absence of facts and circumstances indicating otherwise.

IRS Reg. §1.911-2(a).
IRC §911(d)(3); IRS Reg. §1.911-2(b).
IRC §911(d)(3), as am. by Pub. L. 115-123, §41116(a).
IRS Reg. §1.911-2(b).
Rev. Rul. 93-86, 1993-2 CB 71.

Guide to Global Payroll Management - 2020

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Guide to Global Payroll Management - 2020

Table of Contents for the Digital Edition of Guide to Global Payroll Management - 2020