Foreign Earned Income Exclusion (FEIE) Guide 2026: $130,000 Tax Exclusion for US Expats
Complete guide to the Foreign Earned Income Exclusion for 2026. Learn about the $130,000 exclusion, bona fide residence test, physical presence test, and housing exclusion.
What is the Foreign Earned Income Exclusion?
The Foreign Earned Income Exclusion (FEIE) is one of the most valuable tax benefits available to Americans living abroad. It allows qualifying US citizens and resident aliens to exclude up to $130,000 of foreign earned income from US federal income tax for 2026. Combined with the Foreign Housing Exclusion, this can significantly reduce or even eliminate US tax liability for many expats.
2026 FEIE Limits
| Tax Year | Maximum Exclusion | Daily Rate |
|---|---|---|
| 2026 | $130,000 | $356.16 per qualifying day |
| 2025 | $126,500 | $346.58 per qualifying day |
| 2024 | $123,300 | $337.16 per qualifying day |
| 2023 | $120,000 | $328.77 per qualifying day |
What Income Qualifies
The FEIE applies only to foreign earned income, which includes:
- Wages and salaries: Pay for services performed in a foreign country
- Self-employment income: Earnings from a trade or business conducted abroad
- Professional fees: Payments for services rendered outside the US
- Bonuses: Performance bonuses for work done abroad
- Commissions: Sales or other commissions for foreign work
- Allowances: Cost-of-living, housing (if taxable), and similar allowances
What Income Does NOT Qualify
| Income Type | Reason Excluded |
|---|---|
| Interest and dividends | Unearned income (passive) |
| Capital gains | Unearned income |
| Rental income | Unearned income (generally) |
| Pension distributions | Not current earned income |
| Social Security benefits | Not earned income |
| US government employee pay | Specifically excluded by law |
| Meals and lodging excluded under IRC 119 | Already excluded from income |
Eligibility Requirements
To claim the FEIE, you must meet three fundamental requirements:
Requirement 1: Tax Home in a Foreign Country
Your "tax home" must be in a foreign country. Your tax home is generally the location of your regular or principal place of business, employment, or post of duty, regardless of where you maintain your family home.
Tax Home Factors
- Where you perform most of your work
- Whether the location is temporary or indefinite
- The nature and length of your assignment
Requirement 2: Foreign Earned Income
The income you want to exclude must be earned income (not passive income) and must be earned while your tax home is in a foreign country and you meet one of the qualifying tests.
Requirement 3: Meet Either Test
You must meet either the Bona Fide Residence Test OR the Physical Presence Test.
| Test | Requirement | Best For |
|---|---|---|
| Bona Fide Residence | Be a bona fide resident of a foreign country for a full tax year | Long-term expats, indefinite assignments |
| Physical Presence | Be physically present in foreign country(ies) for 330 days in any 12-month period | Frequent travelers, those who moved mid-year |
Bona Fide Residence Test
The Bona Fide Residence Test requires you to be a bona fide resident of a foreign country for an uninterrupted period that includes a complete tax year (January 1 to December 31).
Key Requirements
- Full tax year: You must be a resident for at least one complete calendar year
- Indefinite intention: Your stay should be indefinite, not for a fixed, temporary period
- Integration: You should be integrated into the foreign community
- US citizenship required: Only US citizens can use this test (not resident aliens)
Factors the IRS Considers
| Factor | Supports Bona Fide Residence | Against Bona Fide Residence |
|---|---|---|
| Intent | Indefinite stay, no set end date | Fixed-term contract, definite return date |
| Home | Established permanent home abroad | Temporary housing, keeping US home |
| Family | Family accompanies you abroad | Family remains in US |
| Social ties | Membership in local organizations | No local community involvement |
| Business ties | Bank accounts, business relationships | All financial ties remain in US |
| Status | Resident visa or permanent status | Tourist visa, temporary status |
Example: Qualifying as Bona Fide Resident
James is a US citizen who moved to Germany in August 2024 for an indefinite job assignment. He:
- Signed a lease for an apartment in Munich
- Enrolled his children in local schools
- Opened German bank accounts
- Obtained a residence permit
- Joined local sports clubs
James can qualify as a bona fide resident starting January 1, 2025 (the first complete tax year), and claim the FEIE for 2025 and subsequent years.
Trips to the US
Brief trips to the US do not automatically disqualify you from bona fide residence, as long as they are temporary and you maintain your foreign residence. However, extended stays or maintaining significant US ties may raise questions.
