Foreign Earned Income Exclusion: Complete Guide

The foreign earned income exclusion (FEIE) lets a U.S. citizen or resident who lives and works abroad exclude up to $132,900 of foreign earned income from U.S. income tax for 2026 (Rev. Proc. 2025-32), plus part of their foreign housing costs. To qualify you need three things: a tax home in a foreign country, foreign earned income, and either a full tax year of bona fide residence abroad or 330 full days abroad in a 12-month period.

This guide covers who qualifies, how to claim it, and when the foreign tax credit is the better choice. For the exclusion math — proration, the stacking rule, housing, and worked examples — use the FEIE calculator.

Who qualifies for the foreign earned income exclusion?

Pub. 54 lists three requirements. You must meet all of them.

1. Your tax home is in a foreign country

Your tax home is your regular or principal place of business, employment, or post of duty — not where your family lives. But you are not treated as having a foreign tax home for any period your abode is in the United States. A consultant who works in London Monday through Thursday but whose spouse, home, and car are in New Jersey generally fails this test.

"Foreign country" means territory under another government's sovereignty. International waters and the airspace above them don't count, and U.S. territories such as Puerto Rico and Guam are not foreign countries for the FEIE (they have their own rules).

2. You have foreign earned income

Earned income is pay for personal services you performed in a foreign country: wages, salaries, bonuses, commissions, professional fees, and net self-employment income. Where you're paid, or by whom, doesn't matter; where you did the work does.

These never qualify:

• Pensions, annuities, and Social Security
• Interest, dividends, capital gains, and rent
• Pay for days you worked while in the U.S.
• Wages paid by the U.S. government or its agencies to their employees, including military and civilian staff

3. You pass the bona fide residence test or the physical presence test

You need only one.

Bona fide residence test vs physical presence test

How the bona fide residence test works

Bona fide residence is a facts-and-circumstances test: a lease or home purchase, a residence permit, local bank accounts, your family living with you, local taxes paid, and an indefinite or long-term assignment all point toward residence. Simply living abroad for a year doesn't automatically make you a bona fide resident. Once you have established it, the residence period can begin and end mid-year in the years you move in and out, as long as it includes one full calendar year.

How the physical presence test works

A full day is a complete 24-hour day from midnight to midnight in a foreign country. The 330 days don't have to be consecutive, and you can pick any 12-month window — even one that starts in the prior year — to maximize the days falling in the year you're filing.

Example: you arrive in Lisbon on March 10, 2026, and spend 20 days in the U.S. at Christmas. Choosing the window March 10, 2026 to March 9, 2027, you need 330 of those 365 days abroad. With 20 U.S. days and two travel days, you have 343 — you pass. The days in your qualifying period that fall in 2026 (March 10 through December 31, 297 days) determine your 2026 prorated limit.

Waiver for war or civil unrest

If you had to leave a country because of war, civil unrest, or similar conditions listed by Treasury, the time requirements can be waived for that country, provided you would otherwise have met them. Treasury publishes the list of countries each year.

How much can you exclude for 2026?

The exclusion was $130,000 for 2025. You can exclude the smaller of the limit (prorated if needed) or your foreign earned income minus the housing exclusion. Each spouse figures their own exclusion on a separate Form 2555; one spouse can't use the other's unused limit.

The foreign housing exclusion and deduction

If your employer pays you — or pays your landlord — you can also exclude housing costs above the base amount. Qualifying expenses include rent, utilities other than phone and TV, real and personal property insurance, furniture rental, and parking. Mortgage principal and interest, home purchases, domestic help, and improvements don't count.

The housing amount for 2026 is your qualifying expenses, capped at $39,870 (or the higher local limit), minus $21,264. Self-employed expats take the same amount as a deduction rather than an exclusion. Both are prorated for partial years. The calculator page shows a full housing example.

How to claim the FEIE on Form 2555

1. File Form 1040 with Form 2555 for each qualifying spouse. The election is made on the form, and it stays in effect for later years until you revoke it.
2. Report gross income in full on Form 1040, then subtract the exclusion as a negative amount on Schedule 1.
3. Figure tax with the Foreign Earned Income Tax Worksheet in the Form 1040 instructions, which applies the stacking rule.
4. Report foreign accounts separately. If your foreign accounts exceeded $10,000 combined at any time in the year, file FinCEN Form 114 (FBAR) with FinCEN — due April 15 with an automatic extension to October 15. You may also need Form 8938 for specified foreign financial assets.

Filing deadlines for Americans abroad

• June 15: if you live and work outside the U.S. on April 15, you get an automatic two-month extension to file and pay by attaching a statement — but interest on unpaid tax runs from April 15.
• October 15: file Form 4868 by June 15 for an additional four months.
• Form 2350: if you expect to qualify under one of the tests but haven't yet, Form 2350 extends your deadline to a date after you'll meet the test, so you don't have to file without the exclusion and amend later.

FEIE vs the foreign tax credit: which should you choose?

You can't claim the foreign tax credit on income you exclude, but you can claim it on foreign income above the exclusion. Choosing between them is the biggest decision for most expats.

Two Pub. 54 rules tip many families: if you claim the FEIE, you can't claim the earned income credit or the additional child tax credit that year. A family in Germany paying more German tax than U.S. tax would owe nothing either way, but the FTC route preserves up to $1,700 per child of refundable child tax credit for 2026, along with excess foreign tax credits that carry forward.

Revoking the election

You can revoke the FEIE for any year by attaching a statement, and you are treated as revoking it if you claim the foreign tax credit, the additional child tax credit, or the earned income credit for a later year. Once revoked, you can't elect it again for five years unless the IRS approves a ruling request. Not having foreign income in a year does not by itself revoke it.

What the FEIE doesn't do

• No self-employment tax relief. Self-employed expats owe 15.3% self-employment tax on net earnings unless a totalization agreement and a certificate of coverage move them into the foreign system.
• No MAGI relief. Excluded income is added back for Roth IRA limits, the premium tax credit, the adoption credit, and other MAGI tests. See what MAGI is and the adoption tax credit guide, which counts the exclusion in its income limit.
• No lower bracket on the rest. The stacking rule taxes non-excluded income as if the exclusion weren't there.
• No state guarantee. Some states don't follow the federal exclusion, and leaving a state's tax net requires breaking residency under that state's rules.

Common expat tax mistakes

1. Not filing because income is under the exclusion. The exclusion has to be claimed on a return.
2. Counting days wrong. Departure and arrival days usually aren't full days abroad.
3. Claiming the FEIE for a U.S. abode. A family home in the U.S. can defeat the foreign tax home.
4. Choosing the FEIE by default in a high-tax country, losing refundable credits and IRA eligibility.
5. Forgetting the FBAR. The $10,000 aggregate threshold is low; a checking and savings account together often exceed it.

For other indexed limits that apply to expats, such as the 2026 IRA and HSA limits, see the 2026 inflation adjustments guide, and check the impact of non-excluded income with the federal tax bracket calculator.