Form 673: Stop Expat Paycheck Withholding

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At a 22% federal clip, a $132,900 foreign salary can send about $29,238 to the IRS during the year even when that pay later drops off Form 1040 under the foreign earned income exclusion. As of August 2026, that $132,900 cap is the official 2026 amount under IRS Rev. Proc. 2025-32. The form that stops the interest-free loan is not Form 2555. It is Form 673, handed to payroll, not mailed to Ogden.

This is the operator playbook for U.S. citizens on a U.S. W-2 while living abroad. Beginners get a first-year timing rule, two-earner families get the dual-exclusion math, and retirees can skip most of it unless they still draw a U.S. paycheck. For the rest of the filing stack, use the Expat Tax & Finance hub.

What does Form 673 actually change on your paycheck?

Form 673 is the IRS sample statement that lets a U.S. citizen tell a U.S. employer: stop federal income tax withholding on wages you reasonably expect to exclude under section 911. Publication 54 says the employer does not have to withhold U.S. income tax from wages earned abroad if it is reasonable to believe you will exclude them under the foreign earned income exclusion or the foreign housing exclusion.

The current form is still the August 2019 revision. You give it to the employer. The IRS does not stamp it, and the form itself warns that a withholding exemption is not an IRS determination that any dollar is actually excludable. You still attach Form 2555 to Form 1040 or 1040-SR to claim the exclusion.

Publication 54 also says you do not have to use the IRS PDF. A signed statement under penalties of perjury that covers the same facts is acceptable. Most payroll teams still want the numbered form because it matches their procedure binder.

Who can use Form 673, and who is locked out?

Publication 54 is blunt: you can use Form 673 only if you are a U.S. citizen. Green-card holders who qualify for the foreign earned income exclusion on Form 2555 still generally cannot use this particular statement. They need another payroll path, usually a custom statement the employer’s tax counsel will accept, or they keep withholding and take the refund.

The form’s opening sentence limits the benefit to wages paid for services performed outside the United States. U.S. workdays stay on the withholding grid. A two-week headquarters trip is not a reason to void the whole form, but those U.S. days are ordinary wages.

Citizen, U.S. employer, and one of two tests

You also need a U.S. employer that actually withholds federal income tax. A local contract with a foreign company that never ran a U.S. payroll has nothing for Form 673 to turn off. Self-employed operators do not use Form 673; they use estimated tax and Form 2555, and they still owe self-employment tax on excluded earnings.

Part I of the form makes you pick the bona fide residence test or the physical presence test and certify that you have good reason to believe you will meet it. Physical presence is 330 full days in foreign countries during any 12-month period. Bona fide residence is an uninterrupted foreign residence that includes an entire tax year, plus a foreign tax home. If you moved in July, do not swear you already cleared a full calendar year.

U.S. government pay does not qualify as foreign earned income. Do not hand Form 673 to a federal payroll office expecting section 911 treatment on those wages. Combat-zone support workers have a special tax-home rule on the form’s “What’s New” notes; that is a niche case, not the default remote-employee path.

How do you complete Form 673 without creating an underpayment?

Download the current PDF from IRS.gov, not a random HR intranet copy from 2012. Fill it in ink or a locked PDF so payroll cannot claim the scan was illegible. Keep a dated copy with the email you used to send it.

1. Enter your legal name and Social Security number exactly as they appear on the W-4 already on file.
2. In Part I, name the tax year (calendar 2026, or the fiscal year if you actually use one) and check only one test box.
3. For bona fide residence, list the country and the date the uninterrupted period began. For physical presence, list the 12-month window that covers the tax year, or the partial-year dates if you will not be abroad all year.
4. Complete Part II only if you also want housing-exclusion withholding relief. Leave it blank if you will not claim housing, or if you cannot document rent and utilities yet.
5. Sign Part III under penalties of perjury. The certification says you will notify the employer immediately if you become disqualified, and that the housing amount plus any other outstanding Form 673 statements is not more than your total estimated housing cost amount.
6. Send it to payroll or the international mobility desk, not to the IRS. Ask for written confirmation that federal income tax withholding on qualifying foreign wages will stop or drop as of a named pay date.
7. Calendar a mid-year check: passport stamps, U.S. days, and any second employer. If the test is in doubt, send an update and tell them to resume withholding.

Employers may disregard the form if they have reason to believe you will not qualify. Publication 54 also requires them to consider pay you receive from any other source outside the United States when they test the exclusion caps. Two concurrent W-2s can silently blow the $132,900 figure if each payroll assumes it is your only job.

Does Form 673 stop Social Security and Medicare withholding?

No. Form 673 addresses federal income tax withholding only. Publication 54 states that Social Security and Medicare taxes may apply to wages regardless of where the services are performed, and that they generally apply when you work for an American employer. That FICA remainder is the core of the site’s W-2 abroad withholding trap guide; this article is the Form 673 layer only.

As of 2026, the Social Security wage base is $184,500, so employee OASDI at 6.2% maxes at $11,439, with a matching employer amount. Medicare remains 1.45% with no wage cap. IRS Topic 560 adds that there are no special Additional Medicare Tax rules for citizens living abroad. Employers must withhold the extra 0.9% once Medicare wages pass $200,000 in a calendar year, without looking at your filing status.

