Question 1

What is the Foreign Earned Income Exclusion?

Accepted Answer

The Foreign Earned Income Exclusion (FEIE) is one of the most valuable tax benefits available to US expats. It allows qualifying taxpayers to exclude a certain amount of their foreign earned income from US federal taxation. For the 2024 tax year, the exclusion amount is $126,500 per person, and this amount is adjusted annually for inflation.

To qualify for the FEIE, you must have a tax home in a foreign country and meet one of two tests: the Physical Presence Test (you were physically present i...

Question 2

What is the Physical Presence Test?

Accepted Answer

The Physical Presence Test is one of two tests you can use to qualify for the Foreign Earned Income Exclusion (FEIE) and Foreign Housing Exclusion. To pass this test, you must be physically present in a foreign country or countries for at least 330 full days during a 12-month period. The 12-month period does not have to align with the calendar year — it can be any consecutive 12-month period that you choose.

The 330-day requirement means full 24-hour days, counted from midnight to midnight. Day...

Question 3

What is the Bona Fide Residence Test?

Accepted Answer

The Bona Fide Residence Test is one of two qualifying tests for the Foreign Earned Income Exclusion and Foreign Housing Exclusion. Unlike the Physical Presence Test, which is purely quantitative (counting days), the Bona Fide Residence Test is qualitative — it evaluates whether you have established genuine residence in a foreign country.

To meet this test, you must be a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year (January 1 through Decemb...

Question 4

What is the Foreign Tax Credit?

Accepted Answer

The Foreign Tax Credit (FTC) is a dollar-for-dollar reduction of your US tax liability for income taxes you have paid or accrued to a foreign government. It is the primary mechanism the US provides to prevent double taxation of the same income, and it is available to US citizens, resident aliens, and certain nonresident aliens.

The FTC is claimed on Form 1116, Foreign Tax Credit, and is categorized by type of income (general category, passive category, etc.). You must allocate your foreign taxe...

Question 5

FEIE vs Foreign Tax Credit: Which is better?

Accepted Answer

The choice between the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC) depends on your specific financial situation, and in some cases, using a combination of both may be optimal. Here is a framework for determining which approach works best.

The FEIE is generally better when: you live in a low-tax or no-tax country (like the UAE, Singapore, or Hong Kong) where you pay little or no foreign income tax and need to reduce your US tax liability; your earned income is below t...

Question 6

What is the Foreign Housing Exclusion?

Accepted Answer

The Foreign Housing Exclusion (or Foreign Housing Deduction for self-employed individuals) allows qualifying US expats to exclude or deduct certain housing expenses that exceed a base amount from their US taxable income. This is an additional benefit on top of the Foreign Earned Income Exclusion and is claimed on the same Form 2555.

To qualify, you must meet the same requirements as for the FEIE — you need a foreign tax home and must pass either the Physical Presence Test or the Bona Fide Resid...

Question 7

Can I claim both FEIE and Foreign Tax Credit?

Accepted Answer

Yes, you can claim both the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC) on the same tax return, but not on the same income. The key rule is that you cannot claim a Foreign Tax Credit for taxes paid on income that you have excluded under the FEIE. Each dollar of income can only benefit from one provision.

Here is a common scenario where claiming both makes sense: suppose you earn $180,000 in salary abroad and also have $20,000 in foreign investment income. You could e...

Question 8

What income qualifies for FEIE?

Accepted Answer

The Foreign Earned Income Exclusion applies only to foreign earned income — compensation received for personal services performed in a foreign country. Understanding which income qualifies is critical for correctly claiming this exclusion.

Qualifying earned income includes: wages and salaries paid by any employer (foreign or US) for work performed abroad; self-employment income from a trade or business conducted in a foreign country; professional fees for services rendered abroad; commissions e...

Question 9

What is the FEIE limit for 2026?

Accepted Answer

The Foreign Earned Income Exclusion amount is adjusted annually for inflation. For the 2025 tax year, the FEIE limit is expected to be approximately $130,000 (the IRS publishes the exact figure in the fall of the preceding year). For the 2024 tax year, the limit is $126,500. These amounts represent the maximum foreign earned income you can exclude from US taxation.

The FEIE limit is per person, not per household. If both you and your spouse work abroad and each qualifies independently for the F...

Question 10

How do I calculate the Foreign Housing Exclusion?

Accepted Answer

Calculating the Foreign Housing Exclusion involves several steps and location-specific limits. Here is a step-by-step guide to determining your housing exclusion amount.

Step 1: Total your qualifying housing expenses for the year. These include rent, utilities (gas, electric, water — but not telephone), renters insurance, residential parking, and furniture rental. Mortgage payments (principal and interest), domestic labor, home improvements, and purchased furniture do not qualify.

Step 2: Dete...

Question 11

Can self-employed expats claim FEIE?

Accepted Answer

Yes, self-employed US expats can claim the Foreign Earned Income Exclusion on their net self-employment income earned abroad. However, there are important nuances that self-employed individuals need to understand.

Your FEIE-eligible income is your net earnings from self-employment — gross self-employment income minus allowable business deductions. You claim this on Form 2555 just like an employee would claim their salary. The same qualifying tests apply: you must have a foreign tax home and mee...

Question 12

What if I move mid-year — can I still claim FEIE?

Accepted Answer

Yes, you can claim the FEIE if you move abroad mid-year, but the exclusion amount will be prorated based on the number of qualifying days you spend in a foreign country. Additionally, you need to meet either the Physical Presence Test or the Bona Fide Residence Test, which may require planning.

For the Physical Presence Test, remember that it uses a rolling 12-month period, not the calendar year. If you move abroad on June 1, 2024, you would need to be physically present in a foreign country fo...

Question 13

Do I lose FEIE if I visit the US?

Accepted Answer

Visiting the US does not automatically disqualify you from claiming the Foreign Earned Income Exclusion, but spending too many days in the US can cause you to fail the Physical Presence Test. The impact depends on which qualifying test you use.

Under the Physical Presence Test, you need 330 full days in a foreign country during a 12-month period. This allows up to 35 days of non-qualifying time (days in the US or in transit between the US and a foreign country). If you exceed 35 US days in your...

Question 14

What is carryover for unused Foreign Tax Credits?

Accepted Answer

When your foreign taxes paid exceed the Foreign Tax Credit limitation for a given year, the excess credits do not disappear — they can be carried back 1 year or carried forward up to 10 years. This carryover provision is one of the major advantages of the FTC over the FEIE.

The FTC limitation exists because the credit cannot exceed the amount of US tax attributable to your foreign-source income. If you live in a high-tax country and your foreign tax rate exceeds your US effective tax rate, you ...

Question 15

How does the Child Tax Credit work for expats?

Accepted Answer

The Child Tax Credit (CTC) is available to US expats, but claiming it while living abroad has important limitations. For the 2024 tax year, the CTC provides up to $2,000 per qualifying child under age 17. However, the interaction between the CTC and the Foreign Earned Income Exclusion creates significant complications.

The CTC is a partially refundable credit. The non-refundable portion (up to $2,000) reduces your tax liability to zero but cannot generate a refund below zero. The refundable por...

Tax Credits & Exclusions