Foreign Earned Income Exclusion (FEIE)
A tax provision allowing qualifying US citizens and residents living abroad to exclude a portion of foreign-earned wages and self-employment income from US taxation.
Detailed Explanation
The FEIE under IRC Section 911 lets qualifying expats exclude up to $130,000 (2026 inflation-adjusted, indexed annually) of foreign earned income from US federal income tax. Combined with the Foreign Housing Exclusion, the total can exceed $160,000 in many high-cost cities. To qualify, a taxpayer must (1) have a tax home in a foreign country, and (2) meet either the Bona Fide Residence Test (an entire tax year as a bona fide resident of a foreign country, demonstrated by intent and ties) or the Physical Presence Test (330 full days physically present in foreign countries during any 12-month period). The FEIE applies only to "earned income" (wages, self-employment income for personal services), not to passive income, US-source income, or income paid by the US government. The election is made on Form 2555, attached to Form 1040. Once elected, FEIE remains in effect until revoked, and a revocation requires IRS consent for any new FEIE election within 5 years. Critical limitation: FEIE excludes income only from federal income tax, NOT from self-employment tax. A self-employed expat still owes 15.3% SE tax on excluded income unless a Totalization Agreement with the foreign country waives it. Excluded earned income also reduces the basis for Roth/Traditional IRA contributions and certain credits like the Child Tax Credit refundable portion. Many expats earning in high-tax foreign countries (Canada, UK, Germany) get a better result claiming the Foreign Tax Credit (Form 1116) instead of FEIE, since the foreign tax paid often exceeds the FEIE benefit and FTC preserves earned income for IRA contributions.
Key Points
- 2026 max exclusion: $130,000 per qualifying taxpayer (indexed). Plus Foreign Housing Exclusion for excess housing.
- Two qualifying tests: Bona Fide Residence (full tax year) OR Physical Presence (330 days in any 12-month period).
- Excludes federal income tax only. Self-employment tax still owed unless a Totalization Agreement applies.
- Election on Form 2555. Revocation requires 5-year IRS consent before re-electing.
- High-tax-country expats often save more with the Foreign Tax Credit (Form 1116) instead.
- FEIE-excluded income generally cannot be used to fund traditional or Roth IRA contributions.
Practical Example
A US software engineer takes a 2-year contract in Singapore, earning $175,000 USD in 2026. She meets the Physical Presence Test (335 days outside the US). She files Form 2555 and excludes $130,000. The remaining $45,000 plus housing excess is taxed normally. She files Form 1040 reporting $175,000 of income with the FEIE excluding $130,000. If Singapore had charged 18% income tax (it does, roughly), she might prefer FTC: foreign tax of ~$31,500 likely fully offsets US tax on the same income, AND she keeps $175,000 of earned income on the return for IRA contributions and other benefits.
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Learn about International TaxationRelated Terms
Foreign Tax Credit (FTC)
A dollar-for-dollar credit on the US tax return for income taxes paid to a foreign country, designed to prevent double taxation.
Form 1040 (US Individual Income Tax Return)
The annual federal income tax return filed by US citizens and resident aliens to report income, deductions, credits, and tax liability.
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