Claim the Foreign Earned Income Exclusion (FEIE) in 2025
Updated on December 04, 2025
by Sparsh Ganeriwala
Sparsh Ganeriwala, an IRS Enrolled Agent with over 12 years of expat tax experience, specializes in filing US taxes for Americans living in Canada, US/Foreign Trusts, and GILTI Tax.
Table of Contents
If you’re a US expat earning income abroad in 2026, the Foreign Earned Income Exclusion (FEIE) is still one of the biggest tools you have to reduce your US tax bill. The limit has gone up again for the 2025 tax year. Here’s what’s changed and how the rules work this year.
What is the Foreign Earned Income Exclusion (FEIE)?
The FEIE allows qualifying Americans abroad to exclude a portion of their foreign-earned income from US taxation. You still report income to the IRS, but you get to remove up to a certain amount before taxes are calculated. This helps prevent double taxation and gives expats working abroad some breathing room.
For 2025 tax filings (filed in 2026):
- FEIE limit: US$130,000
- Housing exclusion base: increases slightly each year because it’s tied to inflation.
- Married couples: If both spouses qualify, they can exclude their own earned income separately.
What does the FEIE actually do for US expats?
It reduces your taxable income, which means a lower tax bill. For many expats in lower-tax countries (or zero-tax countries like the UAE), it’s essential.
When is the filing deadline for claiming the FEIE?
- Standard US deadline: April 15, 2026
- Automatic expat extension: June 15, 2026
- Additional extension (Form 4868): October 15, 2026
- You can also request Form 2350 if you need extra time to meet the residency tests.
Who can claim the FEIE in 2025?
To qualify, you need:
- A foreign tax home, and
- A residency test—either the Physical Presence Test or the Bona Fide Residence Test.
These two tests determine whether the IRS considers you truly “living abroad” rather than taking a long vacation. Let’s break them down.
What is the tax home requirement for US expats?
Your tax home is the location of your main work or business activities. For expats, the IRS expects this to be in a foreign country, not in the US, even if you occasionally return for visits. Once you establish that, you move on to the residency tests.
The Physical Presence Test
Step-by-step walkthrough:
- Pick any 12-month period.
- Count the total number of days you are physically outside the US.
- If that number hits 330 full days, you qualify.
The 330-day rule
A full day means 24 hours. Travel days in or out of the US don’t count unless you are physically abroad for the entire day.
Travel day examples
- Fly from London to LA arriving at 3pm → not a full foreign day.
- Spend 330 straight days in Australia with no US trips → you qualify easily.
- Digital nomads hopping between Thailand, Japan, and Bali usually qualify effortlessly, unless they dip into the US too often.
The Bona Fide Residence Test
You must live in a foreign country for an entire calendar year (January 1 to December 31).
Residency indicators
The IRS looks at:
- Your home lease
- Local bills
- Where your family lives
- Whether you’re paying local tax
- Whether you intend to stay long-term
It’s a bit subjective, and some expats find the flexibility helpful; others find it confusing.
Common expat scenarios
- Teachers abroad
- Expats on multi-year employment contracts
- Spouses of foreign nationals
- Americans raising families abroad
Find out if you qualify for FEIE.
Contact us today.
What counts as foreign-earned income for the FEIE?
Foreign-earned income is basically money you earn from work while you’re physically abroad. Qualifying income includes:
- Wages
- Self-employment income
- Contractor/consultant income
- Work-related bonuses
What types of income do NOT qualify?
You can’t use the FEIE for:
- Passive income (interest, dividends, capital gains)
- Pensions and retirement withdrawals
- US government wages
- Income sourced to the US
A surprisingly common mistake? Expats reporting remote income wrongly as foreign-earned when they worked from the US part of the year.
How much foreign-earned income can you exclude in 2025?
For 2025, you can exclude up to US$130,000 of foreign-earned income per qualifying taxpayer. Married couples can each claim their own limit.
Here’s a comparison of the previous FEIE limit, adjusted for inflation:
|
Tax year |
FEIE limit |
|
2023 |
$120,000 |
|
2024 |
$126,500 |
|
2025 |
$130,000 |
What if you don’t qualify for the full year?
