I'm a United States citizen and I have an opportunity to work abroad. I was told by a friend that up to $103K of income earned abroad is not taxed by the IRS. First of all, is this true? Also, will I have to pay taxes in the country I'm going to but which I'm not a citizen of? I want to know specifically for the Netherlands and Kuwait.
To answer your first question, your friend is correct, except for the amount - it's $101,300 not $103,000. This is due to the Foreign earned income exclusion
One tax break for expatriates is the Foreign Earned Income Exclusion. If an American moves abroad, he or she can exclude foreign-earned income up to $101,300 as of 2016 from U.S. taxation. To qualify, that person must have lived outside the United States for 330 days in 12 consecutive months, said Wilson, a partner in the Denver law firm of Holland & Hart.
That means an expatriate making $75,000 overseas would pay no taxes, although he or she still must file IRS Form 1040 and claim the exclusion. If the expatriate makes $105,000, tax must be paid on the difference between his or her salary and $101,300, or $3,700. But if the expatriate visits the United States for more than 35 days in that period, the benefit is lost.
If there’s no government where the expatriate is living, the exclusion can’t be claimed. Wilson recalled a case in which Americans tried without success to claim the exclusion because they were living in Antarctica. The exclusion also can’t be claimed on the high seas, he said.