Foreign Earned Income Exclusion (FEIE): Complete guide 2025

The Foreign Earned Income Exclusion is one of the few tax rules that actually feels like a win for Americans abroad. The IRS taxes your worldwide income from every place you earn money, so this break is a big deal when most of your pay comes from work overseas. In 2025, the rules behind the foreign income exclusion stay simple: meet one of two residency tests, file the form, and protect a large share of your foreign wages. It’s a straightforward system once you see how the pieces fit together.

• 2025 exclusion limit – Up to $130,000 per qualifying person; up to $260,000 if two spouses both qualify and each files their own calculation.
• Qualification – Physical Presence Test (330 full days in foreign countries in any 12-month period) or the Bona Fide Residence Test (a full tax year as a genuine resident).
• Qualifying income – Salaries, wages, bonuses, and self-employment income earned for services performed abroad.
• Non-qualifying – The foreign income exclusion cannot shelter investment income, pensions, and most rental income.
• Required form – Form 2555, attached to your IRS Form 1040 or 1040-X, must be filed to claim FEIE.
• Filing deadline – Automatic June 15 deadline for Americans abroad; October 15 with an extension.

This guide is brought to you by Taxes for Expats, the #1 expat tax service for Americans abroad. To learn how these rules apply to your situation, explore our services or contact us to get started.

What is the foreign earned income exclusion (FEIE)?

The Foreign Earned Income Exclusion, also known as the foreign income exclusion, under Internal Revenue Code Section 911, allows qualifying taxpayers to exclude up to $130,000 (one hundred thirty thousand) of foreign-earned income in 2025 when they keep a tax home in a foreign country and meet the residency or presence rules.

As outlined in IRS Publication 54, understanding what the foreign earned income exclusion is gives you a simple path to seeing how this rule lightens the load of filing a US return while living abroad.

Unlike the exclusion, the Foreign Tax Credit reduces your US tax liability after you report foreign income by offsetting the actual taxes you paid abroad – it does not reduce the income that you report in the first place. The exclusion lowers your taxable income; the credit lowers your tax owed.

With this foundation in place, it becomes clear why Taxes for Expats has supported more than 50,000 expats in 190-plus countries in choosing the right blend of tools under IRC 911, guiding many of them to use this foreign income exclusion effectively as part of a long-term US tax strategy tied to their tax home abroad.

Who qualifies for the FEIE?

The rules for FEIE can feel intimidating, yet a clear walk-through makes it easy to see what it takes to qualify for foreign earned income exclusion without getting lost.

1. Your tax home must be in a foreign country – meaning the center of your daily life, routine, and work is abroad, not a quick, temporary posting while everything important stays in the US.
2. You must have foreign earned income – the kind of pay earned by doing work outside the US, whether it comes from a local employer or from self-employment while living overseas, which is where the Foreign income exclusion becomes relevant.
3. You must pass either the Bona Fide Residence Test or the Physical Presence Test – for instance, settling into life abroad for a full year as a recognized resident, or spending at least 330 days in foreign countries during a 12-month stretch while maintaining your overseas base.

Passing one of these tests is what makes it possible to use the foreign earned income exclusion and potentially reduce US tax liability on eligible income.

What income qualifies for the FEIE?

Only earned income from actual work performed in a foreign country is treated as foreign earned income under section 911. Courts have reinforced this in cases like Clark v. Commissioner, where the Tax Court made clear that income earned outside foreign territorial boundaries does not count as foreign earned income.

This simple rule helps explain what foreign income is in the FEIE context because it focuses entirely on where the work is physically done. The line is strict, and it determines whether someone can qualify for the FEIE under the rules applied through Form 2555.

Before sorting the income categories, it helps to picture the difference between money earned by working and money that simply grows on its own.

These categories make the next part easier to understand, especially when looking at the daily reality of a digital nomad who works abroad and has both work income and passive returns.

Jordan, a green card holder, spends 2025 working remotely across Spain and earns $95,000 in client work + $8,000 in dividends. The earned portion fits squarely within the FEIE because the services were performed abroad, while the passive portion remains fully inside the taxability of foreign income rules.

• Total income = $95,000 + $8,000 = $103,000
• FEIE limit for 2025 = $130,000
• Allowed exclusion = min($95,000, $130,000) = $95,000
• Taxable remainder before credits = $103,000 − $95,000 = $8,000

Important note: Income only counts when the work is physically performed abroad, and this means days spent working in the US break the chain and cannot be excluded under section 911. This rule applies even when everything else appears to fit the exclusion requirements.

