How U.S. Expatriates Should Report Relocation Allowances and Housing Packages in the Middle East

As a U.S. citizen working or residing in the Middle East, you’re still required to file a tax return with the IRS — regardless of how far away from home. And while certain tax reductions can help lighten the load, relocation allowances and expat housing packages are both areas that tend to leave even veteran expats stumped.

This manual dissects precisely what you need to know when reporting U.S. taxes in the Middle East, particularly how to report employer-sourced benefits such as housing and moving expenses.

The Basics: Yes, You Still Have to File

The U.S. is among the only nations that taxes its citizens, rather than where they live. That is, you are required to report your global income to the IRS — even if you owe nothing and even if you’re taxed in your host nation.

If you’re bringing home income in the UAE, Saudi Arabia, Qatar, Bahrain, Kuwait, or Oman, you’re still on the IRS’s radar, even if these nations typically don’t tax personal income. But don’t think you’re off the hook — particularly in the case of employer benefits such as relocation packages and housing allowances.

What is a Relocation Allowance?

A relocation allowance defrays the expenses your employer incurs to relocate you overseas. This could include:

• Flights for you and your relatives 
• Short-term accommodation 
• Shipping of domestic goods 
• Visa charges 
• Settling-in allowances 

Key point: The IRS generally treats most of these benefits as taxable income unless they are reimbursed on a direct basis under an “accountable plan.” That is, if your employer provides you a flat $10,000 relocation allowance with no records or documentation required, the whole thing is probably taxable.

If, however, your employer reimburses you after you turn in receipts for actual moving expenses, it won’t be taxable — provided it meets IRS guidelines (tight rules).

Housing Packages: What’s Taxable, What’s Not?

Numerous Middle Eastern employers provide generous housing allowances or free accommodations as part of the job package. These are available in various forms:

• A monthly housing stipend 
• Employer-leased property offered rent-free 
• One-time housing setup grants or furniture allowance 

In U.S. tax law, these would generally be treated as taxable income, but they can qualify for exclusions under the Foreign Earned Income Exclusion (FEIE) or the Foreign Housing Exclusion.

1. Foreign Earned Income Exclusion (FEIE)

In 2025, you can exclude foreign earned income up to $126,500 if you meet either:

• The Physical Presence Test (you spent 330 full days outside the country over a 12-month period), or 
• The Bona Fide Residence Test (you were a foreign country resident for a complete tax year) 

Tip: Housing allowances are included in this income, so if you’re under the FEIE limit, your housing allowance may be exempt from taxation altogether.

2. Foreign Housing Exclusion

If your overall compensation is greater than the FEIE cap, you may also be eligible to exclude more money under the Foreign Housing Exclusion — but only if your housing expenses are more than a base amount (about $17,920/year or $1,493/month in 2025).

Certain Middle Eastern cities have higher caps. For instance:

• Dubai, UAE: A maximum of $57,000/year 
• Riyadh, Saudi Arabia: A maximum of $43,000/year 

To qualify for this exclusion, your housing has to be employer-provided or funded with employer-provided funds (not savings).

How to Report These Benefits on Your Tax Return

This is how U.S. expats usually report relocation and housing packages when filing U.S. taxes in the Middle East:

• Form 1040: Report your gross income, including employer-paid benefits. 
• Form 2555: Exclaim the FEIE and/or the Foreign Housing Exclusion. 
• Schedule 1: If you were given relocation benefits not shown on your W-2 (or local equivalent), list them here. 
• Form 1116 (if used): If you incurred any foreign taxes (less frequent in the Gulf), claim the Foreign Tax Credit. 

Documentation Is Everything

You ought to have precise records of:

• Your employment contract 
• Pay stubs reflecting allowances 
• Lease agreements (if paying rent) 
• Receipts for relocation-related expenditures 
• Flight tickets and moving company invoices 

If audited, you’ll have to substantiate how much you received and whether it’s eligible for any exclusion.

Pitfalls to Avoid

• Thinking tax-free nations equal zero reporting: You do have to file, though, even if you don’t owe anything. 
• Not keeping up with actual move expenses: Without receipts, allowances are taxable in full. 
• Exaggerating housing expenses: Only reasonable, qualified expenditures qualify. 
• Forgetting deadlines for Form 2555: You have to file on time or claim an extension. 

FAQs: Reporting U.S. Taxes in the Middle East

Q1: Am I required to file a U.S. tax return if I reside in the UAE and receive no local income tax?
Yes. Regardless of receiving no local taxes, you are required to report your foreign income to the IRS.

Q2: Is my housing allowance taxable in the U.S.?
Generally yes, but often it can be excluded under the Foreign Earned Income or Housing Exclusions.

Q3: May I claim my moving allowance as an exclusion from U.S. tax?
Yes, if it was reimbursed under an accountable plan with proper documentation.

Q4: What happens if I didn’t file previous years?
You can be eligible for the IRS Streamlined Foreign Offshore Procedures to catch up without being charged penalties.

Q5: Must I report my foreign bank accounts as well?
Yes. If the total value is more than $10,000, you have to report an FBAR (FinCEN 114) and potentially FATCA Form 8938.

Final Takeaway

Doing U.S. taxes in the Middle East doesn’t have to be a pain — but it does need to be accurate. Relocation allowance and housing packages qualify as income in your eyes by the IRS. Luckily, exclusions and credits can significantly lower (or even nullify) your tax obligation — but only if you file accurately and timely.

If you’re not sure what to do, hiring an expat tax professional is a good idea. Fines for non-compliance are potentially heavy, and the IRS won’t buy the “I didn’t know” excuse.