Foreign Earned Income Exclusion (FEIE)
The US taxes citizens on worldwide income. The FEIE is the main escape valve — if you qualify. Here's how it works, what it covers, and what it doesn't.
The Foreign Earned Income Exclusion lets Americans living abroad exclude a chunk of their earned income from US federal income tax. For 2025, that's up to $130,000. It's not a deduction — it's an exclusion. The IRS pretends that income doesn't exist. Combined with the Foreign Housing Exclusion, it's the primary tool most American expats use to avoid double taxation.
But it's not automatic. You have to qualify, you have to elect it, and if you get it wrong, the IRS will want the money back with interest. This page covers everything you need to know.
Two ways to qualify
You must pass one of these tests. Not both — just one. But you must pass it cleanly.
Bona Fide Residence Test
- Be a bona fide resident of a foreign country for an entire tax year (Jan 1 – Dec 31)
- "Bona fide" means you actually live there — not just renting an apartment you never visit
- Must have a tax home in the foreign country
- Brief trips back to the US are fine — there's no day-count limit
- Best for long-term expats with established foreign lives
Physical Presence Test
- Be physically present in a foreign country for 330 full days in any 12-month period
- "Full day" means midnight to midnight — travel days where you're in the US at midnight don't count
- The 12-month period doesn't have to be a calendar year — you can pick any consecutive 12 months
- No requirement to live in one country — can be nomadic
- Best for people who moved mid-year or travel between countries
What the FEIE covers (and what it doesn't)
✅ Excluded by FEIE
- Salary and wages
- Self-employment income (income tax only)
- Consulting fees
- Professional fees
- Tips and bonuses
🚫 NOT excluded by FEIE
- Investment income (dividends, capital gains)
- Rental income
- Pension and Social Security income
- Self-employment tax (15.3% — the FEIE only covers income tax)
- US-source income (even if you live abroad)
Foreign Housing Exclusion
On top of the FEIE, you can exclude certain housing expenses that exceed a base amount (16% of the FEIE limit — roughly $20,800 for 2025). The maximum varies by city — high-cost locations like London, Hong Kong, and Tokyo have higher caps. Qualifying expenses include rent, utilities, insurance, parking, and furniture rental. Mortgage payments and purchased furniture don't count.
Self-employed? You get the Foreign Housing Deduction instead (same calculation, different form line). The practical difference is minimal.
How to elect (and how to un-elect)
File Form 2555 with your tax return. You must file a return to claim the exclusion, even if your income is fully excluded and you owe nothing. If you don't file, you don't get the exclusion.
Warning: revoking is sticky. If you elect FEIE and later revoke it (to use Foreign Tax Credits instead), you can't re-elect FEIE for 5 years without IRS approval. Think carefully before switching strategies. Most expat CPAs recommend sticking with one approach.
❓ Common Questions
What is the FEIE exclusion amount for 2026?▾
The IRS adjusts the FEIE annually for inflation. For 2025, the exclusion is $130,000. The 2026 amount is typically announced in the fall of the prior year — expect it in the $132,000–$135,000 range based on recent inflation trends. The housing exclusion is calculated separately and varies by location.
Can I use both FEIE and Foreign Tax Credit?▾
Not on the same income. You can use FEIE to exclude earned income and then use Foreign Tax Credit on income above the exclusion amount, or on types of income FEIE doesn't cover (investment income, rental income). You cannot double-dip. Most expats in high-tax countries benefit more from FTC alone; most in low-tax countries benefit more from FEIE.
Does the FEIE apply to self-employment income?▾
The FEIE excludes self-employment income from income tax, but NOT from self-employment tax (Social Security + Medicare — 15.3%). You'll still owe SE tax on your net self-employment income even if it's fully excluded by FEIE. This catches a lot of freelancers by surprise.
What happens if I fail the qualifying test?▾
If you don't meet either the Bona Fide Residence Test or the Physical Presence Test, you cannot claim the FEIE for that year. You'll owe US tax on your worldwide income as if you never left. You can still use Foreign Tax Credits to avoid double taxation. Moving mid-year often creates a partial-year situation — prorate carefully.
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