Is sabbatical pay taxable for US citizens living abroad?

Thanks for this info! For the sabbatical pay, does it matter that it came from a US university? I thought income had to be from a foreign source to qualify for FEIE. Also, do I need to file any special forms to claim this exclusion?

What matters most for the FEIE is where you physically performed the work, not the source of the payment. Since you were conducting research while physically in France, the sabbatical pay should qualify as foreign earned income even though it came from a US university. You'll need to file Form 2555 along with your regular Form 1040 to claim the Foreign Earned Income Exclusion. Make sure to document your time in France (travel records, residence permit, etc.) as evidence for meeting the Bona Fide Residence Test. Also, don't forget that you may be eligible for the Foreign Housing Exclusion for qualifying housing expenses while abroad.

How does it work with foreign income though? My situation is similar but I have income from three different countries and I'm worried about double taxation. Does this tool help with foreign tax credits too?

I'm skeptical about using tools like this for international tax situations. How can you be sure the advice is accurate? Did it actually save you money compared to using a regular tax accountant? Expat taxes are complicated and mistakes can be expensive.

Yes, it absolutely handles foreign income from multiple countries. The system is designed to analyze your specific situation and determine if you should use the Foreign Earned Income Exclusion or Foreign Tax Credits (or sometimes a combination of both) to minimize double taxation. You just upload all your documents, regardless of which country they're from, and it sorts everything out. Regarding accuracy, I totally get the concern. What impressed me was that the tool provides detailed explanations with references to specific IRS rules and tax code sections. It was actually more thorough than the accountant I used previously. I saved about $3,200 compared to my last tax filing because it found deductions and credits my previous accountant missed, plus I saved on preparation fees.

Wait, how does this actually work? Seems too good to be true. The IRS international line is notoriously impossible to get through. Do they just keep calling until they get someone?

This sounds like a scam. There's no way to "skip the line" with the IRS. They probably just connect you to some fake "agent" who gives you bogus advice. I wouldn't trust any service claiming to get around IRS wait times.

They use an automated system that continuously redials and navigates through all the IRS phone menus for you. It's the same process you'd go through manually, but their system handles all the waiting and menu navigation. Once they actually get a real IRS agent on the line, they call you and connect you directly to that agent. It's all legit - you're speaking with actual IRS employees. I understand the skepticism - I felt the same way initially. But it's not about "skipping the line" - they're just handling the tedious process of waiting on hold and navigating phone menus. The people you talk to are 100% real IRS agents, and you can verify this when you're connected because they identify themselves as IRS employees.

Would you recommend doing both the FEIE and Foreign Tax Credit? My accountant is telling me to just do FEIE but I'm paying a lot of taxes in Germany and wondering if I should switch strategies.

You can actually do both, but not on the same income. You'd use the FEIE for some of your foreign income and then claim the Foreign Tax Credit on the remaining income that exceeds the FEIE limit or doesn't qualify for the exclusion. For high-tax countries like Germany, sometimes it's more advantageous to skip the FEIE entirely and just claim the Foreign Tax Credit on all your income. This is especially true if you're in a higher tax bracket in Germany than you would be in the US. The credit can potentially offset all your US tax liability and even carry forward to future years if you have excess credits.

Research grants can be tricky. If the grant was for your benefit (like to further your education), it might be considered scholarship income rather than earned income. If so, it wouldn't qualify for the FEIE, but might be partially excludable as a qualified scholarship depending on how you used the funds. If the grant was to perform specific research services (which sounds more like your case since it's part of a sabbatical), then it's more likely considered earned income and would potentially qualify for the FEIE.

That makes sense! My grant was definitely for performing specific research, not for education since I already have my PhD. It was essentially payment for the research I was doing while abroad. Sounds like it should qualify for the FEIE then, which is a relief. I think I'll need to make sure it's clearly documented that both the "salary" and "research stipend" portions were compensation for services performed while physically in another country. Thanks for the insight!

This is such helpful information! I had no idea about the FBAR requirement. I do have a French bank account that definitely exceeded $10,000 during the year since that's where my consulting payments went. Do you know what the deadline is for filing the FBAR? Is it the same as the tax return deadline or separate? Also, regarding the Form 8938 (FATCA), how do I determine if I meet the threshold requirements? I'm trying to figure out if my French bank account balance and the consulting income I received would push me over whatever limit applies to expats.

The FBAR deadline is actually different from your tax return - it's due by April 15th (no extensions available, though there's an automatic extension to October 15th if you miss the April deadline). So even with the 2-month filing extension for expats, you still need to get your FBAR filed by the original deadline. For Form 8938 thresholds, it depends on your filing status. If you're single and living abroad, the threshold is $200,000 on the last day of the year OR $300,000 at any point during the year for specified foreign financial assets. This includes bank account balances, but also things like foreign stocks, bonds, or other investments. Your French bank account balance alone probably won't trigger this requirement unless you're holding substantial amounts. One thing to watch out for - the FBAR uses the highest balance during the year for each account, while Form 8938 looks at year-end values plus the maximum during the year. They have different reporting requirements even though there's some overlap in what gets reported.

French unemployment benefits (allocation chômage) are generally treated as unearned income by the IRS, so they wouldn't qualify for the Foreign Earned Income Exclusion. The IRS typically views unemployment compensation as a replacement for lost wages rather than payment for current services, which puts it in the unearned income category. However, you'll still need to report this income on your US tax return. The good news is that if France taxed these benefits, you might be able to claim a Foreign Tax Credit for any French taxes paid on the unemployment income. This could help offset some or all of the US tax liability on that portion of your income. The key distinction is that the FEIE only applies to income from personal services performed while physically present in a foreign country. Since unemployment benefits aren't compensation for active work, they don't meet this requirement. Your consulting income from the French company would likely qualify for the FEIE though, assuming you performed the work while physically in France.

You make an excellent point about the tax treaty provisions! I hadn't considered how the US-France treaty might specifically apply to academic research situations. Article 20 of the treaty actually has special provisions for students and researchers that could be really relevant here. For anyone dealing with similar situations, it's worth noting that the treaty can sometimes provide more favorable treatment than just relying on the FEIE alone. The researcher provisions might allow for temporary exemption of certain income that wouldn't otherwise qualify for standard exclusions. @Henry Delgado - your point about the timing of returning to the US is crucial. I learned this the hard way when I moved back mid-year and it complicated my residency test calculations. The Physical Presence Test becomes much more important in transition years, and you really need to track every single day spent in/out of the US. For complex international tax situations like this, I d'definitely second the recommendation to work with a specialist. The interaction between FEIE, Foreign Tax Credits, treaty provisions, and various reporting requirements can get pretty intricate, especially when you re'dealing with academic income, consulting work, and a pending move back to the US.