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Federal Foreign Income Exclusion

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Taxpayers who live or work in a foreign country for at least a year may not have to pay federal tax on the income they earn outside the United States. Those who qualify can “exclude” this income – by not reporting it as taxable income – on their federal return.

Minnesota matches this federal “exclusion” for state residents who meet both of the following requirements:

If you meet these requirements, you’re considered a nonresident for Minnesota tax purposes while you’re living outside the country. During this time, you generally don’t have to pay Minnesota tax on foreign-earned and some other types of income.

If you qualify for the foreign income exclusion:

Example

Jeannie was assigned to work in Germany from January 2017 through June 2019. When she left, Jeannie wasn’t homesteading any property in Minnesota, and she surrendered the lease on her St. Paul apartment. She spent fewer than 35 days in the United States each year and earned no Minnesota income during her visits.

Jeannie is considered a nonresident for Minnesota taxes during all of 2017 and 2018. She isn’t required to file a Minnesota return for those years.

For 2019, Jeannie will file as a part-year resident if she returns to Minnesota to reside. She will pay Minnesota tax on all taxable income she receives after July 1, 2019.

Note: Had Jeannie worked and lived abroad from June 2017 through June 2018, she would file each year’s Minnesota return as a part-year resident. She would pay Minnesota tax on all taxable income she received from January through May 2017, and from July through December 2018.

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