Where to report foreign income on Form 1040 and exclude it legally

If you're a US citizen or green card holder living abroad, you owe US tax on your worldwide income. That includes wages, self-employment earnings, interest, dividends, rental income, and pensions – regardless of where they were earned or where the money sits today.

Your starting point is Form 1040. From there, the form or schedule you use depends on the type of income.

This guide walks through how each category of foreign income lands on the return, how to claim the Foreign Earned Income Exclusion using Form 2555, and how to handle income the exclusion doesn't cover – including pensions, interest, and foreign Social Security.

At a glance:

• All worldwide income is reported on Form 1040 first, even if you'll exclude part of it later.
• The FEIE excludes up to $130,000 of qualifying foreign earned income for tax year 2025 (Rev. Proc. 2024-40).
• The FEIE does not cover passive income, pensions, or Social Security – those go on different lines and may need a different relief strategy.

Example: a software engineer paid €90,000 by a German employer reports the USD-equivalent wages on the return, then files Form 2555 to exclude the qualifying portion.

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Step-by-step – where and how to report foreign income on Form 1040

Knowing how to report foreign earned income on 1040 starts with one principle: the same Form 1040 you'd file at home is your federal return abroad. What changes is which line, schedule, or attached form each type of foreign income belongs on.

The 5-step workflow:

1. Report all worldwide income on Form 1040 – not just US-source.
2. Identify whether each income stream is earned or unearned.
3. If you have qualifying earned income and meet the residency tests, file Form 2555 to claim the FEIE.
4. Transfer the exclusion from Form 2555 to Schedule 1, line 8d as a negative number.
5. Finish the return: deductions, credits, self-employment tax, and any state filing.

The table below shows where to report foreign source income on the 1040 by category:

 

Earned versus passive is the call that controls everything that follows. Ask before filing if you're unsure.

1. Report your total worldwide income on the main Form 1040

Every dollar of worldwide income lands on Form 1040 first, but not on the same line. Where it goes depends on what kind of income it is.

 

Currency conversion. The IRS has no official exchange rate. Use the rate that most properly reflects the item when you receive, pay, or accrue it, and apply your chosen posted rate consistently. The conversion you pick can also affect your modified adjusted gross income downstream.

Before diving into foreign income reporting, let us help you understand Form 1040.

Learn more

2. Use Form 2555 to claim the Foreign Earned Income Exclusion

The Foreign Earned Income Exclusion on 1040 is a major tax benefit for qualifying US expats. For 2025, you can exclude up to $130,000 of qualifying foreign earned income per qualifying person (Rev. Proc. 2024-40).

To qualify, you need:

• A tax home in a foreign country – your main place of business or employment is outside the US, not a temporary travel location.
• Either the bona fide residence test (genuine residence for an uninterrupted period that includes a full tax year), or the physical presence test (330 full days in foreign countries within any 12-month period).

Resident aliens who are citizens or nationals of a country with an income tax treaty in effect may also qualify under the bona fide residence test; otherwise, the physical presence test is the usual path.

What the exclusion does and doesn't cover:

• Excluded: wages, salaries, self-employment net earnings for services performed abroad, certain employer-provided housing and allowances.
• Not excluded: pensions, annuities, Social Security, interest, dividends, capital gains, rental income, self-employment tax itself.

Keep documentation of your foreign tax home, travel dates, residence permits, lease, employer letters, and passport stamps. If the IRS questions your eligibility, this is what you'll need.

3. Apply the exclusion to reduce taxable income

Once Form 2555 is complete:

1. Report your full foreign earned income on the appropriate Form 1040 line (via wages or Schedule C, as applicable).
2. Complete Form 2555. The final exclusion amount lands on Form 2555, line 45.
3. Enter that amount on Schedule 1, line 8d as a negative number, with the notation "Form 2555."
4. Schedule 1, Part I totals on line 10, which flows to Form 1040, line 8.
5. AGI then recalculates on line 11a.

Before/after example for 2025.

A bona fide resident of Portugal has the following income:

 

The full $115,000 salary is excluded because it's under the $130,000 cap.

The $4,800 of interest and dividends remains taxable – the FEIE doesn't cover passive income. If Portuguese tax was withheld on those amounts, the Foreign Tax Credit on Form 1116 may eliminate the US tax.

