Internal Revenue Service Releases 2021 Housing Cost Limitations

The Internal Revenue Service (IRS) has released Notice 2021-18, which provides an update to the list of locations that have high housing costs relative to the United States.

The Internal Revenue Service (IRS) has released Notice 2021-18, which provides an update to the list of locations that have high housing costs relative to the United States. With tax season in the U.S. underway, information regarding taxes on foreign locations will help employers navigate tax compliance for globally mobile employees or those working in foreign locations.

According to the Internal Revenue Code (I.R.C.), section 911, qualifying individuals from the United States whose tax home is in a foreign country can exclude certain amounts of foreign earned income and housing costs from their federal taxes. Notice 2021-18, then, provides these individuals with a table of foreign locations with high housing costs relative to those in the U.S.

This notice is important for employers who need to accurately estimate the tax cost of an assignment to a foreign location from the U.S., and who may need to update their calculations to account for any changes to the adjusted housing cost limitation as reflected in the Notice. Taxpayers could, in situations where the 2021 housing limitation amounts are higher than those in 2020, see additional U.S. tax savings should they use those higher 2021 amounts on their 2020 federal income tax returns.

Employers may find that many taxpayers will elect to use the higher 2021 limitation amounts since a majority of locations increased their 2021 limitation amounts from 2020. High cost of living areas experienced the greatest increases, such as Geneva, Toronto, Tokyo, and more. Locations removed from the list were Budapest, Jeddah, and all cities in Qatar except Doha. Many cities in Germany that were removed from the 2020 list were readded to the 2021 list along with such cities as Perth, Australia and Montpelier, France. The city with the highest limitations was Hong Kong, followed by Moscow.