The Foreign Earned Income Exclusion: A US Expat's Complete Guide

The FEIE, governed by IRC Section 911, lets qualifying US citizens and resident aliens exclude a set amount of foreign-earned income from US federal income tax. For tax year 2024, that limit is $126,500 per person (adjusted annually for inflation). Note: the FEIE only applies to earned income (wages, salary, self-employment) — not passive income like dividends, capital gains, or rental income.

You must meet one of two tests:

**Bona Fide Residence Test**: You've been a genuine, long-term resident of a foreign country for at least one full tax year. "Bona fide" means you have the intention to stay — not just a temporary assignment. You must have established a real home in that country.

**Physical Presence Test**: You were physically present in one or more foreign countries for at least 330 full days during any 12-consecutive-month period. Days traveling through international airspace don't count as US or foreign days.

Income qualifies if it was earned while you were physically abroad AND from foreign sources. This includes wages from a foreign employer, self-employment income from services performed abroad, and certain housing allowances. It does NOT include: Social Security or government pension income, amounts paid by the US government to its employees, or income earned in a country under a US travel ban.

In addition to the FEIE, you can exclude or deduct housing expenses above a base amount. For 2024, you can exclude housing costs above roughly $20,000/year (16% of the FEIE limit). The excess is excludable up to a maximum that varies by location. High-cost cities like London, Singapore, or Hong Kong have higher limits. This is filed on Form 2555.

This catches many US freelancers and remote workers. Even if you exclude 100% of your income under the FEIE, you may still owe US self-employment tax (15.3%) on your net self-employment income. The FEIE only excludes income for income tax purposes — it doesn't eliminate SE tax. The only way around this is if the country you live in has a totalization agreement with the US, which exempts you from US Social Security if you're paying into the local system.

Some US states — most famously California and New York — do not recognize the FEIE for state tax purposes. This means if you were domiciled in CA or NY before leaving, you may continue to owe state income tax on worldwide income until you formally sever domicile. Simply moving abroad is not enough; you need to take concrete steps like changing your driver's license, voter registration, and permanent address.

If you're moving to a high-tax country (Germany, France, UK), the Foreign Tax Credit (FTC) is often more advantageous than the FEIE. The FTC gives you a dollar-for-dollar credit for foreign taxes paid, potentially eliminating your US tax bill entirely. For low-tax countries (UAE, Panama, Singapore), the FEIE may be better since there's no foreign tax to credit. You cannot use both on the same income — you must choose, and the choice affects future years too.

File Form 2555 with your Form 1040. If you haven't filed yet and want to claim the FEIE for the first time, you can do so on a timely filed return including extensions. Remember: US expats automatically get a June 15 filing deadline (2-month extension), and can request further extension to October 15. The FBAR (FinCEN 114) for foreign bank accounts over $10,000 is due April 15 with automatic extension to October 15 — file it separately from your tax return.