If you're a US citizen or green card holder living and working abroad, the Foreign Earned Income Exclusion under IRC §911 lets you exclude a sizable chunk of your foreign earnings from US tax. For 2026, that's up to $132,900 per qualifying person, plus a foreign housing exclusion that can add another $18,600 or more. The mechanics catch a lot of expats off guard - the qualifying tests are strict, the form is finicky, and the choice between FEIE and the Foreign Tax Credit can be worth tens of thousands of dollars depending on which country you're in.
FEIE limit: $132,900 per qualifying person (up from $130,000 in 2025). Housing base amount: $21,264 (16% of FEIE - expenses below this are not excludable). Standard housing cap: $39,870 (30% of FEIE - location-specific caps for high-cost cities can be much higher). Net standard housing exclusion: Up to $18,606 ($39,870 cap minus $21,264 base) for most locations. Both spouses working abroad can each claim their own FEIE - $265,800 combined for 2026.
Three things have to be true:
| Test | Bona Fide Residence | Physical Presence |
|---|---|---|
| Standard | Resident of a foreign country for an uninterrupted period that includes an entire tax year | Physically present in a foreign country (or countries) at least 330 full days during any consecutive 12-month period |
| Test type | Subjective - facts and circumstances | Mechanical - day count |
| First-year availability | Generally NO - requires a full tax year of residency. So 2026 arrivals usually can't claim BFR for 2026. | YES - any rolling 12-month period works, so partial-year FEIE is available. |
| Visa types | Permanent or long-term resident status. Tourist visas and short-term work visas typically fail. | Any status - including tourist visas if you're physically present. |
| US visit time allowed | Generally up to 30-45 days per year without losing residency, but facts-dependent. | Up to 35 days in the US during any consecutive 12-month period (since 365 - 330 = 35). |
| Tax treaty position | Cannot file a tax treaty position claiming non-residency in the foreign country - that disqualifies BFR. | No treaty restriction. |
For physical presence, you count full days in foreign countries. A "full day" runs midnight to midnight. Travel days where you cross international waters or the US border don't count as foreign days. So a flight from Paris to Tokyo where you transit through US airspace at 35,000 feet is fine - that's foreign-to-foreign. A flight from Paris that lands at JFK for a 4-hour layover then continues to LAX makes that a US day, not a foreign day.
The 12-month period can start any day. You're not locked into the calendar year. A first-year expat who moves abroad on March 15, 2026 can use the 12-month window March 15, 2026 through March 14, 2027, and then prorate the 2026 FEIE based on the qualifying days that fall in 2026.
FEIE applies only to earned income from foreign sources:
Earned income includes:
NOT earned income (FEIE doesn't help):
Source rule: compensation is sourced where the services are performed, not where the payor is located. A US person working in London for a US company earning a US-payroll W-2 is still earning foreign-source compensation for FEIE purposes - the work was done in London. The employer's reporting (US W-2) doesn't change the source character.
On top of the $132,900 FEIE, qualifying expats can exclude (employees) or deduct (self-employed) certain housing expenses above a base amount.
Mechanics:
Qualifying housing expenses include rent, utilities (excluding telephone), property insurance, residential parking, nonrefundable deposits, and furniture rental. Not qualifying: mortgage payments (except interest if using FTC differently), purchased furniture, home improvements, domestic labor, pay TV.
For self-employed expats, the housing benefit is a deduction (reduces AGI) rather than an exclusion. Mechanically different but economically similar - except the deduction does not reduce self-employment tax.
This catches a lot of self-employed expats by surprise. The FEIE exempts the income from income tax. It does not exempt the income from self-employment tax (the 15.3% combined Social Security and Medicare tax). A self-employed expat in Lisbon making $132,900 gets all $132,900 excluded from federal income tax via FEIE, but still owes roughly $18,000 of SE tax.
