Tax breaks for US contractors abroad

I have no idea of how accurate this information is, but it is recent. It doesn't affect me one way or another, but I thought there might be others interested in the information. I came across it in a newsgroup I subscribe to.

The word is spreading around the USA that contractors working abroad can get
some significant tax breaks, but how long do they have to be away and how
much can they save? That question seems to be popping up all over the
place. So here's the answer straight from IRS Representative #28-10210.
All the answers to these questions, and the details, are in IRS Publication
54-"Tax Guide for US Citizens Abroad." Readers can go to this web site...
http://www.irs.gov/formspubs/lists/0,,id=97819,00.html
and scroll down to that publication and print it themselves. Here is the
summary of what he told me. Up to $80,000 of your income abroad is tax free
under certain conditions. You have to be assigned to the overseas area for
a 12 month calendar year. Of that year assignment you have to actually be
IN country (as in, not on vacation in the US) for 330 days. If you vacation
in the overseas country, then that counts as in-country time. Here's an
added plus...if you are in the country for a period of 12 months, over a 2
year period (e.g. 9 months in 2004, and 3 months in 2005 with a break of
several months back in the US), you can still receive some tax free income.
Like a partial tax break, it is prorated somehow. We also recommend that
you have taxes taken out at a normal rate while the person is overseas, then
just get the money back with your tax refund at the end of the year.
Why?...sometimes things happen like illness, injury, or job changes, that
might cut your year short, then you would have to pay all those taxes that
they weren't taking out. So play it safe and count your chickens AFTER they
hatch. I have no idea what state tax laws are in effect, but I imagine it
would vary from state to state.

This is true, but there is one important detail missing... although you would be able to exclude up to $80K of your income for US tax purposes, you would still be taxed in Germany or whichever country you were actually doing the work.

Incidentally, it is the same tax break that prevents American students on tax-free German stipends from being taxed. Technically, a student stipend that is tax-free in Germany is taxable by the US, even if it's barely enough to live on, but this prevents such taxation.

Not if you are here as TE (Technical Expert) status with an American company doing work for the US military. However, the government of whichever Land you're working in has final say over whether you're eligible or not. I have heard that Bavaria, with its relatively good local economy, is easier-going about granting this status than, say, Rheinland-Pfalz.