The Internal Revenue Service (IRS) has issued a notice providing adjustments to the limitation on housing expenses for specific locations for purposes of the foreign housing cost exclusion under Internal Revenue Code (IRC) §911 [Notice 2021-18, 2-26-21]. The U.S. Secretary of the Treasury makes annual adjustments to this limit based on geographic differences in housing costs.
Notice 2021-18 is effective for taxable years beginning on or after January 1, 2021. However, a taxpayer may elect to apply the 2021 adjusted housing limitations contained in the notice to his/her taxable year beginning in 2020.
IRC §911 generally allows a U.S. citizen or resident living abroad to exclude from U.S. taxable income certain foreign earned income. A qualified individual is also allowed an exclusion from gross income for certain housing costs paid or incurred on his/her behalf that exceed a certain base housing amount.
A qualified individual incurring housing expenses in one or more of the listed high-cost localities in 2021 may use the adjusted limit specified (instead of $32,610) in determining the housing cost amount on Form 2555, Foreign Earned Income. The $32,610 limit continues to apply to a qualified individual not incurring housing expenses in a listed high-cost locality.
Jyme Mariani, Esq., is Managing Editor of Payroll Information Resources for the American Payroll Association