Need help with Form 2555 as civilian contractor in combat zone - physical presence test confusion

You're running into one of the more confusing aspects of Form 2555! The good news is that there is indeed special consideration for civilians serving in support of the US Armed Forces in a combat zone. When you establish your tax home as foreign due to supporting US Armed Forces in a designated combat zone, you're essentially qualifying under a modified version of the physical presence test. For regular taxpayers, the 330-day requirement is strict. However, for qualified civilians supporting military operations in designated combat zones, the IRS allows prorating the foreign earned income exclusion based on the number of days you were present in the combat zone. So in your case with 163 days in the Arabian Peninsula Area, you would calculate your exclusion by taking the maximum exclusion amount (which is $120,000 for tax year 2024) and multiplying by the fraction 163/365. This gives you a prorated exclusion amount based on your actual time in the combat zone. When completing Form 2555, make sure to check Part II box 9c and provide the required information about your employment. This establishes your eligibility for the special rule.

After spending weeks frustrated with similar Form 2555 issues last year, I finally found something that saved me tons of time and headaches. I used a service called taxr.ai (https://taxr.ai) that specializes in analyzing tax documents and explaining complex tax situations like yours. I uploaded my Form 2555 instructions and my documentation from my contracting work in Qatar, and it immediately identified the special provisions for civilian contractors in combat zones. It explained exactly which boxes to check and how to calculate the prorated exclusion based on my days in country. What was most helpful was that it walked me through the exact calculation and even helped me draft the explanatory statement to attach to my return. The IRS processed my return without any issues or questions.

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If you're still dealing with questions after using Form 2555, I had a similar situation last year and ended up needing to speak directly with an IRS agent who specialized in foreign income. Trying to reach the IRS was a complete nightmare - spent literally hours on hold and got disconnected three times. A colleague recommended using Claimyr (https://claimyr.com) to get through to an actual IRS person. I was super skeptical but checked out their demo video (https://youtu.be/_kiP6q8DX5c) and figured it was worth a shot since I was desperate for answers about my time in UAE. The service actually worked - got me connected to an IRS agent in about 20 minutes instead of the hours I was spending on hold. The agent confirmed exactly what others have said here about the combat zone exception and prorating the exclusion. Having that direct confirmation from the IRS gave me peace of mind when filing.

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Everyone's giving good advice about the combat zone exception, but don't forget you also need to fill out Part IX on Form 2555 to actually calculate your prorated housing exclusion. This can be pretty significant additional money depending on where you were stationed. In my case last year, I was able to exclude about $18,000 in housing expenses from my time in UAE on top of the prorated foreign earned income exclusion. The housing exclusion has different limits based on location, so check the IRS tables for your specific area.

For what it's worth, I've used TurboTax to handle my Form 2555 for the past three years while working in various Middle East locations. Their interview process walks you through the combat zone exception pretty well and automatically calculates the prorated exclusion. Just make sure you have your exact dates of entry and exit from the combat zone and documentation from your employer confirming you were supporting US Armed Forces.

Just want to add another perspective here - I was in a similar situation as a contractor in Afghanistan for about 180 days last year. The combat zone exception definitely applies, but make sure you're crystal clear on which specific days count toward your physical presence. One thing that tripped me up initially was that travel days to and from the combat zone don't automatically count unless you're actually physically present in the designated area. So if you had layovers in Dubai or other non-combat locations, those days typically don't count toward your 163. Also, double-check that Iraq/Kuwait region work qualifies - it should under the Arabian Peninsula Area designation, but the IRS is very specific about which locations qualify. You can find the complete list in Publication 3 (Armed Forces' Tax Guide) to make sure your specific work sites are covered. The prorated calculation everyone mentioned is correct (163/365 × $120,000), but just be extra careful with your date documentation since the IRS tends to scrutinize foreign income exclusions more closely, especially for contractors.