The two ways out of SE tax:
Most expats face a choice between FEIE and the Foreign Tax Credit (FTC, Form 1116). They serve different purposes and trade off in different ways.
| Factor | FEIE (Form 2555) | FTC (Form 1116) |
|---|---|---|
| Mechanism | Exclude foreign earned income from US gross income | Credit US tax dollar-for-dollar by foreign tax paid on the same income |
| Best for | Low-tax / no-tax foreign country (UAE, Singapore, certain ME) | High-tax foreign country (UK, France, Germany, Australia, Canada) |
| Maximum benefit | $132,900 + housing for 2026 | Unlimited - matches actual foreign tax paid |
| Income types | Earned income only | All income types (earned, investment, etc.) |
| Stacking | Cannot apply both to same income | Can use FTC on income above FEIE cap or on non-earned income |
| Carryover | None - use it or lose it for the year | Excess credits carry back 1 year, forward 10 years |
| Re-election | 5-year cooling-off if revoked without IRS approval | Annual election; no lock-out |
| Effect on Roth IRA | Removes earned income for Roth contribution purposes | Keeps earned income |
| Effect on Child Tax Credit | Disqualifies the refundable portion (Additional CTC) | No effect on CTC |
Once you've claimed FEIE, you can revoke it on a future return - but you can't re-elect it for 5 tax years without IRS consent (Treas. Reg. §1.911-7(b)(1)). Many expats accidentally trigger this by using FEIE in a year, then in a different year deciding FTC is better and "just not filing" Form 2555. The IRS has taken the position that this counts as a revocation in some cases.
Rule of thumb: if you've ever filed Form 2555, file it consistently each year - or formally and explicitly revoke (and accept the 5-year cooling-off) - rather than just stopping. Don't half-toggle.
Form 2555 is filed with your annual Form 1040. Form 2555-EZ was discontinued after 2018 - everyone uses the full Form 2555.
The form has 9 parts:
The negative number for the FEIE flows to Schedule 1 Line 8d ("Foreign earned income exclusion from Form 2555") of the Form 1040 with the notation "Form 2555."
Skipping the return entirely. "Everything is excluded so I don't need to file." Wrong. You must file Form 1040 with Form 2555 attached. Without the return and form, the exclusion is not allowed - you owe US tax on the unexcluded amount. The IRS has assessed expats hundreds of thousands of dollars of "tax" on excluded income because they didn't file.
Counting the wrong days for PPT. Travel days are tricky. Days that include international waters or US airspace need careful analysis. Don't rely on phone calendar memory - keep a contemporaneous log.
Claiming BFR when filing a treaty position. If you file a tax treaty position claiming you are NOT a tax resident of the foreign country, you cannot also claim Bona Fide Residence Test for FEIE - the IRS treats it as inconsistent. Use PPT instead.
Confusing tax home with residence. Living in Spain but flying back to a maintained Florida home for a week each month and "remoting in" to a US-based employer can disqualify FEIE on tax-home grounds, even with 330+ foreign days.
Forgetting the SE tax calculation. Self-employed expats sometimes file Form 2555, exclude all their income, and forget Schedule SE. The SE tax is still due on the excluded income.
Trying to claim FEIE on US-government wages. US-government employees abroad cannot exclude their US-government compensation - even if they meet PPT/BFR. Civilian contractors of the government (paid by a private employer under contract to the government) generally can.
Before relocating abroad, plan the FEIE-vs-FTC choice. Run the numbers for both scenarios in your destination country. The choice can change the optimum filing structure (Form 2555 vs. Form 1116) and may affect retirement contributions, refundable credits, and overall planning.
Document the qualifying tests with evidence. Lease agreements, employment contracts, residency permits, immigration stamps, and a contemporaneous travel log. Audit defense for FEIE rests on showing the tests were met.
Keep a US tax address forwarded. Many expats run into trouble with state tax authorities (CA and NY in particular) by maintaining a state-source connection. State residency is its own analysis - federal FEIE doesn't reach state tax. See our state residency guide.
Self-employed expats: pursue a totalization Certificate of Coverage early. The 15.3% SE tax savings is real money. Coordinate with the foreign country's social security administration to get a written certification.
Combine FEIE and FTC strategically. Many filers use FEIE on the first $132,900 and FTC on income above that or on non-earned income. The FTC carryforward can absorb future foreign-source income gains efficiently.
Don't forget the rest of the international compliance. FBAR, Form 8938, Form 5471 (if you have foreign company ownership), Form 8621 (PFICs), Form 3520 (foreign trusts and large gifts). FEIE is just one form - the full international filing package can be 10+ forms for a complex expat.