The same dollar can't be both excluded and credited. Pick one treatment per dollar to avoid double taxation.

Looking for ease in FEIE calculations? Check out our calculator – built for expats.

Calculate my FEIE

4. Continue completing your 1040 as usual

FEIE reduces taxable income. It does not end your filing obligation.

Warning: Qualifying for the FEIE does not eliminate other federal filing obligations. Self-employment tax, FBAR, Form 8938, and Schedule B foreign account questions all continue to apply, and state filing may still apply depending on your state's rules – the exclusion only reduces income tax on the excluded portion.

Post-FEIE checklist:

• Standard or itemized deductions on Schedule A
• Self-employment tax on Schedule SE (FEIE doesn't exclude SE tax – a totalization agreement might)
• Foreign Tax Credit on income not excluded by FEIE
• Schedule B Part III: answer the foreign account question honestly, even if no interest was earned
• FBAR (FinCEN Form 114) if foreign accounts exceeded $10,000 aggregate at any point in the year
• Form 8938 (FATCA) if the higher specified-asset thresholds were met
• State return, if your last US state still considers you a resident
• IRA contributions: excluded income doesn't count as compensation for IRA purposes, so FEIE can limit your ability to fund a US retirement account

Watch the Child Tax Credit:

• Having a child dependent is not enough on its own – the CTC has separate qualifying-child, SSN, income, and tax-liability rules
• Filing Form 2555 disqualifies you from the refundable Additional Child Tax Credit (ACTC), per Schedule 8812 instructions for 2025
• The non-refundable CTC (up to $2,200 per qualifying child for 2025) can still offset remaining tax – but if FEIE has pushed your tax to zero, there's nothing to offset
• Many expat families with US-citizen children get a better outcome with the Foreign Tax Credit instead, because the FTC doesn't lock out the refundable ACTC – worth running both ways before you choose

Where to report foreign pension income on Form 1040 (quick guidance)

Foreign pensions are generally taxable in the US, and they are not excludable through Form 2555.

The short version: the income gets reported, but the line depends on the type of payment and whether a tax treaty applies. See the IRS guidance on foreign pensions for the underlying rule.

Report foreign pension distributions on Form 1040, lines 5a (gross) and 5b (taxable), and follow any treaty position or other IRS guidance that applies to the specific payment.

Foreign pension and annuity reporting depends on the specific payment and any treaty position. In many cases, the gross amount is reported on Form 1040 lines 5a and 5b, but the treaty or plan type can change the result.

 

Two things to check before you report a foreign pension:

• Is there a US tax treaty with the source country? Some treaties give the source country exclusive taxing rights, some split the tax, some leave the default in place. Pension treatment varies from country to country.
• Is the foreign plan a "qualified" plan under US rules? Foreign retirement plans can have different US tax rules, so review the plan type before reporting it.

See our deeper guide on whether a foreign pension is taxable in the US.

TFX client scenario. A US citizen in the UK receives a £1,200 monthly private pension from a former employer. Converted at a reasonable annual rate, that's roughly $18,000/year.

They report the full amount on Form 1040, line 5a, with the taxable amount on line 5b. UK tax withheld can support a Foreign Tax Credit on Form 1116.

A separate reporting layer applies to the account itself: foreign pensions may also need disclosure on the FBAR and Form 8938 if thresholds are met. Easy to overlook.

How to fill out Form 2555 correctly

Form 2555 is how you claim the Foreign Earned Income Exclusion and the foreign housing exclusion or deduction. It attaches to Form 1040 or 1040-SR.

Below is a part-by-part walkthrough. Our physical presence test guide covers the day-counting rules in detail if you're qualifying through days abroad rather than residency.

 

What goes where – quick summary:

• Part I: identification – your foreign residence address, occupation, and employer details.
• Part II: the bona fide residence test – residence dates, living arrangements, and any time spent in the US.
• Part III: the physical presence test – your 12-month period and the days you were physically present in foreign countries (at least 330 full days).
• Part IV: your foreign earned income in USD – wages and self-employment earnings only, not pensions or passive income.
• Part V–VIII: the exclusion calculation, including any housing exclusion, with pro-ration if you qualified only part of the year. The final number lands on line 45.
• Part IX: the foreign housing deduction – used only by self-employed filers claiming the housing benefit as a deduction rather than an exclusion.

