Foreign Earned Income Exclusion 2025-2026: FEIE Amounts, Limits & How to Qualify

If you're an American living and working abroad, the Foreign Earned Income Exclusion (FEIE) is likely the single most valuable provision in the US tax code for you. For tax year 2025, you can exclude up to $130,000 of foreign earned income from US federal income tax. For 2024 returns (filed in 2025), the amount was $126,500. These amounts are adjusted annually for inflation by the IRS.

This guide covers everything: the exact dollar amounts for each tax year, how to qualify, what income counts (and what doesn't), how to claim it on Form 2555, and the most common mistakes that cause the IRS to deny the exclusion.

FEIE Exclusion Amounts by Tax Year

The IRS adjusts the FEIE amount annually based on cost-of-living data. Here are the amounts for recent and upcoming tax years:

What Is the Foreign Earned Income Exclusion?

The FEIE, claimed on IRS Form 2555, allows qualifying US citizens and resident aliens living abroad to exclude a portion of their foreign earned income from US federal income tax. The US is one of only two countries (the other being Eritrea) that taxes citizens on worldwide income regardless of where they live.

The FEIE exists specifically to prevent double taxation on Americans working abroad. Without it, an American earning $100,000 in Canada would owe both Canadian income tax AND US income tax on the same income.

How to Qualify for the FEIE: Two Tests

You must meet one of two residency tests to claim the FEIE. You cannot simply live abroad temporarily and claim the exclusion.

1. Bona Fide Residence Test

You are a bona fide resident of a foreign country for an uninterrupted period that includes an entire calendar year (January 1 through December 31). This is not just about physical presence — the IRS looks at:

• Intent to remain: Do you have a permanent home abroad? Did you sell or lease your US home?
• Integration: Do you have local bank accounts, driver's license, voting registration, or club memberships in the foreign country?
• Duration: How long have you lived there? Short-term assignments may not qualify.
• Nature of employment: Is your assignment indefinite or for a fixed term?
• Family: Did your family move with you?

The bona fide residence test is more flexible in terms of travel — you can take vacations back to the US without losing your status, as long as your primary residence remains abroad.

2. Physical Presence Test

You are physically present in a foreign country (or countries) for at least 330 full days during any 12-month period. Key rules:

• 330 full days: A full day means midnight to midnight. The day you depart the US and the day you return do not count.
• Any 12-month period: It does not have to be a calendar year. You can use any consecutive 12-month period that gives you 330 days abroad.
• Any foreign country: The 330 days can be spread across multiple countries. You do not need to stay in one place.
• US visits count against you: If you spend 36 or more days in the US during your chosen 12-month period, you fail the test for that period.

What Income Qualifies for the FEIE?

The FEIE only applies to earned income — money you receive for personal services performed in a foreign country. Here's what counts and what doesn't:

How to Claim the FEIE: Form 2555 Step by Step

You claim the Foreign Earned Income Exclusion by filing IRS Form 2555 with your Form 1040. You cannot use Form 1040-EZ or 1040-SR with the FEIE.

1. Part I — General Information: Your foreign address, employer details, and the nature of your work abroad.
2. Part II — Bona Fide Residence Test OR Part III — Physical Presence Test: Complete the section that matches your qualifying test. For the physical presence test, you'll list every trip to the US with exact dates.
3. Part IV — Foreign Earned Income: Report your total foreign earned income for the tax year.
4. Part V — Housing Exclusion (optional): If your housing costs abroad exceed a base amount (16% of the FEIE max = $20,800 for 2025), you may be able to exclude additional housing costs above that base. The housing exclusion has its own limits that vary by city — high-cost cities like London, Tokyo, and Hong Kong have higher caps.
5. Part VI — Compute the Exclusion: Calculate your actual exclusion amount (up to the annual maximum, prorated if you qualified for only part of the year).

