Foreign Income - Education Expenses

What is the name of your state? Saudi Arabia

I am on a 2+yr married status assignment in Saudi Arabia. I have two daughters (ages 8 and 12) who go to an American/ British School. This is the only option for schooling in this area. My company pays the tuition (which is over $24,000/ yr.

Do I have to include this as foreign earned income on my tax return?

Also, the company gave us a patriation allowance of $8,000 to cover any expenses and a COLDA (cost of living) allowance of $685/mo. Do I also have to include these as foreign earned income?

Thanks...

The tuition is a fringe benefit. A really nice one, but a fringe benefit. Because western children are not allowed to attend Saudi schools, sending them to a private school is a necessity, not an indulgence. This allows the company to write off the cost as a business expense & allows the employee to ignore the tuition.

Same answer for the housing allowance. Westerners must live in the enclaves. The COLDA represents the difference between what they would have had to pay if they'd lived in the unrestricted areas & what they have to pay living in the enclave.

The patriation allowance is more difficult. If it's moving expenses, it usually has to be included in foreign wages. Also, you cannot write off the moving expenses since they are related to excluded income. Read the 2555 instructions on how to allocate moving expenses to excluded/not excluded income. Since you moved in 2002, you cannot exclude the full $80,000. You'll have to prorate the amount by the number of days out of the US. If you're near the wage limit for the year, you might play around with your non-residency dates to increase the allowable exclusion. You can start the non-residency period on July 1 even if you moved on August 1. This gives you 180 days out of the US instead of 149, and thus, a larger maximum exclusion.