Form 673: Stopping US Tax Withholding on Pay Earned Abroad

This guide follows Form 673 (Rev. August 2019) and the IRS 2025 Instructions for Form 2555, as of October 2026.

What the form does

The form's own wording is that, once completed and given by a US citizen to their employer, it lets the employer exclude from income tax withholding all or part of the wages paid for work done outside the United States. The employer can then stop withholding US income tax on the wages that qualify. Without it, payroll keeps withholding as if you lived at home, and you wait for a refund after you file.

Who can use it

The statement is written for US citizens. You tick one of two tests and give the dates:

Test	What you're declaring
Bona fide residence	You've been a bona fide resident of a foreign country, with your tax home there, for an uninterrupted period that includes an entire tax year, and you expect to stay through the year the statement covers
Physical presence	You expect to be present in a foreign country, with your tax home there, for 330 full days within a 12-month period

The 2025 Form 2555 instructions add that income earned abroad as an employee of the US Government doesn't qualify for either exclusion, so federal employees can't use Form 673 to stop withholding.

The figures behind it, as of October 2026

Form 673 doesn't state an exclusion amount, because it changes each year. The IRS 2025 Instructions for Form 2555 say the maximum foreign earned income exclusion for 2025 is $130,000. For most locations, the limit on housing expenses is $39,000 for a full year, or $106.85 per day for a shorter qualifying period, with higher limits for locations listed in IRS Notice 2025-16. Withholding should only stop on wages you reasonably expect to fall within those limits.

Part II: the housing estimate

1. Rent
2. Utilities, other than telephone charges
3. Real and personal property insurance
4. Occupancy tax not deductible under section 164
5. Nonrefundable fees for securing a leasehold
6. Household repairs

You add lines 1 to 6 to get estimated qualified housing expenses on line 7, take off the estimated base housing amount on line 8, and line 9 is your estimated housing cost amount. Part III then certifies that this estimate, plus any statements given to other employers, isn't more than your total.

What the employer does with it

Once the employer has the completed form, it may stop withholding US income tax on the wages that qualify. The form also tells employers that if they believe the employee won't qualify, they should disregard Form 673. So an employer who knows your posting is ending early can keep withholding.

The promises you make by signing

• If you become disqualified for the exclusions, you'll tell your employer immediately and say which part of the period, if any, you qualified for.
• You accept that the exemption from withholding isn't an IRS decision that your pay is excludable.
• You sign under penalties of perjury.

That second point is the one people miss: Form 673 only changes what payroll withholds. If you don't meet the test in the end, the tax is still due when you file.

Claiming the exclusion afterwards

The form's instructions tell employees that if they qualify for the foreign earned income exclusion or the housing exclusion or deduction, they complete Form 2555 and attach it to Form 1040 or 1040-SR. Since tax year 2019 the shorter Form 2555-EZ is no longer available, so everyone uses the full Form 2555.

Form 673 or a new W-4?

Form 673 is specific to the foreign exclusions. If you're changing withholding for any other reason, such as dependants or a second job, that's done on a Form W-4.

What's changed on the form

The current revision notes two updates. For tax years beginning after December 31, 2017, new tax home rules apply to certain people serving in a combat zone in support of the US Armed Forces, explained in the Form 2555 instructions. And since tax year 2019 every taxpayer claims the exclusion on the full Form 2555.

A quick checklist before you sign

1. Decide which test you'll meet and note the dates: an entire tax year of foreign residence, or 330 full days abroad in 12 months.
2. Estimate your foreign wages for the year against the current exclusion limit.
3. Estimate qualified housing costs for Part II, using the limit for your location.
4. Check you're not paid as a US Government employee, because that pay doesn't qualify.
5. Give the signed statement to your employer and keep a copy with your tax records.
6. Diarise a check-in if your posting dates might change.

The verdict

Form 673 is a cash-flow tool, not a tax saving on its own. Use it once you're confident you'll meet the bona fide residence or physical presence test, keep your estimate of excluded wages and housing within the current IRS limits, tell your employer at once if plans change, and claim the exclusion in full on Form 2555 at filing time.

Anyone proving where they live for tax purposes will find the guide to a US residency certificate useful.

Frequently asked questions

What is Form 673 used for?

A US citizen working abroad gives it to their employer to stop federal income tax withholding on wages expected to be covered by the foreign earned income and housing exclusions.

Do I file Form 673 with the IRS?

No. You give Form 673 to your US employer.

Who can use Form 673?

A US citizen who expects to qualify for the foreign earned income exclusion under the bona fide residence test or the physical presence test.

What is the foreign earned income exclusion for 2025?

The IRS 2025 Instructions for Form 2555 say the maximum exclusion for 2025 is $130,000.

Can an employer ignore Form 673?

Yes. If the employer believes the employee won't qualify for the exclusions, the form says to disregard it.

Do I still need Form 2555 if I gave my employer Form 673?

Yes. You claim the exclusion by completing Form 2555 and attaching it to your Form 1040 or 1040-SR.