Topic · US expats
Foreign Earned Income Exclusion (Form 2555) for US Expats
How the FEIE works, the two qualifying tests, the annual cap, and the trap it doesn't cover — investment and PFIC income.
By Danilson Ramos · Founder, Atamatax
Updated July 2026
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The Foreign Earned Income Exclusion (FEIE), claimed on Form 2555, lets qualifying Americans abroad exclude a portion of their earned income (wages, salary, self-employment income) from U.S. federal income tax. It's one of the main tools that keeps U.S. tax low for expats — but it has firm limits and a few well-known traps.
Who qualifies: the two tests
To claim the FEIE you generally need a tax home abroad and to meet one of two tests:
- Physical presence test — present in a foreign country (or countries) for at least 330 full days during any 12-month period.
- Bona fide residence test — a bona fide resident of a foreign country for an uninterrupted period that includes a full tax year. This is more facts-and-circumstances based.
How much can be excluded
The maximum exclusion is capped and indexed annually — for 2025 it's $130,000 per qualifying person (it rises most years, so confirm the current-year cap before relying on it). Earned income above the cap remains taxable (though other reliefs may apply). A separate foreign housing exclusion or deduction may cover some qualifying housing costs above a base amount, within limits that also vary by location and year.
FEIE vs the Foreign Tax Credit (Form 1116)
Many expats compare the FEIE with the Foreign Tax Credit (Form 1116), which credits foreign income tax already paid against U.S. tax. In higher-tax countries the FTC often leaves little or no U.S. tax owed and, unlike the FEIE, can apply to passive income. The two can sometimes be combined, but choosing the FEIE has downstream effects (for example on the FTC and certain credits), and revoking it later has consequences. Which is better is fact-specific.
At a high level, the two tools differ on several dimensions that often decide which one fits a given expat:
| FEIE (Form 2555) | Foreign Tax Credit (Form 1116) | |
|---|---|---|
| What it does | Excludes qualifying earned income from U.S. tax | Credits foreign income tax paid against U.S. tax |
| Income covered | Earned income only (wages, self-employment) | Earned and passive income (with category limits) |
| Best suited to | Lower-tax or no-tax countries | Higher-tax countries where foreign tax is high |
| Effect on Child Tax Credit | Excluded income generally can't support the refundable ACTC | Does not reduce earned income for ACTC purposes |
| Switching back | Revoking generally locks you out for ~5 years without IRS consent | More flexible year to year |
How to claim it (high level)
- Confirm you have a tax home in a foreign country for the period in question.
- Establish that you meet either the physical presence test (330 full days) or the bona fide residence test.
- Track the qualifying period and days carefully — the 12-month window for physical presence can straddle two tax years.
- Complete Form 2555 and attach it to your Form 1040; consider whether the FTC or a combination serves you better before electing.
Not sure if the FEIE or the FTC fits your situation?
The free Tax Risk Check helps you think through earned vs passive income, which reliefs may apply, and whether PFIC forms are likely in play. Atamatax provides preparation support; this is not individualized tax or legal advice.
Authorities cited
- IRC §911 — IRC §911 — Foreign earned income exclusion + housing exclusion/deduction
- IRS Form 2555 — About Form 2555 — Foreign Earned Income (FEIE + housing)
- IRS annual inflation adjustments — IRS annual inflation adjustments (Rev. Proc.) — indexed limits/thresholds; verify per tax year
- IRS Form 8621 — About Form 8621 — Information Return by a Shareholder of a PFIC or QEF
- IRC §24 — IRC §24 — Child Tax Credit / Additional (refundable) Child Tax Credit
Primary sources (Cornell Legal Information Institute for the US Code and CFR; IRS.gov for forms, procedures, and treaty documents). This page is general information, not individualized tax or legal advice.
Atamatax provides tax preparation support and educational resources. This website does not constitute legal or tax advice.