The IRS on March 25 announced that taxpayers who live in foreign countries can now use the Free File program to prepare and e-file their federal tax returns (IR-2011-30). The program is available to both U.S. citizens and resident aliens, and currently five of the Free File software providers can accept returns filed from foreign addresses.
The IRS's Free File program is available to taxpayers with adjusted gross income of $58,000 or less. The IRS in its announcement points out that the $58,000 limit applies after the Sec. 911 foreign earned income exclusion is subtracted from the taxpayer’s total income. This means that taxpayers living abroad who use the foreign earned income exclusion can potentially earn up to $149,500 and still be eligible to use the Free File program.
The IRS warns, however, that taxpayers claiming the foreign earned income exclusion or a foreign tax credit should make sure that the Free File software they are using supports Form 2555, Foreign Earned Income, and Form 1116, Foreign Tax Credit.