The IRS allows Expats to deduct up to about 90K a year in income earned overseas if they person actually lives and works in that country. So, if you're American you don't have to report your foreign earned income unless you make more than $90k a year.
http://www.irs.gov/Individuals/International-Taxpayers/Foreign-Earned-Income-Exclusion---Requirements>Example.
You were a bona fide resident of Brazil for all of 2011 and 2012. You report your income on the cash basis. In 2011, you were paid $82,000 for work you did in Brazil during that year. You excluded all of the $82,000 from your income in 2011.
In 2012, you were paid $114,800 for your work in Brazil. $18,800 was for work you did in 2011 and $96,000 was for work you did in 2012. You can exclude $10,900 of the $18,800 from your income in 2012. This is the $92,900 maximum exclusion in 2011 minus the $82,000 actually excluded that year. You must include the remaining $7,900 in income in 2012 because you could not have excluded that income in 2011 if you had received it that year. You can exclude $95,100 of the $96,000 you were paid for work you did in 2012 from your 2012 income.
Your total foreign earned income exclusion for 2012 is $106,000 ($10,900 for work you did in 2011 and $95,100 for work you did in 2012). You would include in your 2012 income $8,800 ($7,900 for the work you did in 2011 and $900 for the work you did in 2012).
http://www.irs.gov/publications/p54/ch04.html#en_US_2012_publink100047498
