Foreign Earned Income Exclusion (FEIE) — Tax for Americans Abroad
The United States taxes citizens and many resident aliens on worldwide income even while they live abroad. If you're an American living and working in another country, the Foreign Earned Income Exclusion (FEIE) under 26 U.S.C. § 911 may let you exclude up to $132,900 of foreign earned income for 2026. You may also qualify for a separate foreign housing exclusion or deduction above the statutory base housing amount, subject to IRS ceilings that can be higher in designated high-cost cities. The FEIE applies only to earned income such as wages, salary, and foreign-source self-employment income. It does not apply to investment income, pensions, rental income, or most government wages. And it does not eliminate your filing obligation: qualifying taxpayers still generally file Form 1040 with Form 2555.
Current Law (2026)
| Parameter | Value |
|---|---|
| Core statute | 26 U.S.C. § 911 |
| 2026 FEIE exclusion amount | $132,900 |
| Housing exclusion base | 16% of the FEIE amount (computed daily) — $21,264/year base |
| Housing exclusion ceiling | 30% of the FEIE amount — $39,870/year standard ceiling; higher in designated high-cost locations |
| Qualifying tests | Bona fide residence test OR physical presence test (not both required; choose one) |
| Physical presence requirement | 330 full days outside the U.S. in any consecutive 12-month period |
| Bona fide residence requirement | Genuine resident of foreign country for full tax year; intent + facts and circumstances |
| Form to file | Form 2555 (Foreign Earned Income), attached to Form 1040 |
| FEIE election | Once made, continues for all future years unless revoked; revocation has a 5-year re-election restriction |
| Self-employment tax | NOT eliminated by FEIE — still owed on foreign self-employment income (full 15.3% / 12.4% SS + 2.9% Medicare) |
| Government employees | U.S. government employee salaries do NOT qualify for the FEIE (§ 911(b)(1)(B)(ii)) |
Legal Authority
- 26 U.S.C. § 911(a) — Election by qualified individual to exclude foreign earned income and/or housing cost amount from gross income
- 26 U.S.C. § 911(b) — Definition of foreign earned income: income received from sources within a foreign country attributable to services performed during the qualifying period; excludes pensions, annuities, U.S. government pay, deferred compensation arrangements
- 26 U.S.C. § 911(b)(2)(D) — Exclusion amount: $80,000 base, indexed for inflation after 2005 using CPI adjustments
- 26 U.S.C. § 911(c) — Housing cost amount: excess of housing expenses over the 16% base amount (computed on a daily basis); limited to 30% of the exclusion amount; Secretary may adjust limits for high-cost locations
- 26 U.S.C. § 911(d) — Definitions of "qualified individual": must be a citizen or resident alien with a tax home in a foreign country and satisfy either the bona fide residence test or the physical presence test; active military zones qualify
- 26 U.S.C. § 912 — Exemption for certain allowances: U.S. government overseas cost-of-living allowances, post differentials, and Peace Corps allowances are separately excludable and do NOT count toward the § 911 FEIE exclusion amount
The Two Qualifying Tests
To use the FEIE, you must first meet one of two tests proving you genuinely live and work abroad:
Bona Fide Residence Test
You must be a bona fide resident of a foreign country for an uninterrupted period covering an entire tax year (January 1 – December 31 for calendar-year taxpayers). This is a facts-and-circumstances test; the IRS considers:
- Whether you have a permanent place of abode in the foreign country
- Whether your family lives with you abroad
- Whether you've obtained a work visa or resident permit in the foreign country
- Whether you intend your residence to be indefinite vs. temporary
- The nature of your employment contract and housing arrangement
A temporary assignment abroad does not qualify. If you go abroad for a 1-year project planning to return, you likely don't meet the bona fide residence test. You can make temporary visits to the U.S. without losing bona fide residence status, as long as your overall pattern shows genuine foreign residence.
Citizens only: The bona fide residence test is available only to U.S. citizens and resident aliens who are nationals of a country with an income tax treaty with the United States.
