Foreign Earned Income Exclusion (FEIE)
The FEIE is not an automatic tax exemption for living abroad. Start with foreign earned income and a foreign tax home, then meet either the Physical Presence Test or the Bona Fide Residence Test and make a valid election.
What the FEIE does
The Foreign Earned Income Exclusion can let a qualifying individual exclude a limited amount of foreign earned income from US federal income tax. The limit is adjusted over time, can be reduced for a partial qualifying year and cannot exceed qualifying foreign earned income. Check the current IRS amount for the tax year you are filing rather than relying on an undated figure.
Start with three eligibility gates
The IRS instructions describe three connected questions: whether your tax home is in a foreign country, whether the income is earned from personal services performed in a foreign country, and whether you meet either the Physical Presence Test or the Bona Fide Residence Test. Wages, salaries and professional fees can be foreign earned income; pensions, interest, dividends and capital gains are not earned income for this purpose.
Choose the applicable residence or presence path
The Physical Presence Test is a day-count route: at least 330 full days in foreign countries during a period of 12 consecutive months. The Bona Fide Residence Test is facts-and-circumstances based and generally requires an uninterrupted period that includes an entire tax year. It depends on facts such as the purpose and length of your stay, your activities and ties, and information reported on Form 2555; it is not a deterministic calculator result.
Count 330 full days in a consecutive 12-month period
For the Physical Presence Test, the 330 days do not have to be consecutive, but they must be full days in one or more foreign countries inside a qualifying 12-month period. A full day runs from midnight to midnight. The period can begin on any day, cross calendar years and overlap another qualifying period. Arrival, departure and time over international waters may keep a travel day from counting.
File and elect with Form 2555
The exclusion is elective rather than automatic. IRS guidance says a claimant generally completes the appropriate parts of Form 2555 and attaches it to Form 1040, 1040-SR or 1040-X. The timing of the initial election, later revocation, extensions and amended returns can change the filing path, so use the instructions for the return year and get professional help when timing is uncertain.
Understand housing benefits and tax interactions
Form 2555 also covers the foreign housing exclusion or deduction for taxpayers who qualify. These are separate calculations with their own limits and eligible expenses. Claiming an exclusion can affect deductions or credits connected to excluded income, and the FEIE does not by itself remove self-employment tax. State tax treatment is a separate question.
Avoid the shortcuts that cause bad decisions
- Do not treat 330 days abroad as automatic tax-free status
- Do not use the US Substantial Presence Test total as an FEIE total
- Do not assume all income received abroad is foreign earned income
- Do not use an old annual exclusion limit for a current return
- Do not treat the Bona Fide Residence Test as a day-only formula
- Do not assume the FEIE resolves state tax, self-employment tax, foreign tax credit or treaty questions
Frequently asked questions
Does living outside the United States automatically qualify someone for the FEIE?
No. The IRS requires a foreign tax home, qualifying foreign earned income, and either the Physical Presence Test or the Bona Fide Residence Test, plus a valid election and filing.
Is the Physical Presence Test the same as the Substantial Presence Test?
No. The Physical Presence Test is one route toward the FEIE and counts full days in foreign countries. The Substantial Presence Test uses weighted days in the United States to address a separate US tax-residency question.
Do 330 days abroad make all income tax free?
No. The 330-day condition is only part of one eligibility route. The exclusion is limited, applies to qualifying foreign earned income, requires a valid election, and does not by itself eliminate self-employment tax or decide state tax treatment.
What form is used to claim the FEIE?
A qualifying taxpayer generally completes Form 2555 and attaches it to Form 1040, 1040-SR or 1040-X. Use the instructions for the relevant return year because timing and election rules can matter.