What Is the Foreign Earned Income Exclusion?
The Foreign Earned Income Exclusion (FEIE) is a provision in the U.S. tax code — specifically IRC §911 — that allows qualifying 🇺🇸 Americans living abroad to exclude a large portion of their foreign earnings from U.S. federal income tax. For 2026, that exclusion amount is $132,900 per qualifying person ($130,000 for 2025).
It's one of the most powerful tax benefits available to U.S. expats — but you must affirmatively elect it on Form 2555, and you must meet strict qualifying criteria every year you claim it.
Key point: The FEIE only excludes income from U.S. income tax. You may still owe self-employment tax on foreign self-employment income, and FBAR/FATCA reporting requirements apply regardless of the FEIE.
The Two Qualifying Tests
Physical Presence Test (PPT)
You meet this test if you were physically present in a foreign country (or countries) for at least 330 full days during any 12-month period. The period does not have to match the calendar year — it can start or end on any date, as long as it overlaps with the tax year you're claiming.
- Only "full days" count — midnight to midnight outside the U.S.
- Days traveling through the U.S. (any part of the day) do not count
- You can be in any foreign country — you don't have to stay in one place
- Medical emergencies in the U.S. may be excused in limited circumstances
Bona Fide Residence Test (BFR)
You meet this test if you were a bona fide resident of a foreign country for an uninterrupted period that includes at least one complete calendar year (January 1 – December 31). "Bona fide" means genuine — the IRS looks at your intent, where you live, your tax filings in that country, and your ties to each location.
- Available to U.S. citizens and certain resident aliens (must be from a country with a U.S. tax treaty)
- Generally not available in your first year abroad (you haven't completed a full calendar year yet)
- Brief trips back to the U.S. do not break the period of residence if your intention is to return
- Filing as a non-resident in the foreign country generally disqualifies you
First year abroad? If you moved abroad partway through the year, you may not yet qualify under the Bona Fide Residence Test. The Physical Presence Test is more flexible for expats in their first year since you can choose any 12-month window that starts before year-end and extends into the following year.
What Income Qualifies?
The FEIE applies to earned income — compensation for personal services actually performed in a foreign country. This includes:
- Wages and salary from a foreign employer or U.S. employer abroad
- Net self-employment income from services performed in a foreign country
- Bonuses, commissions, and professional fees for services rendered abroad
These types of income do not qualify:
- Dividends, interest, and capital gains
- Rental income (even from foreign property)
- Pensions and retirement distributions
- Alimony or Social Security
- Income earned for services performed in the U.S.
How to Claim the FEIE
You claim the FEIE by attaching Form 2555 to your U.S. tax return (Form 1040). The first time you claim it, you must elect FEIE on a timely filed return (including extensions). Once elected, it remains in force until you revoke it — but revoking has a 5-year waiting period before you can re-elect.
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