Physical Presence Test
You must be physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months. Unlike bona fide residence, this is a purely mechanical counting test — count your days abroad, and if 330 or more of any 12-month period are spent outside the U.S., you qualify for the FEIE attributable to those days.
A "full day" means you must be outside the U.S. for the entire 24-hour period from midnight to midnight. Days spent in transit (including international waters) count as days outside the U.S. if you're not passing through U.S. territory.
The 12-month period doesn't have to match the tax year. You can use the most favorable 12-month window — even one that starts mid-year — to maximize the FEIE available.
Example: You leave the U.S. on January 15, 2026 and return December 31, 2026. If your chosen 12-month measurement period contains at least 330 full days abroad, you can use the physical presence test and prorate the FEIE for the qualifying days in the tax year.
What Income Qualifies
The FEIE covers only earned income from foreign sources:
- Wages and salaries paid by a foreign employer
- Wages paid by a U.S. employer for services performed abroad
- Self-employment income from foreign sources
Does NOT qualify for FEIE:
- Investment income (dividends, interest, capital gains)
- Rental income
- Pensions and retirement distributions
- Social Security benefits
- U.S. government wages (federal employees, military, diplomatic corps)
- Amounts included in income due to nonqualified deferred compensation plans
The Housing Exclusion (or Deduction)
Employees may exclude housing expenses under § 911(c) in addition to the FEIE. Self-employed individuals take a deduction (not exclusion) for housing expenses.
How housing exclusion works:
- Calculate your "housing cost amount": total qualified housing expenses minus the "base housing amount" (16% of the FEIE exclusion, prorated for qualifying days)
- The result is your potential housing exclusion, subject to a ceiling
- Qualified housing expenses include rent, utilities (not phone), repairs, and insurance — but NOT lavish or extravagant expenses, mortgage interest, or furniture purchase costs
City-specific ceilings: The IRS annually publishes housing expense limitations for high-cost cities in a Notice. For cities like London, Geneva, Hong Kong, Sydney, and Tokyo, the ceiling is substantially higher than the standard 30% limit, reflecting actual housing costs. If you're living in a city on the IRS's high-cost list, check the current year's Notice for the applicable ceiling.
The "Stack" Tax Trap
A critical and often misunderstood aspect of the FEIE: the excluded income is still counted when calculating the tax rate applied to your non-excluded income. The IRS uses a "stacking" mechanism — you compute your tax as if you had not made the FEIE election, then reduce the tax by the tax that would have been imposed on the excluded amount. This means the first dollar of non-excluded income is taxed at whatever rate it would fall in if all your income were included.
Example: You have $150,000 in foreign earned income and $50,000 in investment income. If you exclude $132,900 via FEIE, your remaining earned income plus the investment income is still taxed using the FEIE stacking rules, not as though the excluded income never existed.
For taxpayers with significant non-excluded income, this stacking effect substantially reduces the value of the FEIE for purposes of reducing the effective tax rate.
Self-Employment Tax Is Not Eliminated
One of the most common misconceptions: the FEIE does not eliminate the self-employment (SE) tax obligation. If you're a self-employed American abroad and you use the FEIE to exclude your self-employment income from income tax, you still generally owe 15.3% SE tax (see FICA Payroll Tax for rate details — 12.4% Social Security + 2.9% Medicare) on your net self-employment income, subject to the Social Security wage base for the Social Security portion.
This is because the FEIE excludes income for income-tax purposes only. SE tax is imposed separately under SECA.
Exception: The U.S. has totalization agreements with 30+ countries. If you're paying into the social insurance system of your host country and your host country's system covers you, you may be exempt from U.S. SE tax on your foreign self-employment income under the totalization agreement. This requires a "coverage certificate" from the foreign country.
Revocation Consequences
Once you make the FEIE election, it applies to all future years automatically. If you revoke the election (which requires attaching a statement to your return), you cannot make the election again for 5 years without IRS consent. This 5-year re-election restriction is a serious trap for Americans who return home temporarily and then go abroad again.