Check how much foreign income you can exclude – calculate your FEIE in seconds

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Can self-employed workers and freelancers claim FEIE?

Yes, self-employed workers and freelancers, who work remotely, can claim the FEIE on their earned income if they meet the foreign tax home and residence or presence tests. Self-employment income qualifies only to the extent the work is actually performed while physically abroad during your expatriation period, and it remains separate from any passive income, such as dividends or interest.

Even when excluded under FEIE, that self-employment income is still subject to the full 15.3% self-employment tax, because the exclusion only shields it from federal income tax and not from Social Security and Medicare.

How much foreign income can I exclude in 2025?

For the 2025 tax year, the foreign earned income exclusion 2025 limit rises to $130,000 per person. This is a meaningful lift from the $126,500 allowed in the prior tax year (January 1 – December 31).

The IRS increases these numbers because the law ties the exclusion to annual inflation adjustments under section 911. When living costs move, the exclusion moves too, which is why the jump from 2024 to 2025 feels larger than usual.

NOTE! Anyone who used an outdated 2024 figure on a previously filed return can normally fix the issue with Form 1040-X, which is the IRS process for amending a filed Form 1040, Form 1040-SR, or Form 1040-NR.

Married couples

The rules for married couples feel surprisingly friendly, because the limit applies to each person separately, even when they are married filing jointly. That means both individuals can use their own $130,000 ceiling if they each qualify under the section 911 tests.

Picture two remote workers living abroad: Mia earns $150,000, and Daniel earns $80,000. Mia can use the full $130,000 limit, Daniel can exclude his entire $80,000, and together they set aside $210,000 of foreign wages before the IRS even computes their US tax.

A quick look at how the limits have changed over time puts examples like Mia and Daniel into clearer perspective, showing how today’s exclusion fits into a long upward trend.

These numbers give a quick sense of how much foreign income is tax-free in each year.

NOTE! On October 9, 2025, the IRS announced the next inflation update, confirming that the 2026 foreign earned income exclusion will rise to $132,900 for the income earned in 2025.

How do I pass the Physical Presence Test?

Take this rule as the stopwatch of the foreign earned income exclusion – the clock only cares where each day is spent, and once that simple pattern is clear, the Physical Presence Test becomes far easier to navigate.

For expats living abroad, it operates like a strict day-count that overrides intentions, lifestyle, or long-term plans. The law says a person qualifies once they reach 330 days inside one or more foreign countries during a chosen 12-month period, and Form 2555 is where that choice is officially locked in.

The IRS guidance also keeps the tax home requirements in the background, because the exclusion cannot apply unless both the tax home test and the day test are satisfied. Courts have reinforced this structure repeatedly – in Lemay v. Commissioner, the Fifth Circuit held that even long stretches working in Tunisia did not qualify because the taxpayer’s abode, and therefore tax home, remained in Louisiana.

330-day calculation

Quick math: 330 days = 90% of the year

• 365 days − 330 days = 35 days max in the US
• Roughly 1 short trip per month (2–3 days each)
• Or one longer visit of about 2–3 weeks

Travel-day rules

Travel days follow a simple structure: a departure day counts as a US day because the midnight began there, while an arrival day only becomes a foreign day after a full foreign midnight occurs. Time spent above international waters or airspace counts as neither and cannot help build foreign days.

For instance, leaving New York on July 1 and landing in London on July 2 means July 1 is a US day, July 2 is a non-qualifying travel day, and July 3 becomes the first usable foreign day.

NOTE! When counting the 330-day total, a qualifying day must be a full midnight-to-midnight period spent entirely in foreign countries, and any calendar day that even partially touches the US becomes a full US day.

Time spent traveling over international waters never counts toward foreign days, so only actual midnights on foreign soil build the total. This is why the placement of overnight flights can decide whether a 12-month period meets the mark.

To better understand, consider these real-life scenarios of Karen and Harry:

Karen spends 345 days in France between July 1, 2023, and June 30, 2024, taking two short 10-day trips back to the US; this easily leaves over 330 qualifying foreign days in that 12-month period, so Karen passes the test and can rely on it when filing Form 2555.

Another example is Harry, whose situation can be summarized as

• He works in the United Kingdom for all of 2024.
• He takes four separate 20-day visits back to the US.
• Those 80 US days leave only 285 days abroad.
• Because the 330-day minimum is not reached, Harry fails this counting test.

