U.S. Government Civilian Employees Working Overseas

If you are a U. S. citizen working for the US Government, including the Foreign Service, and you are stationed abroad, your income tax filing requirements are generally the same as those for citizens and residents living in the United States. You are taxed on your worldwide income, even though you live and work abroad. However, you may receive certain allowances and have certain expenses that you generally do not have while living in the United States.

U.S. Foreign Service Employees

If you are an employee of the US Foreign Service and your position requires you to establish and maintain favorable relations in foreign countries, you may receive a nontaxable allowance for representation expenses. If your expenses are more than the allowance you receive, you can no longer deduct the excess expenses as an itemized deduction. 

Foreign Earned Income Exclusion, and Foreign Housing Exclusion and Deduction

Certain taxpayers can exclude or deduct income earned in foreign countries. However, the foreign earned income and housing exclusions and the foreign housing deduction do not apply to the income you receive as an employee of the US Government.

Allowances, Differentials, and Other Special Pay

Most payments received by US Government civilian employees for working abroad, including pay differentials, are taxable. However, certain foreign areas allowances, cost of living allowances, and travel allowances are tax free.