How It Affects You
If you're an American working abroad and your salary is under $132,900: The FEIE likely eliminates most or all of your U.S. income tax on that salary. If you earn $110,000 working in Singapore for a local employer, exclude the full amount, and have no other income, your U.S. federal income tax bill is essentially zero. You must still file Form 1040 with Form 2555 — failing to file can be misread as a FEIE revocation. The one major caveat: the FEIE uses a "stacking" rule, meaning your non-excluded income is taxed at the rates that would apply if all your income were included. If you have investment income, the FEIE doesn't give that income a low-rate benefit.
If you're earning in a high-tax country (UK, Germany, France, Scandinavia): The Foreign Tax Credit (FTC) often beats the FEIE for high-tax country expats. If you're paying 45% income tax in the UK on your £100,000 salary, the FTC turns those taxes paid into a dollar-for-dollar U.S. tax credit — typically exceeding any U.S. tax that would have been owed anyway, leaving you at zero U.S. tax without using the FEIE. The FEIE is more valuable in low-tax jurisdictions (UAE, Singapore, Cayman Islands, Qatar) where you're paying little or no foreign income tax and the FEIE provides the only shelter. You cannot claim both the FEIE and the FTC on the same income — choose one method per dollar of income.
If you're self-employed abroad: The FEIE eliminates your income tax on excluded foreign earnings, but it does NOT eliminate self-employment tax (15.3% on the first ~$168,600 for 2026, 2.9% above that for Medicare). A freelancer earning $120,000 from foreign clients who uses the FEIE to exclude all their income from income tax still owes approximately $16,960 in SE tax. The way around this: check if your host country has a U.S. totalization agreement covering self-employment. If you're covered by the social insurance system in Germany, France, Canada, Japan, South Korea, Australia, or 30+ other countries, you may be exempt from U.S. SE tax on that income — request a "certificate of coverage" from the foreign social security authority to document the exemption.
If you're an American planning to work abroad but currently live in California or New York: The federal FEIE provides no state tax relief. California and New York will continue to tax your worldwide income as long as you are a California or New York domiciliary — even if you physically live abroad for years. To escape California state income tax while abroad, you need to formally abandon your California domicile (change your driver's license, close your bank accounts, update your voter registration, sign a lease or buy property in your new country). California's Franchise Tax Board is aggressive about asserting residency over expats who maintain any California connections. This is a real tax surprise for Americans accepting foreign assignments who assume the federal FEIE covers everything.
If you're coming home after several years abroad and thinking about going back: The FEIE election is permanent once made — it continues automatically until you revoke it. If you return to the U.S. for a year and revoke the FEIE, you face a 5-year restriction on making the election again without IRS consent. This catches Americans who return temporarily, work domestically for a year, then accept another foreign assignment — they must petition the IRS to reinstate the FEIE. The safer approach if you might return to foreign work: maintain the election even if you're temporarily back in the U.S. (you just won't have qualifying income to exclude). Consult a tax professional before revoking.
State Tax Considerations
Most states that have an income tax follow your domicile, not your physical presence. If you're an American who lives abroad but maintains a domicile in a state with an income tax (e.g., California, New York), you may still owe state income tax on your worldwide income even if you qualify for the federal FEIE. States do not offer a "foreign earned income exclusion" equivalent.
High-risk states: California and New York aggressively assert residency jurisdiction. To avoid California state income tax while abroad, you must establish that you have abandoned your California domicile — not merely that you live abroad temporarily.
Pending Legislation (119th Congress)
As of April 8, 2026, no enacted federal law has displaced the current § 911 FEIE framework. Broader debates about residence-based taxation for Americans abroad continue, but this page should be read based on existing FEIE and housing-exclusion law unless Congress changes the statute.
Recent Developments
- Late 2025: IRS inflation adjustments set the 2026 FEIE at $132,900.
- 2026: IRS guidance states that the general 2026 housing-expense limitation is $39,870, with higher limits still available for designated high-cost localities.
- 2026: IRS international-taxpayer guidance continues to emphasize that claiming the FEIE still requires filing Form 2555 and that the housing exclusion must be computed under the current year's limits.
- Separate reporting still matters: Americans abroad may also have separate FBAR or FATCA filing obligations; those information returns are distinct from the FEIE election and continue to carry their own penalties for noncompliance.