U.S. citizens and resident aliens are taxed on their worldwide income regardless of where they live — one of the few countries with this approach — but the Foreign Earned Income Exclusion offers substantial relief for Americans genuinely living and working abroad.
The 2026 Exclusion Amount: $132,900
For 2026, you can exclude up to $132,900 of foreign earned income from U.S. federal income tax, up from $130,000 for 2025. This only applies to earned income — wages, salary, self-employment income from services you perform — not to investment income, rental income, or other passive income sourced abroad, all of which remain fully taxable regardless of this exclusion.
Two Ways to Qualify
You need to meet one of two tests to claim the exclusion:
- Bona fide residence test: you're a genuine resident of a foreign country for an entire uninterrupted tax year — a more subjective, facts-and-circumstances test looking at your intent, ties to the foreign country, and the nature of your stay.
- Physical presence test: a purely mechanical test — you were physically present in one or more foreign countries for at least 330 full days during any 12-month period, regardless of your intent or the nature of your residence there.
The physical presence test is generally easier to document and satisfy for people who don't have a clear-cut case for bona fide residence (like those on shorter international assignments), while the bona fide residence test can allow more flexibility around brief trips back to the U.S. without jeopardizing days-counted eligibility the way physical presence's strict 330-day count would.
The Foreign Housing Exclusion/Deduction
Separate from the earned income exclusion, you may also qualify to exclude or deduct a portion of your foreign housing costs above a base amount — rent, utilities (excluding telephone), and similar housing expenses, subject to location-specific limits that are higher in expensive international cities. Employees generally use the housing exclusion; self-employed individuals use a housing deduction instead, since the exclusion mechanism only applies to employer-provided or employer-paid amounts.
Self-Employment Tax Still Applies
Critically, the FEIE excludes foreign earned income from income tax — it does not exclude self-employed Americans abroad from self-employment tax. A self-employed American working abroad whose entire earned income is excluded under FEIE can still owe the full 15.3% SE tax on that same income, an outcome that surprises many self-employed expats who assume the exclusion covers everything.
FEIE vs. Foreign Tax Credit: Not Always the Same Choice
Instead of (or in addition to, for income above the exclusion amount) the FEIE, you can claim a Foreign Tax Credit for income taxes actually paid to a foreign government. If you're in a country with income tax rates higher than U.S. rates, the Foreign Tax Credit can sometimes produce a better outcome than the FEIE, particularly because excluding income under FEIE can also exclude you from being able to claim the EITC or reduce refundable Child Tax Credit eligibility on the excluded income — running both scenarios (FEIE vs. Foreign Tax Credit) before filing is worth the extra calculation for many expats.
⚠️ Once you elect the FEIE, revoking it requires IRS consent to re-elect it again within 5 years in most cases — this isn't a decision to make casually or switch back and forth on year to year without understanding the re-election restriction.
A Worked Example
A U.S. citizen working in a foreign country for the entire tax year, meeting the physical presence test, earns $110,000 in foreign wages. Since this is under the $132,900 exclusion amount, the entire $110,000 can potentially be excluded from federal income tax (subject to properly filing Form 2555), though if they're self-employed rather than a W-2 employee, SE tax would still apply to that full amount regardless of the income tax exclusion.
Common Questions
Do I still need to file a U.S. tax return if all my income is excluded? Yes — you must still file a return and properly claim the exclusion on Form 2555; the exclusion isn't automatic simply because you live abroad.
Does FEIE apply to income earned while working in international waters or airspace? Generally no — the exclusion requires the income to be attributable to services performed in a foreign country, which has specific rules around time spent in international waters/airspace versus actual foreign soil.
Can I claim FEIE and still contribute to a Roth IRA? If your entire income is excluded under FEIE, you may have no remaining taxable compensation to support an IRA contribution — check the specific interaction carefully, since excluded income generally doesn't count as compensation for IRA contribution eligibility purposes.
💡 This calculator handles standard domestic U.S. tax scenarios; FEIE and the foreign housing provisions aren't currently modeled — see our Methodology page for the current scope.