If you don’t qualify for the full year, you will be prorated based on your qualifying days.
For example:
You qualified for 200 days under the Physical Presence Test:
- 200days/ 365days = 0.5479
- 0.5479 × US$130,000 = US$71,227 exclusion
Foreign housing exclusion or deduction
The foreign housing exclusion or deduction is a companion benefit to the FEIE, and it helps expats reduce even more of their taxable income. In simple terms, it lets you write off certain reasonable housing expenses you pay while living abroad—things like rent, utilities, and sometimes even furniture rental.
If you’re an employee, you’ll use the foreign housing exclusion.
If you’re self-employed, you’ll use the foreign housing deduction.
The base amount is generally 16% of the FEIE limit, and the standard cap is 30% of the FEIE, with higher caps for IRS-listed high-cost cities, such as:
- Hong Kong
- Singapore
- Tokyo
- London
If you’re in London or Sydney, your permitted housing exclusion can be significantly higher than someone living in Cape Town.
How do you claim the FEIE? (Form 2555 filing steps)
- Acquire Form 2555 from the IRS website or IRS offices abroad: Form 2555 is the official IRS form used to claim the FEIE
- Choose your residency test: the Physical Presence Test, or the Bona Fide Residence Test.
- Enter your foreign days and foreign-earned income: list exact dates you were abroad, including travel days and your total foreign-earned income,
- Attach supporting details (or be ready to show them if asked): flight itineraries, entry/exit stamps, residency permits, or employment contract.
- File Form 2555 with your Form 1040 (US tax return): Most expats e-file using tax software or a specialist. If you prefer, you can mail a paper return, but it can be slow, especially from abroad.
FEIE vs Foreign Tax Credit (FTC)
The FEIE shields a portion of your foreign-earned income from US tax, which works especially well if you live in a low- or no-tax country. The Foreign Tax Credit, however, gives you credit for income taxes paid to another country, which often eliminates US tax entirely for expats living in higher-tax countries.
Comparison table
|
Situation |
FEIE better? |
FTC better? |
|
Low/no tax country (UAE, Qatar) |
✔✔ |
— |
|
Moderate tax country |
Depends |
Depends |
|
High-tax country (UK, Germany) |
— |
✔✔ |
|
Self-employed with high income |
Partial |
Often ✔ |
When you might use both (mixed strategy)
Some expats benefit from using a mixed strategy, combining:
- Form 2555 (FEIE) for a portion of their income
- Form 1116 (FTC) for the rest
Examples where this makes sense:
- Your salary fits under the FEIE, but your bonuses push you over the limit
- You live in a mid-tax country where taxes aren’t high enough to offset everything
- You have a mix of earned and passive income
- You’re self-employed abroad and want to apply for credits strategically
Important: You cannot claim the FTC on income you’ve already excluded with the FEIE; the credit only applies to the non-excluded portion.
How does the FEIE work for self-employed US expats?
Self-employed Americans face a curveball: the FEIE excludes income but does not remove the self-employment tax. That’s because self-employment tax pays into Social Security and Medicare. FEIE only affects income tax.
If your country has a totalization agreement with the US, you may avoid double contributions. Countries like the UK, Canada, Japan, and Australia all have agreements in place.
FAQs
-
Can I switch between the FEIE and the Foreign Tax Credit in different years?
Yes, but switching isn’t always simple. If you revoke the FEIE, the IRS generally won’t let you claim it again for five years unless you request special approval. That’s why expats sometimes map out a multi-year tax strategy instead of treating each year separately.
-
Does the FEIE apply if I'm paid by a US employer while working abroad?
-
Do I still need to file a US tax return if all my income is excluded by the FEIE?
-
Does the FEIE reduce my state tax obligations?
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Can I claim both the FEIE and the Foreign Housing Exclusion?
-
What happens if I fail the Physical Presence Test because of an emergency?
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Can I claim the FEIE if I don’t pay taxes in the country where I live?
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