If you’re a US citizen or resident alien living and working abroad, you may be eligible to exclude a portion of your foreign income from US taxation. This benefit, known as the Foreign Earned Income Exclusion (FEIE), can significantly reduce your tax liability. Let’s explore what the FEIE is, how to qualify, and how to claim it.

What Does the FEIE Cover?

The FEIE allows you to exclude a specific amount of foreign-earned income from your taxable income. The maximum exclusion amount is adjusted annually for inflation. As of the 2025 tax year, the exclusion limit is approximately $130,000. This means that if your foreign income is below this threshold, you may not owe any US income tax on it.

How Do You Qualify?

To qualify for the FEIE, you must meet the following requirements:

1. Foreign Earned Income: Your income must come from work performed abroad. This can include wages, salaries, and self-employment income.
2. Tax Home in a Foreign Country: You must have established a tax home in a foreign country.
3. Meet Either the Bona Fide Residence Test or the Physical Presence Test:
   • Bona Fide Residence Test: You must be a resident of a foreign country for an uninterrupted period that includes a full tax year.
   • Physical Presence Test: You must be physically present in a foreign country for at least 330 full days during a 12-month period.

How to Claim the FEIE

To claim the exclusion, you must:

• File Form 1040 and attach Form 2555 (Foreign Earned Income).
• Include all necessary supporting documents to prove your eligibility, such as travel records or residency certificates.

It’s essential to choose the correct test (bona fide residence or physical presence) based on your personal situation, as this determines whether you qualify.

Pitfalls and Considerations

• Self-Employment Taxes: Even if you exclude your income using the FEIE, you may still owe self-employment tax on foreign earnings if you’re self-employed.
• Housing Exclusion: You may also qualify for the Foreign Housing Exclusion or Deduction, which can further reduce your taxable income.
• Social Security Agreements: Some countries have agreements with the US to avoid double taxation of social security, but the FEIE does not automatically exempt you from paying social security taxes.
• Revocation: If you revoke your use of the FEIE, you generally cannot claim it again for five years.

Final Thoughts

The FEIE is a valuable tool for US citizens working abroad, but it’s essential to understand the eligibility criteria and properly document your claim.

The information in this blog post is for general informational purposes only and does not constitute professional tax advice. We strongly recommend consulting a qualified tax professional before making any decisions. US Expat Tax Advisor is not liable for any actions taken based on this content.

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