By Jason Watson (Google+)
For 2014, you can exclude a maximum of $99,200 for single taxpayers. However, you must pro-rate this amount for partial years. So, let’s say you earned $40,000 in 2014 and you started your foreign job on July 1. You would be eligible for 183 days-worth of the $99,200 exclusion, or $49,736 (183/365 x $99,200 or $271.78 per day).
But, if you earned $40,000 in 2014, and started your job on September 1, you would be eligible for 121 days-worth of the $99,200 exclusion or $32,885. So $7,115 would not be excluded and would be taxable income on your US tax return.
| Jul 1 | Sep 1 | |
| Income | $40,000 | $40,000 |
| Days Abroad | 183 | 121 |
| Exclusion Limit | $49,736 | $32,885 |
| Excluded Income | $40,000 | $32,885 |
| Taxable Income | $0 | $7,115 |
Lastly, the money you earned in the United States for the first part of the partial year is not excluded- to the qualify for the exclusion, it must be earned while residing or being present in a foreign country.
Side Note: Pro-rated years must be handled properly. Typically, WCG (formerly Watson CPA Group) will prepare your tax returns during the tax season to determine tax consequences before you are eligible and sit on them. Extensions do not give you an extension to pay. For example, you leave September 1 2014. We prepare your tax returns in spring of 2015 and sit on it until you are eligible to file. However, if you owe taxes to either the IRS or the state, then you can make that payment on April 15 2015 and we file your tax returns on August 30 2015 (using this example). This avoids failure to pay interest and penalties.