Part I – your foreign address and employer information

Part I is identification. You'll provide:

• Your foreign residence address (where you actually live, not a US mailing address)
• Your occupation
• Your employer's name
• Your employer's US and/or foreign address
• The type of employer (US business, foreign business, foreign government, self-employed, etc.)

TFX client scenario. Sarah lives in Lisbon and works remotely for a Berlin-based design studio:

• Foreign residence address: Rua da Esperança 42, 1200-660 Lisboa, Portugal
• Occupation: Senior UX designer
• Employer's name: Helios Design GmbH
• Employer's foreign address: Friedrichstraße 88, 10117 Berlin, Germany
• Employer type: Foreign business

Sarah's mailing address (a US PO box she still uses for banking) is different from her residence address in Lisbon, and her employer's address is different again. Use the actual address for each – don't paper over differences.

If you're self-employed, you report yourself as the employer. For a full list of documents to gather before you start, see the expat IRS tax form checklist.

Part II – bona fide residency test

Use Part II only if you're claiming the bona fide residence test instead of physical presence.

Enter the date your residence began, and the end date if applicable (or "continues" if you were still resident at year-end).

Bona fide residence is a facts-and-circumstances test that requires an uninterrupted period of residence, including an entire tax year.

Common evidence to keep:

• Lease or property title
• Residence permit, long-stay visa, or citizenship documentation
• Utility bills in your name
• Local tax registration
• Employment contract

Part III – physical presence test

Use Part III if you're qualifying based on days outside the US. The threshold is 330 full days in foreign countries within any 12-month period.

See our physical presence test FAQ for edge cases.

How counting works:

• Full days mean 24-hour periods. Partial days don't count.
• The 12-month period can straddle calendar years – choose the window that maximizes your qualifying days.
• Time over international waters or in US airspace doesn't count as "in a foreign country."
• A day you arrive in or depart the US is generally not a full day abroad.

Mini calendar example. You move to Singapore on March 1, 2025, and stay continuously, except for a 15-day US trip in November.

Your 12-month period from March 1, 2025, to February 28, 2026, contains 365 days minus 15 (US trip) minus partial travel days. You'd need at least 330 full foreign days in that window.

Pick the window carefully – starting it a few days earlier or later can determine whether you qualify.

Proof documents:

• Passport stamps
• Boarding passes
• Flight itineraries and booking confirmations
• Foreign immigration entry/exit records

Part IV – enter your foreign earned income

Part IV reports the foreign earned income you're potentially excluding. Convert all amounts to US dollars using a reasonable, consistently applied method.

The line between earned and unearned income controls what belongs here. For freelancers and contractors abroad, our guide on self-employment taxes when working outside the US covers how SE earnings are reported and taxed.

 

Foreign tax paid is not foreign earned income. Foreign tax paid is relevant to the Foreign Tax Credit on Form 1116 – a separate calculation.

How to report foreign interest income on Form 1040 (what line/type to use)

Foreign interest is passive income. It goes on Form 1040, line 2b, and it is not eligible for the FEIE.

Whether you also need Schedule B depends on the amounts and on whether you hold a foreign account. See our Schedule B walkthrough for the detailed rules.

 

The Schedule B trap. Part III asks whether you had a financial interest in or signature authority over a foreign account at any point during the year.

If you did, you must complete Schedule B – even if your total interest and dividends were under $1,500, and even if the account earned zero income.

Records to keep:

• Year-end interest statements from each foreign bank (see our note on Form 1099-INT and equivalents)
• Account-level documentation for FBAR and Form 8938 reporting
• Exchange-rate documentation for the period(s) the interest was credited

If the foreign country withheld tax on the interest, the Foreign Tax Credit can offset the US tax on that same income.

What happens next

Once Parts I–IV are complete, the remaining parts of Form 2555 calculate and apply the exclusion:

• Part V – carries totals forward.
• Part VI – foreign housing exclusion or deduction, if you have qualifying housing expenses above the base amount.
• Part VII – the FEIE calculation itself.
• Part VIII – combines the exclusion(s) and applies pro-ration if you qualified only for part of the year. The result lands on line 45.
• Part IX – foreign housing deduction, used only by self-employed filers claiming the housing benefit as a deduction.

