How do I enter information related to Form 2555 - Foreign Earned Income Exclusion?
- Do not fill out both Parts II (Bona Fide Residence Test) and III (Physical Presence Test). A taxpayer can only qualify for one or the other, not both. If both are filled out, F2555 series rejects may result. Use the tabs at the top of screen 2555 to navigate to the various parts of the form.
- To prepare a 2555 for both the taxpayer and spouse, after completing the initial 2555 screen for the taxpayer, press Page Down to access another form for the spouse.
- Be sure to enter the number of days the taxpayer and/or spouse worked in the country (Part IV). The software uses this to calculate the percentage of the foreign income to be excluded. The exclusion cannot exceed $105,900 (2019).
- Be sure that the country code is correct and that information such as the city and country are spelled correctly and matches for each entry; for example, "South Korea" is always keyed as "South Korea" and not "Korea" in some places.
- The exclusion appears on:
- Schedule 1, line 8 with the literal "Form 2555" in Drake19.
- Schedule 1, line 21 with the literal "Form 2555" in Drake18.
- Form 1040, line 21 with the literal "Form 2555" in Drake17 and prior.
- If the exclusion does not show there, check data entry to ensure that the taxpayer qualifies based on the answers provided (verify the tests that he/she passed to exclude the income).
- If you have Form 2555 attached to the return, the taxpayer cannot receive EIC, per IRS rules (see Publication 596).
- EF Message 5204 - Remove the bank product. Many banks do not allow bank products for returns with foreign addresses. Direct deposits are also not allowed.
- If the taxpayer is required to file the long form rather than the short form, check the Suppress 2555-EZ option box on the first 2555 data entry screen (Drake18 and prior only).
- Form 2555-EZ is no longer available per IRS guidelines starting with Drake19. Only Form 2555 will be produced in future qualifying returns.
- The Housing Deduction is not being produced - The housing deduction can be claimed only if the taxpayer has self-employment income. If there is no self-employment income, the deduction is not available and the software does not produce Part IX of Form 2555. Self-employment income appears on lines 20a and 20b in Part IV of Form 2555. The housing exclusion may be available to a taxpayer who received income from an employer.
Drake19 Special Circumstance:
Per Rev. Proc 2020-27, the COVID-19 virus prompted the Department of the Treasury and the Internal Revenue Service to provide a waiver of the time requirements of Internal Revenue Code section 911(d)(1).
If, due to the COVID-19 emergency, you were required to leave:
- The People’s Republic of China (excluding the Special Administrative regions of Hong Kong and Macau) on or after December 1, 2019, but on or before July 15, 2020; or
- Another foreign country on or after February 1, 2020, but on or before July 15, 2020;
You may still be able to meet requirements of the bona fide residence or physical presence test for 2019 or 2020 for purposes of determining the foreign earned income exclusion and housing cost exclusion or deduction
If you are claiming this waiver for tax year 2019, write “Revenue Procedure 2020-27” across the top margin of your Form 2555, and attach it to your 2019 income tax return. The return must be paper-filed.
If you are claiming this waiver for tax year 2020, go to the 2555 screen > 2555-Part 3 tab > and check the box Waiver for Revenue Procedure 2020-27 at the bottom. The return will be eligible for e-file.
See Publication 54, page 21, and the Instructions for Form 2555 for more information.