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Lucas, a single U.S. citizen, works in Denmark for MNC Corp during all of 2019. His...

Lucas, a single U.S. citizen, works in Denmark for MNC Corp during all of 2019. His MNC salary is $87,000. Lucas may exclude from his gross income wages of:

a.$40,000 b.$0 c.$105,900 d.$87,000

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Answer #1

Ans: The correct option is (d) $87000.

Rationale- A U.S citizen living or working abroad is taxed on his/her Worldwide Income. But IRS allows the taxpayer to exclude foreign earned income upto certain limits adjusted annually for inflation. Foreign earned income includes salary. The limits are as follows:

Tax Year Maximum amount of Exclusion of Foreign earned income
2018 $103900
2019 $105900
2020 $107600

Note- These limits can be availed by married taxpayers individually.

In the present case, Lucas is a single taxpayer who is also a citizen of U.S. He worked in Denmark for MNC Corp for the whole of 2019 and earned a salary of $87000. He is eligible to exclude an amount of $105900 (as for 2019) from his gross income. But his salary from working abroad is $87000 which is less than the maximum limit allowed for exclusion. So he can exclude the whole amount from the gross income.

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