FEIE Housing Exclusion: The Often-Missed Bonus

Beyond the base FEIE, you can also exclude qualifying housing costs that exceed a base amount. For 2025:

• Base housing amount: 16% of the FEIE maximum = $20,800 (for 2025)
• Standard housing cap: 30% of the FEIE maximum = $39,000 (for 2025)
• Maximum additional exclusion: $39,000 − $20,800 = $18,200 standard
• High-cost city override: Many cities have higher caps — London is approximately $50,000, Hong Kong approximately $114,000, Tokyo approximately $61,000

Qualifying housing expenses include rent, utilities (not phone/internet), insurance on the rental property, parking rental, and furniture rental. They do NOT include mortgage payments, purchased furniture, capital improvements, or domestic labor.

FEIE vs. Foreign Tax Credit: Which Should You Use?

This is the most important strategic decision for US expats. You can use the FEIE, the Foreign Tax Credit (FTC, Form 1116), or a combination — but you cannot apply both to the same dollar of income.

Canadian Residents: FEIE vs. FTC Decision Matrix

For US citizens living in Canada — by far the largest cross-border expat population — the decision often favors the FTC because Canadian tax rates exceed US rates at most income levels. However, there are exceptions:

• Income under ~$55,000 CAD: Canadian federal + provincial tax may be lower than US tax. FEIE could be better.
• Income $55,000–$130,000 CAD: Canadian tax rate is comparable to US. Either method works — run both calculations.
• Income above $130,000 CAD: FTC is almost always better due to the stacking rule and higher Canadian marginal rates.
• Self-employed: FTC is usually better because the US-Canada Totalization Agreement may eliminate the 15.3% SE tax, while the FEIE does not.

Common FEIE Mistakes That Trigger IRS Audits

1. Failing to file on time: You must file Form 2555 with a timely return (or valid extension). If you miss the deadline without an extension, you can lose the FEIE for that year.
2. Miscounting physical presence days: Travel days between countries require careful tracking. The day you leave the US doesn't count, but the day you arrive in a foreign country does. Keep a detailed travel log.
3. Excluding non-qualifying income: Investment income, rental income, and US-source income cannot be excluded. The IRS cross-references 1099s and K-1s.
4. Revoking the FEIE without understanding the consequences: If you revoke your FEIE election, you cannot use it again for 5 tax years without IRS approval. Some expats accidentally revoke it by not filing Form 2555 for a year.
5. Not prorating for partial years: If you only qualified for part of the year (e.g., you moved abroad in June), your exclusion is prorated by the number of qualifying days ÷ 365.
6. Ignoring state taxes: The FEIE only applies to federal income tax. Many states (California, New York, Virginia) continue to tax former residents on worldwide income even after they move abroad.
7. Forgetting about the housing exclusion: Many expats leave money on the table by not claiming the housing exclusion in addition to the base FEIE.

FEIE Filing Deadlines for Expats

US expats get an automatic 2-month extension (to June 15), but there are important nuances:

• April 15: Standard US tax deadline. Expats get an automatic extension to June 15.
• June 15: Automatic extension deadline for Americans abroad. You must attach a statement to your return explaining you qualify for the extension. Interest (not penalties) accrues from April 15.
• October 15: Extended deadline if you file Form 4868 by June 15.
• December 15: Additional extension available by written request if you need more time to meet the physical presence test.

The Future of the FEIE: Proposed Changes

The FEIE has faced several legislative threats in recent years:

• Residence-Based Taxation (RBT) proposals: Several bills have been introduced to switch the US from citizenship-based to residence-based taxation. If passed, the FEIE would become unnecessary for most expats. As of 2026, none have passed.
• FEIE repeal proposals: Some budget proposals have suggested eliminating the FEIE entirely. The Biden and Trump administrations both considered it as a revenue raiser, but neither followed through.
• Amount increases: The FEIE amount is indexed to inflation and increases automatically. No legislative action is needed for the annual adjustments.

For now, the FEIE remains available and continues to increase annually with inflation. The 2025 amount of $130,000 represents a $21,300 increase from 2020 ($107,600).

Do You Still Need to File If All Income Is Excluded?

Yes. Even if your entire income is excluded under the FEIE, you must still file a US tax return (Form 1040) and attach Form 2555. Failing to file means you haven't claimed the exclusion — and the IRS can assess tax on your worldwide income as if the exclusion doesn't exist. You also likely still need to file FBAR (FinCEN 114) if you have foreign bank accounts with a combined balance exceeding $10,000 at any point during the year.