My husband is about to go to Iraq to work and we have heard several different things as far as pay is concerned. It is about 50/50 in feedback as to whether the money he earns is taxable or tax exempt. He will be working there 4 months, home 10 days, there 4 months, home 10 days, and so on. Can someone please clarify whether the money he earns working in Irag is going to be taxed or if it will be tax free? Or where can I go to find out for sure?

It depends. (the general tax answer)

Part of the money you earn overseas can be considered nontaxable. You can exempt $82400 for 2006 and $85700 in 2007 of income earned overseas. Be careful because I've seen a lot of people not get any withholding or make any payments if they are overseas and making a decent amount of money, then they get stuck with a big bill at the end of the year.

There is also the issue as to the amount of time overseas during that tax year. I would discuss this with a CPA prior to going.

I totally agree. The IRS is pretty tough on these and you don't want to mess it up on accident and get in trouble with them!

They changed the law last year.

Your salary IS tax exempt, but if you had ANY taxable income, that income is taxed at the tax rate you would have been had the exempt income been counted.

Which new tax law are you referring to ATE? I don't remember a new tax law last year and probably NEED to remember it LOL

It was not passed as part of a specific tax reform act, but was an add-on to another law, which I do not remember.

I was briefed about it in detail during a NATP seminar in July.

You can probably get a synopsis from Internal Revenue Service.

Is this what you are referring to?

Changes in the Foreign Earned Income Exclusion

For tax year 2006 the maximum amount of the Foreign Earned Income Exclusion under section 911 of the Internal Revenue Code has been increased to $82,400. (Refer to Revenue Procedure 2006-51.) In addition, Section 515 of the Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222) amends the computation of the Maximum Housing Amount Exclusion under Section 911 of the Code. (Refer to Notice 2006-87 and Notice 2007-25.)

Effective for tax years beginning after 2005, the amount of foreign earned income (and foreign housing costs) excluded from an individual's gross income will be used for purposes of determining the rate of income and alternative minimum tax (AMT) that applies to his or her nonexcluded income. The Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222) adds a new section 911(f) to the Internal Revenue Code. An individual's tax will be the excess of the tax that would be imposed if his or her taxable income were increased by the amount(s) excluded, and the tax that would be imposed if his or her taxable income were equal to the excluded amount(s). For this purpose, the excluded amount(s) will be reduced by the aggregate amount of any deductions or other exclusions otherwise disallowed. In many cases this will have the effect of increasing an individual's U.S. federal income tax to an amount greater than it would have been under prior law.

Refer to the 2006 edition of Publication 54 for details

Yep, that's it.

There is STILL an exclusion of $82,400, but the tax rate for the first dollar OVER $82,400 is 15% or 25% (depending on your filign status).

The exclusion is still a great benefit, but it has been significantly disminished In my opinion.

Oh, okay, I remember that one. Thought I was getting a bad case of CRS.

Crs?

Can't remember s---!

Lol