To qualify for the Foreign Earned Income Exclusion (FEIE), you must be a U.S. citizen or resident alien with foreign earned income, have your "tax home" in a foreign country, and meet either the Physical Presence Test (330 full days in a 12-month period) or the Bona Fide Residence Test (uninterrupted residency for an entire tax year). You'll need to file IRS Form 2555 with your tax return to claim it, excluding income like U.S. government wages but including salaries and self-employment earnings.
To answer about the Foreign Earned Income Exclusion (FEIE), you must file IRS Form 2555, report all foreign income, and meet residency tests (Physical Presence or Bona Fide Residence) for the year you earned the income, applying the exclusion to the year you earned it, not when you received it, by calculating your excludable amount and entering it on Schedule 1 (Form 1040) and Form 2555. You generally need to file this with your U.S. tax return (Form 1040).
The income exclusion rule defines certain types of income as non-taxable, like life insurance and child support proceeds. Non-taxable income includes payments that cannot be used for food or shelter, such as medical or auto repair bill payments.
You select the Foreign Earned Income Exclusion (FEIE) by filing IRS Form 2555 with your U.S. tax return (Form 1040) if you're a U.S. citizen or resident working abroad and meet residency tests, but it's voluntary and requires careful consideration, as the Foreign Tax Credit might be better; use the IRS Interactive Tax Assistant to check eligibility and consult a pro for strategy.
Foreign Earned Income Exclusion.
For tax year 2026, the foreign earned income exclusion is $132,900 up from $130,000 for tax year 2025.
How to Qualify for the Foreign Earned Income Exclusion
A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.
In 2022, you were paid $100,000 for work you did in the foreign country during that year. You excluded all the $100,000 from your income for 2022. In 2023, you received $20,000 for work you did in the foreign country in 2022. You can exclude $12,000 of the $20,000 from your income in 2023.
Common mistakes include failing to submit Form 2555, incorrect prorating of exclusions, and not keeping adequate records. Families can benefit from professional tax advice to optimize their use of the FEIE and navigate complex regulations.
Will I go to jail if I don't declare my offshore account? Yes. Any income earned in offshore accounts has to be declared by Canadian residents. Failure to do so is tax evasion and can lead to jail time.
The Foreign Earned Income Exclusion (FEIE) lets qualifying Americans abroad exclude up to $126,500 in 2024 and $130,000 in 2025 from US federal income tax. The amount adjusts each year for inflation. The exclusion applies only to income earned through active work—not investments, pensions, or passive sources.
US taxpayers are required to report their worldwide income and foreign financial assets annually on their tax returns and on international informational reports, such as FinCEN Form 114 (FBAR), Form 8938, etc.
Q: Can Form 2555, Foreign Earned Income, and Form 1116, Foreign Tax Credit (Individual, Estate, or Trust), be used together? A: Yes, but not on the same income. If you exclude income with Form 2555 (FEIE), you cannot also use it for the foreign tax credit on Form 1116 on the same income.
Overview. Navigating the Foreign Earned Income Exclusion (FEIE) on your 1040 tax form can feel overwhelming, but we're here to help you through it. To find the FEIE, look for it in Schedule 1, Line 8d. Here, you'll enter the amount of exclusion you're claiming and attach IRS Form 2555.
You're disqualified from the Earned Income Tax Credit (EITC) for having income over the limit, exceeding the investment income cap (e.g., $11,950 in 2025), not having a valid Social Security Number, being a non-citizen/resident alien, claiming the Foreign Earned Income Exclusion, or filing as married filing separately unless you meet specific rules. Other disqualifiers include not meeting age requirements (generally 25-64), being a dependent of someone else, or having prior EITC disallowed due to fraud/error.
Common examples include municipal bond interest, Health savings account contributions, and certain employer-provided benefits that are excluded from employee taxable income calculations under federal tax law.
If your foreign earned income is more than the FEIE limit of $130,000 (2025), your excess earned income may allow you to qualify to contribute to an IRA. For example, if you earn $150,000 and exclude the first $130,000, you still have $20,000 of taxable earned income remaining.
Foreign earned income is below or near $130,000 for the tax year, and you clearly qualify for the FEIE under the Physical Presence Test (330 days in a 12-month period) or Bona Fide Residence Test. You live in a country that charges little or no income tax and want to keep the US tax close to zero on that earned income.
Foreign Earned Income Exclusion (FEIE)
The FEIE allows you to exclude up to $130,000 in 2025 from US taxation on income earned while living abroad. This protection works best for expats in low-tax countries.
The following states do not allow the Foreign Earned Income Exclusion:
Each year, the IRS sets a new maximum exclusion amount—meaning the most foreign earned income you can take off your U.S. tax bill. For 2023, that figure was $120,000, and for 2025 it's jumped to $130,000 per qualifying taxpayer. (Always check the latest IRS numbers when you file, as this can change with inflation.)
What Information Do I Need to Complete Form 2555?
Yes, you can use both the Foreign Earned Income Exclusion and the Foreign Tax Credit, but not on the same income. FEIE allows you to exclude foreign earned income from U.S. taxable income, while FTC provides a dollar-for-dollar credit on foreign taxes paid to reduce your U.S. tax liability.
Foreign earned income exclusion (FEIE)
The FEIE enables eligible taxpayers to exclude up to $130,000 of foreign-earned income in 2025, as increased by inflation adjustments from $126,500 in 2024.