Before you file, confirm:

• Form 2555 is attached to Form 1040
• Line 45 amount is on Schedule 1, line 8d as a negative number, marked "Form 2555"
• Schedule 1, line 10 has rolled to Form 1040, line 8
• AGI on Form 1040, line 11a, reflects the exclusion
• Self-employment tax on Schedule SE has not been touched by FEIE
• FBAR filed separately if you crossed the $10,000 aggregate threshold
• Form 8938 attached if applicable
• State filing assessed

If you want a second set of eyes on the finished return, our review-your-expat-tax-return checklist covers what to look at.

Where to report foreign Social Security income on Form 1040

Foreign Social Security is generally taxable in the US. It is not FEIE-eligible because it is not earned income. The relief, if any, comes from a treaty position or the Foreign Tax Credit.

 

Where it lands on Form 1040. Canadian and German social security paid to US residents is treated as if it were US Social Security under the respective income tax treaties – report on line 6a (gross) and 6b (taxable), per Publication 915 (2025).

Canada and Germany are special cases under Pub. 915; for other foreign benefit payments, review the treaty and the underlying plan before choosing the reporting line.

For more on cross-border benefit timing, see our Social Security Q&A and the broader overview of Social Security for Americans abroad.

Don't conflate foreign Social Security with US Social Security paid to you while you live abroad. Those are different reporting paths.

How to enter the Foreign Earned Income Exclusion on Form 1040

The exclusion isn't on Form 1040 directly – it sits on Schedule 1. Here's the exact transfer path:

 

Only qualified foreign earned income is excluded here. Wages, salaries, and self-employment earnings count. Interest, dividends, pensions, Social Security, and rental do not.

Legal ways to reduce taxes with the foreign income exclusion

Living abroad doesn't mean being taxed twice. The US offers three main mechanisms to reduce or eliminate double taxation, and they work in different ways. See Publication 54 for the full IRS treatment.

The FEIE does not automatically cover every type of foreign income. It applies only to earned income – wages and self-employment. Foreign pensions, Social Security, interest, dividends, capital gains, and rental income are not excludable through Form 2555, no matter how much foreign tax was paid on them.

 

Quick decision guide:

• Earned income only, low foreign tax → FEIE is usually the simpler path.
• High foreign tax (foreign rate exceeds US rate) → FTC may save more, and you preserve the refundable ACTC.
• Passive income (interest, dividends, rental, pension) → FEIE doesn't cover it; FTC is the available relief.
• Income above the FEIE cap → FEIE on the first $130,000, FTC on the rest.
• High housing costs in expensive cities → Housing exclusion can be claimed alongside the FEIE, subject to the Form 2555 limits and country-specific cap.

The same dollar cannot be both excluded under FEIE and credited under FTC. Pick a treatment per dollar.

Foreign income filing mistakes to avoid

Most foreign income errors come from one of three things: putting income on the wrong line, claiming FEIE for income that doesn't qualify, or missing a foreign account disclosure. The fixes below cover the most common patterns.

 

A tax treaty is not the same as filing a US return. Some expats assume reporting foreign income is enough to invoke treaty protection. It isn't.

Treaty-based positions usually require Form 8833 unless an exception applies. If you're relying on a treaty article, document it on the return itself.

Need help reporting foreign income? Talk to a tax expert who gets it

If your situation is straightforward – one country, one employer, no pension yet, no foreign accounts above the FBAR threshold – the workflow above may be all you need.

Cases where it usually pays to get help:

• Multiple foreign income sources, or income from more than one country
• Split-year residency, mid-year moves, or partial-year FEIE
• Several years of unfiled returns, or a Streamlined catch-up
• Foreign pensions, especially with treaty positions
• Self-employment abroad with totalization agreement questions
• Foreign accounts requiring FBAR plus Form 8938
• Choosing between FEIE and FTC when US-citizen children are in the mix

If you're weighing the difference between a tax attorney and a CPA, or wondering whether to hire an expat tax professional at all, those guides may help.

At TFX, every return is prepared and signed by a CPA or EA who works only with Americans abroad.

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