Foreign Earned Income Exclusion
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?
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