Item	Does Form 673 change it?	2026 figure to remember
Federal income tax withholding on qualifying foreign wages	Yes, if payroll accepts the statement	FEIE cap $132,900
Employee Social Security (OASDI)	No	6.2% up to $184,500
Employee Medicare	No	1.45%, uncapped
Additional Medicare Tax withholding	No	0.9% after $200,000 of Medicare wages
State income tax withholding	No; fix the W-4 and domicile file	State-specific
Claiming the exclusion on the return	No; still file Form 2555	Attach to Form 1040 / 1040-SR

If the host country also collects social contributions, look at a U.S. totalization agreement and a Certificate of Coverage. That is a separate SSA process. Form 673 never substitutes for it.

Data note: FEIE, wage-base, and Additional Medicare figures were checked in August 2026 against Rev. Proc. 2025-32, SSA’s contribution and benefit base page, and IRS Topic 560. They change by year.

How should you fill the housing lines without overshooting?

Part II is a rent-and-utilities worksheet, not a second FEIE. Line 1 is rent. Line 2 is utilities other than telephone. Line 3 is real and personal property insurance. Line 4 is occupancy tax that is not deductible under section 164. Line 5 is nonrefundable lease fees. Line 6 is household repairs. Line 7 totals those estimates. Line 8 is the estimated base housing amount for the qualifying period. Line 9 is the estimated housing cost amount your employer can treat as extra excludable wages for withholding.

For 2026, the statutory housing expense ceiling in ordinary locations is 30% of $132,900, or $39,870 for a full qualifying year. The base housing amount is 16% of $132,900, or $21,264. The leftover that can actually be excluded is housing spend above the base, limited by the ceiling: at most $18,606 in a default city if you spend at least $39,870. High-cost cities listed in the annual IRS housing notice can use a higher ceiling; that notice is a separate lookup, not a Form 673 line.

The foreign housing deduction is the self-employed cousin of the exclusion. Form 673’s employer instructions talk about the housing exclusion on wages. Do not expect payroll to model a Schedule C housing deduction.

When should you keep withholding instead of filing Form 673?

Skip the form, or keep a conservative housing line, if any of these are true.

• You cannot yet show 330 full foreign days or a bona fide residence that includes a full tax year, and you have no realistic path to either test.
• You will spend enough U.S. days to break physical presence, or your abode is still clearly in the United States.
• You expect to use the foreign tax credit instead of the exclusion. You cannot double-dip the same excluded dollar. Publication 54 points people who want FTC-based withholding relief to Form W-4 Step 3 for credits attributable to taxable wage income, not to Form 673.
• Your salary is far above $132,900 plus a documented housing amount, and the leftover U.S. tax plus FICA already needs withholding or estimates.
• You have RSUs, bonuses, or U.S. workdays that payroll cannot split cleanly. A blunt “zero federal withholding” flag on those payments creates a spring surprise.
• You claimed the exclusion in a prior year and later revoked it. Revocation generally locks you out of a new election for five tax years without IRS consent. Form 673 does not override that lock.

If you stop withholding and then fail the test, you still owe the income tax. Estimated-tax rules on Form 2210 use a 90% current-year or 100% prior-year safe harbor (110% of prior-year tax if prior-year AGI exceeded $150,000, or $75,000 if married filing separately). Withholding that never happened does not count as a timely installment. The first-year mover who hoped for 330 days and came home in March is the classic underpayment story.

What if payroll refuses Form 673?

The employer instruction on the form says that once they have a completed Form 673 they may discontinue withholding on wages that qualify, and that they should disregard the form if they believe you will not qualify. Mid-size companies without an international mobility desk often stall. Treat that as a process problem, not a defect in the statute.

Give them Publication 54’s withholding paragraphs, the Form 673 PDF, and a one-page cover note that lists your test, your expected foreign work location, and the pay date you want the change. If counsel still says no, keep the withholding, file Form 2555, and take the refund. There is no IRS penalty for skipping Form 673. The cost is cash flow, not compliance.

When the extra take-home pay does start, park it in a U.S. brokerage that still serves citizens abroad rather than leaving it in an operating checking account. Charles Schwab is the usual expat-friendly default for that cash buffer and for fee-free ATM access on trips. That does not replace an emergency fund in the country where you actually pay rent.

State withholding is a separate fight. Form 673 never touches it. Update the W-4, close the old domicile if you truly left, and do not assume a Florida address on Slack is enough for California.

Conclusion

Form 673 is a paycheck tool. It lets a U.S. citizen on a U.S. payroll stop federal income tax withholding on wages they reasonably expect to exclude, up to the 2026 FEIE of $132,900 plus a documented housing amount. Publication 54 lets the employer rely on that statement, and it also lets the employer ignore it. FICA, Additional Medicare Tax, and state tax keep moving. Form 2555 is still the actual election. Use the form when the test is solid. Keep withholding when the year is messy. Either way, you still file.

Data notes / Sources checked

• IRS About Form 673 — statement for claiming exemption from withholding on section 911 exclusions; current revision August 2019.
• Form 673 (PDF) — employee and employer instructions; citizen language; housing worksheet; perjury certification.
• IRS Publication 54 — employer may stop income-tax withholding if exclusion is reasonably expected; Form 673 is U.S. citizens only; FICA can still apply for an American employer.
• IRS About Form 2555 — the return you still file to claim the exclusion.
• Rev. Proc. 2025-32 — 2026 foreign earned income exclusion amount of $132,900.
• SSA contribution and benefit base — 2026 Social Security wage base of $184,500.
• IRS Topic 560, Additional Medicare Tax — 0.9% withholding after $200,000 of Medicare wages; no special abroad exception.