Claiming the Foreign Earned Income Exclusion in 2026

For the 2025 tax year (filed in 2026), the Foreign Earned Income Exclusion (FEIE) remains one of the most valuable tax benefits for Americans living abroad. It helps prevent double taxation by allowing eligible expats to exclude up to $130,000 of foreign earned income from their US taxes in the 2025 tax year. For many expats, this exclusion alone is enough to reduce or even eliminate their US tax liability. Here’s what you need to know about IRS Form 2555 and how the FEIE works.

What is the Foreign Earned Income Exclusion?

The Foreign Earned Income Exclusion (FEIE) allows US expats to exclude a set amount of foreign earned income from US taxation each year. For tax year 2025, the maximum exclusion is $130,000 per person. For married couples filing jointly, if both spouses qualify for the Foreign Earned Income Exclusion, each may claim the exclusion, allowing up to $260,000 to be excluded.

What Counts as Foreign Earned Income in 2025?

The FEIE only applies to earned income, which generally includes money you receive for working abroad, such as wages, salaries, self-employment income, professional fees, and commissions.

However, not all types of income qualify. Passive income sources, like investment dividends, capital gains, rental income, pensions, Social Security benefits, and income earned as a US government employee, do not count toward the Foreign Earned Income Exclusion.

Who Qualifies for the Foreign Earned Income Exclusion?

The Foreign Earned Income Exclusion is especially useful for expats earning a salary abroad, but not everyone qualifies. To claim it, you must meet the following requirements:

Your tax home must be in a foreign country: Your tax home is considered the main location of your work. For expats, this means your tax home must be in the country where you live and work abroad.

You must be a US citizen or Green Card holder: Both US citizens and Green Card holders can claim the FEIE. Green Card holders remain subject to US tax obligations just like citizens.

You must pass either the Bona Fide Residence Test or the Physical Presence Test:

• Bona Fide Residence Test: You must be a registered resident in your host country and subject to its income taxes for at least a full calendar year.
• Physical Presence Test: You must be physically present outside the US for at least 330 full days in a consecutive 12-month period that begins or ends in the tax year.

When to File the Foreign Earned Income Exclusion

The Foreign Earned Income Exclusion (IRS Form 2555) must be filed together with your regular US tax return. For Americans living abroad, the deadline is June 15, since expats automatically receive a two-month extension beyond the standard April deadline. However, any taxes owed are still due by April 15 to avoid interest and penalties.

If you need more time to file, you can request an extension to October 15 by filing Form 4868.

How to Calculate the FEIE

Here’s an example of how the Foreign Earned Income Exclusion works in 2025:

Monica works for a foreign company in Switzerland. In 2025, she earned $135,000 in foreign income. She can exclude up to $130,000 under the FEIE, leaving $5,000 of her income taxable by the IRS.

However, she may also be able to use the Foreign Tax Credit to reduce or completely wipe out US tax on that remaining $5000.

Calculate Your Exclusion if You Moved Mid-Year

Moved abroad mid-year? You’ll need to prorate your exclusion:

Formula: (FEIE Limit) × (Qualifying Days Abroad ÷ Days in Year) = Your Maximum Exclusion

Example: Sarah relocated to Germany on April 15, 2025. She has 260 qualifying days in 2025.

$130,000 × (260 ÷ 365) = $92,603 maximum exclusion for 2025.

When you file with MyExpatTaxes, our software automatically calculates this for you, so you don’t have to worry about the math or applying the formula yourself.

The Foreign Housing Exclusion

On the same form as the Foreign Earned Income Exclusion (Form 2555), there’s an additional tax benefit called the Foreign Housing Exclusion. This allows you to deduct certain housing expenses such as rent, utilities, household repairs, and more.

For the 2025 tax year, the base housing amount is $20,800 (16% of the FEIE limit), and you may be able to exclude even more if you live in a high-cost city. This comes in addition to the $130,000 FEIE limit, further reducing your US tax liability.

Limitations with IRS Form 2555

While the Foreign Earned Income Exclusion can be a powerful tool for reducing taxes, it isn’t without its limits.

Self-Employed Expats

Self-employed US expats living abroad are subject to US self-employment tax in addition to regular income tax. The Foreign Earned Income Exclusion can only reduce income tax; it does not apply to self-employment tax.

For self-employment taxes, certain totalization agreements between the US and other countries can help prevent double taxation. However, not all countries have an agreement in place, so some self-employed expats may still owe US self-employment tax in addition to local contributions.

Loss of Other Tax Benefits

The Foreign Earned Income Exclusion is a powerful benefit, but it can reduce or eliminate eligibility for certain other tax breaks. Here are a few key limitations expats should be aware of.

The Additional Child Tax Credit may not be available: If you claim the Foreign Earned Income Exclusion, any excluded income won’t count toward the Additional Child Tax Credit. Because the credit requires at least $2,500 of earned income, you may not qualify if you exclude all of your income.

If you want to claim the Additional Child Tax Credit while still avoiding double taxation, you can use the Foreign Tax Credit instead.

Impact on IRA contributions: Income that you exclude under the Foreign Earned Income Exclusion does not count as earned income for IRA contribution purposes. If you exclude all your income with the FEIE, you may not be able to contribute to a Traditional or Roth IRA for that year.

You can’t use FEIE and FTC on the same income: The IRS does not allow you to apply both the Foreign Earned Income Exclusion and the Foreign Tax Credit to the same income. Once income is excluded under the FEIE, it cannot also be used to claim the FTC. MyExpatTaxes can help you determine which option provides the best tax savings for your situation.

Revoking the Foreign Earned Income Exclusion

You cannot claim the Foreign Earned Income Exclusion for five years if you have previously revoked it in favor of the Foreign Tax Credit. Therefore, it’s best to talk with a Tax Professional to determine the best course of action!

Behind on Your US Tax Filings?

Need to catch up on past tax years? The IRS Streamlined Filing Compliance Procedures allows qualifying expats to file the current year, up to 3 years of past tax returns, and 6 years of FBARs without penalties. You can also apply valuable tax benefits like the Foreign Earned Income Exclusion or Foreign Tax Credit retroactively to minimize your tax liability.

With MyExpatTaxes, you can take advantage of this IRS provision quickly and affordably through our Streamlined Filing program.

MyExpatTaxes is Here to Help

Whether you need tax support for the Foreign Earned Income Exclusion or other expat tax benefits as an American living abroad, our Tax Professionals are here to guide you every step of the way. The easiest way to check your eligibility and available tax benefits is to create a free account with MyExpatTaxes.

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