Ah, foreign income exclusion. IRS form 2555 for those of us living overseas! Something that will become near and dear to you should you accept that foreign assignment.

IRS section 911 (how appropriate can you get?) allows you to exclude up to $80,000 (or so) of earned overseas income from US taxation, plus an additional amount for overseas housing expenditures. You have to declare all the amounts involved (on the form 2555) in order to claim the overseas earned income exclusion each year.

To qualify for this exclusion in the first place, you have to reside overseas for a full year. So if you move to France in, say, July, you'll have to wait until the following July before you are eligible for the exclusion. Either you file for an extension your first year overseas, until you have met the one year continuous overseas residence criteria (what most folks seem to do), or you file your first tax return without taking the exclusion into account, and then after you've met the requirements, you file an amended return and get your overpayment of taxes back.

If your company is offering tax equalization, they'll probably offer a tax preparer, too, so you don't really have to worry about it. They'll figure out all the hard stuff.

But while you're overseas, you'll be getting all kinds of expat perks - probably a company car, possibly school fees for your kids, moving expenses, etc. etc. and all that gets added onto your income. It's very easy to surpass that $80,000 limit as an expat, even if your salary is much, much lower than that.

Plus, the reason your overseas income is subject to the exclusion is because it WILL be taxed by the French (including all those perks). Then there is any "unearned" income you are getting from investments, savings accounts or anything else you keep going while you're in France. Those are not covered by the US exclusion, and you have to declare them on your French tax declaraion, too.

Tax equalization is a way of making sure that your "out of pocket" taxes while you're overseas are no more than what you would have paid had you stayed in the US. But, if they have to pay you the difference between your theoretical US taxes and your actual French plus US taxes, that also counts as income for both US and French taxes. And suddenly it becomes blindingly apparent why those tax guys make the really big bucks!
Cheers,
Bev