The simplest next step is to enter all travel dates into the Taxes for Expats Physical Presence Calculator and experiment with different 12-month periods before finalizing anything on Form 2555.

What happens if I miss the 330-day requirement?

Missing the count can feel like a dead end, but the IRS rules give several chances to salvage the exclusion by shifting the measurement window or exploring other qualification routes. And if more foreign days will be earned later in the year, Form 2350 can delay the filing deadline long enough to satisfy the test.

• A failed count means the person does not qualify for that specific 12-month period.
• A different 12-month period may solve the issue if the travel pattern allows more foreign midnights to be captured.
• The bona fide residence test may work instead when life has genuinely moved abroad.
• Someone with only 320 foreign days from January to December 2024 might hit the full 330 days by looking at February 2024 through January 2025 instead.

How do I pass the Bona Fide Residence Test?

Think of it in very simple terms: the IRS wants to see that you really moved, not that you were just camping out for a while.

The Bona Fide Residence Test (BFR test) requires genuine residency in a foreign country for an uninterrupted period that includes an entire tax year (January 1 – December 31), and unlike the Physical Presence Test, it looks at your intent to live abroad, not just how many days show on a calendar.

A quick way to compare the Bona Fide Residence Test (full tax year) with the Physical Presence Test is to see which one matches the reality of your move abroad, not just the paperwork you prefer.

Choosing between these two tests is simply about matching your real situation to the rule that reflects how you actually live overseas.

Before you compare, learn how each test really works for expats

Learn more

Who qualifies under the Bona Fide Residence Test?

Someone like Sarah qualifies because her move is open-ended and she keeps her main home and routine abroad for the entire year. Someone like Robert doesn’t qualify because his time overseas doesn’t cover a full calendar year, and he should use the Physical Presence Test instead by counting 330 days from his arrival date.

Can I visit the US during my Bona Fide Residence?

Yes, under the bona fide residence test, you can visit the US without breaking your status as long as the trips are temporary and your real home stays abroad.

• No fixed day limit applies because your residency is based on continuity, not math.
• Visits must look temporary, such as short trips for family, work, or emergencies.
• Travel cannot suggest you’ve moved back or abandoned your foreign residence.

FEIE vs FTC: Which should I choose?

Myth: Every expat living abroad should grab the exclusion and forget about credits.

Reality: the real choice is often FEIE vs foreign tax credit, and the better fit depends on where you live, how much you earn, and what type of income you have.

Use FEIE when:

• 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.

Use FTC when:

• You pay high foreign income taxes on the same earnings and want those payments to directly reduce US tax through the Foreign Tax Credit (FTC).
• Foreign income is well above the exclusion limit, or you have significant passive income and other unearned income (dividends, interest) that the exclusion can’t touch.

Can I use FEIE and FTC together?

Yes – but never on the same dollar of income. Under the 2555 rules, you cannot take a credit for foreign taxes tied to excluded income, yet you can still claim FTC on non-excluded earnings and on passive income that does not qualify for the exclusion. Done carefully, that mix can minimize the overall US tax.

How do I claim the FEIE?

Claiming the foreign earned income exclusion is really about proving to the IRS, on paper, that you lived and worked abroad and deserve the break instead of paying tax on all your worldwide income.

IRS Forms to use

To claim the exclusion, you file Form 2555 together with Form 1040, and the form’s instructions explain how to report your foreign income, qualifying dates, and housing information. Form 2555-EZ used to be the shorter version, but the IRS discontinued it after 2018, so everyone now uses the full form.

Form 2555 preview

 

 

Step-by-step guide to filing Form 2555

Filing incorrectly cancels out all the work you did to qualify, which is why many Americans abroad prefer having a TFX prepare the form so nothing is missed. Picture a traveler counting days abroad or a family settling into long-term residence overseas – both need Form 2555 done right for the exclusion to apply.

Step 1: Choose the qualification method that fits your situation, either the physical presence rules or the long-term residence rules.

Step 2: If using the day-count method, track your full days abroad and make sure the total works.

Step 3: Collect pay slips, W-2s, 1099s, or business income records.

Step 4: Convert any foreign currency using the correct IRS exchange rates.

Step 5: Complete each part of Form 2555 from I through IX by entering your address abroad, employer information, qualifying dates, and any housing amounts.

Step 6: Transfer your final exclusion number from Form 2555 to Schedule 1 of Form 1040 so it reduces your taxable income.

