Foreign Earned Income Exclusion: Complete Guide
If you are a US citizen or resident earning income abroad, the foreign earned income exclusion (FEIE) is likely the most important tax provision in your return. For 2026, you can exclude up to $132,900 of foreign earned income from US federal income tax — but only if you meet strict qualification tests and file the right forms.
Use the FEIE Calculator to estimate your exclusion and tax savings.
Who Can Claim the FEIE?
The FEIE is available to US citizens and resident aliens who:
- Have a tax home in a foreign country
- Earn foreign source income from personal services (wages, salary, self-employment)
- Meet either the bona fide residence test or the physical presence test
The exclusion does not apply to investment income, pensions, rental income, or US-source wages — only earned income from foreign sources.
The Two Qualification Tests
Physical Presence Test
You must be physically present in a foreign country for at least 330 full days during any 12-month period that includes part of the tax year.
Key details:
- A "full day" is 24 hours starting at midnight
- Days traveling between foreign countries count
- Days in the US generally do not count
- You can straddle two calendar years with a 12-month period
This is the more common test for contractors, consultants, and workers on temporary foreign assignments.
Bona Fide Residence Test
You must be a bona fide resident of a foreign country for an entire tax year (January 1 through December 31). This requires:
- Establishing a genuine home in the foreign country
- No definite intent to return to the US
- Potentially paying taxes to the foreign country
This test suits permanent expats who have fully relocated abroad.
2026 Exclusion Amount
The IRS indexes the FEIE annually. For tax year 2026:
| Year | Maximum Exclusion |
|---|---|
| 2026 | $132,900 |
| 2025 | $130,000 |
Each qualifying taxpayer claims their own exclusion. Married couples where both spouses work abroad can each exclude up to $132,900 if both qualify independently.
Housing Exclusion
Beyond the earned income exclusion, you may also exclude foreign housing costs above a base amount. The housing exclusion covers:
- Rent and utilities
- Real estate taxes (if renting)
- Household repairs and maintenance
- Residential parking
The exclusion is calculated on Form 2555 and varies by location. High-cost cities like London, Tokyo, and Hong Kong have higher base amounts.
Combined limit: Your total exclusion (earned income + housing) cannot exceed your total foreign earned income.
FEIE and Your Tax Return
Form 2555
You must file Form 2555 (Foreign Earned Income) with your tax return to claim the exclusion. The form documents:
- Which qualification test you meet
- Your foreign earned income
- Housing exclusion calculation (if applicable)
- Travel days and foreign residency timeline
Self-Employment Tax
FEIE excludes income from income tax but not from self-employment tax. Self-employed expats still owe Social Security and Medicare taxes on net self-employment income unless a totalization agreement applies.
MAGI and Other Tax Impacts
Excluded foreign earned income is added back when calculating Modified Adjusted Gross Income for:
- Roth IRA contribution limits
- Premium tax credit (ACA subsidies)
- Net Investment Income Tax thresholds
- Education credit phase-outs
This means FEIE can reduce your income tax but may not help with benefits tied to MAGI. Use our MAGI Calculator to see the full impact.
FEIE vs. Foreign Tax Credit
You cannot claim both the FEIE and the foreign tax credit on the same income. Choose the more beneficial option:
| Situation | Better Choice |
|---|---|
| Working in UAE, Singapore, or other low-tax country | FEIE |
| Working in UK, Germany, Japan, or other high-tax country | Foreign Tax Credit |
| Income above exclusion limit | FTC on excess, or partial FEIE |
Some taxpayers use FEIE on earned income and FTC on other foreign-source income — but not on the same dollars.
Common Expat Tax Mistakes
Not tracking travel days: Missing the 330-day threshold by even a few days disqualifies you for the entire exclusion.
Assuming employer withholding covers it: Your employer may not know you qualify for FEIE. You may need to adjust withholding or make estimated payments.
Forgetting state taxes: Some states (California, Virginia, New Mexico) tax worldwide income even for residents abroad. FEIE only applies to federal tax.
Missing FBAR and FATCA: Separate from FEIE, US persons with foreign accounts over $10,000 must file FinCEN Form 114 (FBAR). Foreign assets may trigger Form 8938 (FATCA).
Planning Tips for Expats
- Keep a travel log with entry/exit dates for every country
- File Form 2555 even if you owe no US tax — it documents your exclusion claim
- Review FEIE vs. FTC annually as income and foreign tax rates change
- Consider the foreign housing exclusion if rent is a major expense
- Coordinate with foreign tax filings to avoid double taxation
Key Takeaways
- 2026 FEIE limit: $132,900 per qualifying taxpayer
- Must meet physical presence (330 days) or bona fide residence test
- Housing exclusion provides additional benefit for qualifying expenses
- File Form 2555 — the exclusion is not automatic
- Excluded income is added back for MAGI purposes
- Choose FEIE or foreign tax credit — not both on the same income
Related tools: FEIE Calculator | MAGI Calculator | Federal Tax Bracket Calculator