Physical Presence Test (330 Days)
The Physical Presence Test is more objective and does not require demonstrating intent or integration. You qualify if you are physically present in a foreign country or countries for 330 full days during any 12-month period.
Key Rules
- 330 full days: Must be complete 24-hour periods (midnight to midnight)
- 12-month period: Can be any consecutive 12-month period, not just the calendar year
- Any foreign country: Does not need to be the same country for all 330 days
- Partial days in US: Days when you arrive in or depart from the US count as US days
Calculating Your 330 Days
| Scenario | Counts as Foreign Day? |
|---|---|
| Full day in foreign country | Yes |
| Day of departure from US to foreign country | No (partial US day) |
| Day of arrival in US from abroad | No (partial US day) |
| International waters/airspace | No |
| Day in transit through US (less than 24 hours) | No (in US) |
| Day in US territories (Puerto Rico, Guam) | No (US territory) |
Example: Physical Presence Calculation
Maria works in Singapore and wants to claim the FEIE for 2026. She tracks her days:
| Period | Location | Full Days |
|---|---|---|
| Jan 1 - Mar 15, 2026 | Singapore | 73 days |
| Mar 16 - Mar 29, 2026 | US (vacation) | 0 foreign days |
| Mar 30 - Jul 4, 2026 | Singapore | 96 days |
| Jul 5 - Jul 19, 2026 | US (vacation) | 0 foreign days |
| Jul 20 - Dec 31, 2026 | Singapore | 164 days |
Total foreign days: 333 days
Result: Maria qualifies for the physical presence test (330+ days achieved).
Choosing the 12-Month Period
You can choose any 12-month period that gives you 330 days abroad and overlaps with the tax year. This flexibility helps when you moved mid-year:
Example: Mid-Year Move
Robert moved from the US to Japan on June 1, 2026. He can use the 12-month period from June 1, 2026 to May 31, 2027. If he stays in Japan for that entire period, he will have 330+ foreign days and can claim a prorated FEIE for the portion of 2026 he was abroad.
Foreign Housing Exclusion
In addition to the FEIE, you may be able to exclude or deduct qualifying foreign housing expenses that exceed a base amount.
How the Housing Exclusion Works
| Component | 2026 Amount | Calculation |
|---|---|---|
| Base housing amount | $20,800 | 16% of FEIE limit ($130,000 x 0.16) |
| Maximum housing expenses (default) | $39,000 | 30% of FEIE limit |
| Maximum housing exclusion (default) | $18,200 | $39,000 - $20,800 |
High-Cost City Limits
The IRS allows higher housing limits for certain high-cost locations:
| Location | 2026 Maximum Housing Expense | Maximum Exclusion |
|---|---|---|
| Hong Kong | $114,300 | $93,500 |
| Tokyo, Japan | $97,500 | $76,700 |
| Singapore | $91,000 | $70,200 |
| London, UK | $84,500 | $63,700 |
| Zurich, Switzerland | $78,000 | $57,200 |
| Paris, France | $71,500 | $50,700 |
Qualifying Housing Expenses
- Rent for housing in a foreign country
- Utilities (except telephone)
- Real and personal property insurance
- Rental of furniture and accessories
- Parking fees (residential, not commuting)
- Repairs
Non-Qualifying Expenses
- Mortgage payments (principal or interest)
- Cost of purchasing a home
- Domestic labor (maids, gardeners)
- Home improvements
- Furniture purchases
- Pay TV or streaming services
Housing Exclusion Example
Jennifer lives in Singapore and has these housing costs for 2026:
| Expense | Annual Amount |
|---|---|
| Rent | $42,000 |
| Utilities | $3,600 |
| Renter's insurance | $400 |
| Total qualifying expenses | $46,000 |
Jennifer's housing exclusion calculation:
- Singapore maximum: $91,000 (her $46,000 qualifies)
- Less base amount: $46,000 - $20,800 = $25,200
- Housing exclusion: $25,200
Calculating Your Exclusion
Step-by-Step Calculation
- Determine qualifying days: Count days you meet either test
- Calculate prorated limit: ($130,000 / 365) x qualifying days
- Identify foreign earned income: Only income earned while abroad
- Apply exclusion: Exclude the lesser of your foreign earned income or prorated limit
Full Year Example
David qualifies under bona fide residence for all of 2026 with $150,000 in foreign salary:
| Item | Amount |
|---|---|
| Foreign earned income | $150,000 |
| Maximum FEIE | $130,000 |
| FEIE claimed | $130,000 |
| Remaining taxable income | $20,000 |
Partial Year Example
Lisa moved to London on July 1, 2026 and earned $80,000 abroad for the rest of the year:
| Item | Calculation | Amount |
|---|---|---|
| Qualifying days | 184 days (Jul 1 - Dec 31) | 184 |
| Prorated FEIE limit | $130,000 x (184/365) | $65,534 |
| Foreign earned income | Salary for 184 days | $80,000 |
| FEIE claimed | Lesser of $65,534 or $80,000 | $65,534 |
| Remaining taxable | $80,000 - $65,534 | $14,466 |
Combined FEIE and Housing Exclusion
The total exclusion can exceed $130,000 when housing is included:
| Scenario | Amount |
|---|---|
| Foreign earned income | $180,000 |
| FEIE | $130,000 |
| Housing exclusion | $25,000 |
| Total exclusion | $155,000 |
| Remaining taxable | $25,000 |
FEIE vs Foreign Tax Credit
Many expats can choose between the FEIE and the Foreign Tax Credit (FTC). Understanding when to use each is crucial for tax optimization.
