IRC Section 911. Revenue Procedure 2010-40. For 2011 a United States individual that is living abroad can exclude up to $92,900 of foreign-earned income. To take this exclusion the taxpayer must satisfy one of two tests.
The bona fide foreign residence test or the foreign physical presence test.
The exclusion applies separately to spouses. Therefore, if both of the spouses are qualified individuals, the two spouses together can exclude up to $185,800, as adjusted for inflation, from their income.
Remember, that all United States Citizens are taxed on a World Wide basis and must report their income and prepare a United States Income Tax Return. If United States citizens have foreign bank accounts they must be disclosed to avoid criminal and civil penalties. These issues are not the focus of this article, but foreign based United States Citizens must be aware of these issues.