Here’s what you need to know about taxation in the USA if you are a government civilian living abroad.
(Updated: January 30, 2019)
U.S. Government Civilian Employees Working Overseas
If you are a U. S. citizen working for the US Government, including the Foreign Service, and you
are stationed abroad, your income tax filing requirements are generally the same as those for citizens and residents
living in the United States. You are taxed on your worldwide income, even though you live and work abroad. However, you
may receive certain allowances and have certain expenses that you generally do not have while living in the United
States.
U.S. Foreign Service Employees
If you are an employee of the US Foreign Service and your position requires you to establish and maintain favorable
relations in foreign countries, you may receive a nontaxable allowance for representation expenses. If your expenses are
more than the allowance you receive, you can deduct the excess expenses as an itemized deduction if you meet certain
conditions. For more information, refer to U.S. Foreign Service
Employees.
Foreign Earned Income Exclusion, and Foreign Housing Exclusion and Deduction
Certain taxpayers can exclude or deduct income earned in foreign countries. However, the foreign
earned income and housing exclusions and the foreign housing deduction do not apply to the income you receive as an
employee of the US Government.
For more information on the foreign earned income and housing exclusions and foreign housing deduction, see Publication 54, Tax Guide for US Citizens and
Resident Aliens Abroad.
Allowances, Differentials, and Other Special Pay
Most payments received by US Government civilian employees for working abroad, including pay differentials, are taxable.
However, certain foreign areas allowances, cost of living allowances, and travel allowances are tax free. For more
information, refer to Allowances,
Differentials, and Other Pay.
U.S. Agency Reimbursed By Foreign Country
If you are a US Government employee paid by a US agency to perform services
in a foreign country, your pay is from the US Government and does not qualify for the exclusions or the deduction. This
is true even if the US agency is reimbursed by the foreign government.
Employees of Post Exchanges, etc.
If you are an employee of an Armed Forces post exchange, officers’ and enlisted personnel club, embassy commissary, or
similar instrumentality of the US Government, the earnings you receive are paid by the US Government. This is true
whether they are paid from appropriated or non-appropriated funds. These earnings are not eligible for the foreign
earned income and housing exclusions or the foreign housing deduction.
Travel and Entertainment Expenses
You may be able to deduct the ordinary and necessary business-related expenses you have for
travel, entertainment, or transportation expenses while stationed abroad. To deduct such expenses, including those
certified by the Secretary of State, you must meet the rules for recordkeeping and accounting to your employer. These
rules are explained in Publication 463, Travel,
Entertainment, Gift, and Car Expenses.
Miscellaneous Deductions
You may also be able to deduct unreimbursed employee expenses as miscellaneous itemized deductions, including certain
employee business expenses. For more information about miscellaneous deductions, refer to Publication 529, Miscellaneous Deductions.
2. U.S. Territories/Possessions
This page does not cover the rules that apply if you are stationed in American Samoa, Guam, the Commonwealth of the
Northern Mariana Islands, the U.S. Virgin Islands, or Puerto Rico. That information may be found in Individuals
Living in U.S. Possessions.
3. Foreign Income
If you are a US citizen or resident alien with income from sources outside the United States, you must report all that
income on your U.S. tax return unless it is exempt by US law. This applies to earned income (such as wages) as well as
unearned income (such as interest, dividends, and capital gains).
4. Other Employment
If you are a US citizen or resident employed abroad by the US Government and you also receive income from a private
employer or self-employment, you may qualify to claim the exclusions or the deduction applicable to this other income.
To qualify, you must meet either the bona fide residence test or the physical presence test. Your spouse who is a US
citizen or resident alien may also qualify if he or she earns income in a foreign country that is paid by a private
employer or is from self-employment. If you are not a U.S. government employee, amounts paid by the United States or its
agencies to you may also qualify for the exclusions or the deduction. Refer to Foreign Earned
Income Exclusion.
