I'm surprised no one has posted about this.
Disclaimer- I am not a tax expert. This is not tax advice...etc.
Once the bill is signed into law, the foreign earned income and housing exclusions will change as follows for 2006:
1. Accelerate inflation indexing of the maximum $80,000 foreign earned income exclusion.
2. Change the way the base housing amount. This will increase the base housing amount to a maximum of $13,184 on an annual basis.
3. Generally limit the maximum amount of excess housing costs that may be excluded from income, to 30% of the foreign earned income exclusion limitation less the base housing amount ( resulting in a maximum 2006 housing exclusion of $11,536; and
4. Apply an "exclusion with progression" methodology which adds back the exclusion to determine the rate of tax to ensure that international assignees are subject to the same U.S. tax rates on income not excluded under Section 911 as taxpayers living and working in the U.S.
The bill also provides the Secretary with the authority to issue regulations or other guidance which would provide for an adjustment to the 30% housing cost. This would apply in cases where geographic differences in housing cost exist, and provides the Secretary with the discretion to adjust the general 30% limit upward or downward as required. It is intended that the Secretary make these adjustments on an annual basis.
