Foreign Earned Income Exclusion (FEIE) Guide for 2025 & 2026: How U.S. Expats Can Use Form 2555

U.S. citizens and resident aliens living abroad may qualify to exclude a significant portion of their foreign income from federal taxation using the Foreign Earned Income Exclusion (FEIE). This guide provides a detailed explanation of the 2025 and 2026 limits, eligibility rules, filing procedures, and tips for using Form 2555.

🌍 What Is the Foreign Earned Income Exclusion?

The Foreign Earned Income Exclusion (FEIE) allows U.S. taxpayers to exclude up to a set dollar amount of income earned abroad from U.S. taxation, provided they meet specific residency requirements. For 2025:

FEIE Limit for 2025: $130,000 (indexed annually for inflation)
FEIE Limit for 2026 (estimated): ~$135,000

This exclusion applies only to earned income—wages, salaries, professional fees, and self-employment income. It does not apply to passive income like dividends, interest, pensions, or capital gains.

✅ Who Qualifies for the FEIE?

You must meet all the following requirements:

  1. Be a U.S. citizen or resident alien
  2. Have foreign earned income (work performed outside the U.S.)
  3. Have a tax home in a foreign country
  4. Meet either the:
    • Bona Fide Residence Test: Full calendar year in a foreign country
    • Physical Presence Test: At least 330 full days in a foreign country in a 12-month period

📍 Bona Fide Residence vs. Physical Presence Test

1. Bona Fide Residence Test

  • Must reside in a foreign country for an entire tax year
  • Requires strong ties—home, employment, community
  • Ideal for long-term expats

2. Physical Presence Test

  • Must be physically present in foreign countries for 330 full days out of any 12-month period
  • Great for digital nomads or short-term contract workers abroad
  • Days don’t need to be consecutive, but partial days don’t count

💡 What Is Considered Foreign Earned Income?

  • Salaries and wages earned abroad
  • Bonuses, commissions, consulting fees
  • Self-employment income (also eligible for SE tax)

Not eligible: Dividends, pensions, Social Security, gambling winnings, and rental income.

📄 How to Claim the FEIE: Using Form 2555

To claim the exclusion, file:

  • Form 2555 (Foreign Earned Income)
  • Attach to Form 1040 or 1040-SR
  • You must file by the regular tax deadline (April 15 or June 15 for expats)

Form 2555 Key Sections:

  • Part I: General Information (citizenship, tax home, type of foreign income)
  • Part II: Physical Presence or Bona Fide Residence Test
  • Part III: Foreign Earned Income Details
  • Part IV: Housing Exclusion or Deduction (if applicable)

🏠 Foreign Housing Exclusion & Deduction

If you qualify for FEIE, you may also exclude or deduct certain foreign housing costs above a base threshold (~$18,200 in 2025):

  • Rent
  • Utilities (excluding phone and cable)
  • Insurance, repairs, property taxes (if renting)

Maximum exclusion varies by location (e.g., higher limits in Tokyo or London).

💵 Example: FEIE in Practice (2025)

  • Earned Income: $120,000 (earned in Germany)
  • Meets Physical Presence Test (330 days in country)
  • Exclusion allowed: $120,000
  • U.S. income tax owed: $0 on that income

If income exceeds $130,000 in 2025, the amount above that threshold is taxable in the U.S.

🔁 Can You Use the Foreign Tax Credit and FEIE Together?

Yes, but not on the same income. Many expats use the FEIE for earned wages and the Foreign Tax Credit (Form 1116) to offset foreign taxes on passive income or income above the FEIE cap.

⚠️ Common Pitfalls to Avoid

  • Incorrectly counting travel days toward the 330-day requirement
  • Failing to establish a foreign tax home
  • Double-claiming the same income for both FEIE and FTC
  • Using estimated income that doesn’t match final earnings

🗓️ Filing Deadlines for Expats

  • April 15, 2025: Regular filing deadline
  • June 16, 2025: Automatic extension for U.S. citizens abroad
  • October 15, 2025: Extended deadline (must file Form 4868)

🔍 People Also Ask (FAQs)

Q: Can I exclude all my foreign income?

A: Only up to the annual FEIE cap ($130,000 in 2025). Income above that is taxable unless offset by other credits.

Q: Do I have to pay self-employment tax on foreign earnings?

A: Yes. Even if you exclude your income under FEIE, self-employment tax (15.3%) still applies unless you live in a country with a totalization agreement.

Q: Can green card holders use the FEIE?

A: Yes, if they are considered U.S. tax residents and meet either the bona fide residence or physical presence tests.

Q: Is the FEIE automatic?

A: No. You must elect it each year by filing Form 2555. If you don’t, the IRS assumes all income is taxable.

📘 Final Thoughts

The Foreign Earned Income Exclusion is a powerful tax-saving tool for expats, remote workers, and digital nomads. By properly filing Form 2555 and meeting the required residency tests, you can significantly reduce or even eliminate your U.S. income tax liability. Combine this with smart use of the Foreign Tax Credit and housing exclusion for a comprehensive expat tax strategy.


Need help filing Form 2555 or qualifying for the FEIE? Consider using expat tax software or consulting a tax professional who specializes in international tax compliance.

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