Key Differences
| Factor | FEIE | Foreign Tax Credit |
|---|---|---|
| How it works | Excludes income from taxation | Credits taxes paid to foreign government |
| Income types | Earned income only | All income |
| Best when | Low-tax foreign countries | High-tax foreign countries |
| Social Security taxes | Still owed on excluded income | No effect |
| IRA contributions | Excluded income does not count | All earned income counts |
| Excess credits | No carryover | Can carry forward 10 years |
Decision Framework
| Your Situation | Better Choice | Reason |
|---|---|---|
| Low-tax country (Dubai, Singapore) | FEIE | Little foreign tax to credit |
| High-tax country (Germany, France) | FTC | Foreign taxes exceed US liability |
| Want to fund IRA | FTC | FEIE reduces eligible income |
| Significant investment income | FTC | Can credit foreign taxes on investments |
| Income under $130,000, low-tax country | FEIE | May owe zero US tax |
The 5-Year Rule Warning
If you claim the FEIE and then revoke it to use the FTC, you cannot use the FEIE again for 5 years without IRS approval. This makes the choice significant for long-term planning.
Common Mistakes to Avoid
Mistake 1: Not Filing a Return
Even if the FEIE eliminates your tax liability, you must still file a US tax return if your income exceeds filing thresholds. The FEIE is claimed on Form 2555 attached to your return.
Mistake 2: Miscounting Physical Presence Days
Travel days to/from the US count as US days. Many expats mistakenly count 330 calendar days abroad without accounting for departure and arrival days.
Mistake 3: Including Non-Qualifying Income
The FEIE only applies to earned income. Investment income, rental income, and retirement distributions cannot be excluded.
Mistake 4: Forgetting the Tax Home Requirement
Even if you spend 330 days abroad, if your tax home is in the US (e.g., your employer and family are in the US), you may not qualify.
Mistake 5: Missing the Housing Exclusion
Many expats leave money on the table by not claiming the housing exclusion. Always calculate both exclusions.
Mistake 6: Not Considering Self-Employment Tax
The FEIE does not exclude self-employment income from self-employment tax (Social Security/Medicare). You may still owe 15.3% on self-employment income even with FEIE.
Filing Requirements Summary
| Form | Purpose | When Required |
|---|---|---|
| Form 1040 | US tax return | Always (if filing threshold met) |
| Form 2555 | Claim FEIE | When claiming exclusion |
| Form 8938 | FATCA reporting | If foreign assets exceed thresholds |
| FinCEN 114 (FBAR) | Foreign bank accounts | If accounts exceed $10,000 |
The Foreign Earned Income Exclusion is a powerful tool for Americans abroad, potentially saving thousands of dollars in US taxes. However, it requires careful planning and documentation. Track your days meticulously, understand whether bona fide residence or physical presence works best for your situation, and do not forget to claim the housing exclusion. Most importantly, always file your US tax return even if you expect to owe nothing. The FEIE is an exclusion you must actively claim, not an automatic benefit.
This article is for informational purposes only and does not constitute tax advice. Tax situations vary greatly, and the FEIE has many nuances. Consult with a qualified tax professional familiar with expat taxation for advice specific to your situation.
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