Form 673

What is Form 673?

Form 673, “Statement for Claiming Exemption from Withholding on Foreign Earned Income Eligible for the Exclusion(s) Provided by Section 911,” is a document used by U.S. citizens or resident aliens who are working outside the United States. This form allows them to claim exemption from U.S. federal income tax withholding on income that they expect to exclude under the foreign earned income exclusion and the foreign housing exclusion.

Eligibility for Claiming Exemption

To be eligible to use Form 673, individuals must anticipate that they will qualify for the foreign-earned income exclusion and/or the foreign housing exclusion. These exclusions are available to those who meet the tax home test and either the bona fide residence test or the physical presence test, essentially proving that they live and work in a foreign country for a substantial part of the year.

Filing Instructions and Requirements

Filing Form 673 involves completing it and providing it to the employer. The form requires the taxpayer to declare their anticipated foreign-earned income, claim the specific exclusions, and certify that they meet the requirements for claiming these exclusions. The employer uses this form to determine the amount of U.S. federal income tax to withhold from the employee’s wages.

Impact of Form 673 on Tax Obligations

Using Form 673 to claim these exclusions can significantly reduce the U.S. tax burden on an expatriate. However, it does not exempt the employee from their obligation to file a U.S. tax return. It merely adjusts the withholding to more accurately reflect their ultimate tax liability, potentially avoiding the need to wait for a large refund after filing their return.

Challenges and Considerations

The key challenge in using Form 673 is accurately predicting one’s income and ensuring eligibility for the exclusions. Changes in employment status, income level, or the length of stay abroad can affect eligibility. It is important for taxpayers to regularly review their situation and adjust their filings as necessary.

Form 673 is a valuable tool for U.S. citizens and residents working abroad, enabling them to manage their U.S. tax liabilities more effectively while complying with tax laws. It ensures that taxpayers do not have excessive withholdings taken out, which can help with cash flow while living overseas.