Filing deadlines for US expats

Americans abroad get extra time automatically. The usual dates still apply for payment, but filing works slightly differently. When you need additional time, the choice between Form 4868 and Form 2350 matters because each serves a different purpose.

NOTE! The June 15 extension is automatic for Americans living overseas. You don’t file anything for it, but interest still starts on April 15 if you owe tax. If you need more time until October 15, our free expat extension service can handle that for you.

Need more time to file? Request our additional expat extension to December 15

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Common FEIE mistakes to avoid

Claiming the foreign earned income exclusion looks simple on paper, but a few common FEIE mistakes can quietly wipe out the benefit for a US citizen working overseas.

Q1: Can I claim FEIE automatically if I work abroad?
No. Simply working abroad is not enough – you must have a tax home in a foreign country and pass either the physical presence test (330 full days in a 12-month period) or the bona fide residence test (uninterrupted period that includes a full tax year), and you show this by filing Form 2555.

Q2: What income types are not eligible for FEIE?
Only income for services you perform abroad can be excluded, so things like interest, dividends, capital gains, most rental or other passive income, pensions, and Social Security benefits do not qualify – and pay you receive as an employee of the US government is also not eligible.

Q3: Do I need to file Form 2555 every year?
Yes – the exclusion is never automatic, so you must attach Form 2555 to your tax return each year you want to claim it, and if you forget, you generally need to file or amend that year’s return before the IRS will allow the exclusion.

Q4: What happens if I revoke FEIE?
If you revoke FEIE (for example, you previously used it and then stop claiming it when you still qualify), you normally cannot claim it again for your next five tax years unless you get IRS approval, so changing this election should be a deliberate move, not an accident.

Q5: Can I claim FEIE and other tax credits?
Yes, but not on the same income – you cannot take a Foreign Tax Credit on income you exclude with FEIE or the housing exclusion, but you can usually use the credit on foreign income that is above the excluded amount.

Q6: Can I claim FEIE if I work remotely for a US company?
Often yes – the key question is not “can I claim FEIE working remotely?” but where you physically do the work, so if you are abroad, meet one of the tests, and have a foreign tax home, it usually does not matter that your employer is a US company.

Q7: How do I convert foreign currency for FEIE?
Convert foreign income into dollars using a reasonable published exchange rate for the date you received each payment (or an average rate for regular payments) and use your chosen rate consistently, since the IRS has no single “official” rate but expects a clear, consistent method.

Other tax benefits for US expats

Beyond the foreign earned income exclusion, several other tools can cut your overall US tax bill while you’re living and working abroad.

1. Foreign Tax Credit (FTC)
   The Foreign Tax Credit lets you use income tax paid to a foreign country to reduce US tax on the same income instead of excluding it, and it can also apply to passive income like dividends and interest.
2. Foreign Housing Exclusion/Deduction
   If your housing costs abroad are high, Form 2555 lets you claim a housing exclusion (employee income) or housing deduction (self-employment income) in addition to FEIE. For 2025, the base housing amount is 16% of the $130,000 exclusion – that’s $20,800 for a full qualifying year – so if your qualified housing expenses are $30,000 for all of 2025, your housing amount is $9,200 ($30,000 − $20,800) before applying the usual limits.
3. Child Tax Credit
   Some expat families can still use the Child Tax Credit to reduce any remaining US tax, but if you claim FEIE or the housing deduction, you are not allowed to take the Additional Child Tax Credit (the refundable part).
4. Tax treaties
   US income tax treaties with many countries can reduce or eliminate foreign tax or US withholding on specific types of income (like pensions or interest), and they typically work alongside FEIE and the Foreign Tax Credit rather than replacing them. Most treaties contain a “saving clause” that preserves US tax on its citizens.
5. State tax considerations
   Even if federal rules such as FEIE or the Foreign Tax Credit bring your US tax close to zero, your former home state may still treat you as a resident and tax your income until you clearly sever ties, so checking your own state’s tax agency is an essential final step for expats.

Final thoughts

Living abroad comes with enough challenges – your taxes shouldn’t be one of them. With clear rules and the right guidance, the FEIE, housing benefits, and foreign tax credits can work together to dramatically reduce what you owe.

Taxes for Expats has helped over 50,000 US expats claim the Foreign Earned Income Exclusion since 2008, and our CPAs make the process simple: we determine whether FEIE or the Foreign Tax Credit saves you more, calculate Physical Presence Test days correctly, complete Form 2555 and your full return, and optimize every benefit – get your quote in two minutes.

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