What is the Foreign Earned Income Exclusion?
The Foreign Earned Income Exclusion (FEIE), governed by IRC §911, allows US citizens and resident aliens living abroad to exclude a portion of their foreign earned income from US federal income tax. For tax year 2025, the exclusion limit is $130,000 per qualifying individual; the 2024 limit was $126,500. The IRS adjusts the limit annually for inflation — always verify the current figure at IRS.gov before filing.
The FEIE is one of the most valuable provisions in the tax code for Americans living overseas, but it applies only to earned income (wages, salaries, self-employment income) — not to passive income like dividends, interest, capital gains, or rental income. Understanding exactly what qualifies and how the exclusion interacts with other provisions is essential before claiming it.
The FEIE exclusion formula
Your US taxable income after FEIE follows a stacking rule that preserves the progressive bracket structure:
Excluded Income = min(Foreign Earned Income, Annual FEIE Limit)
Taxable Income = Total Gross Income − Excluded Income − Standard Deduction
Tax = Tax(Total Income) − Tax(Excluded Income + Standard Deduction)The "stacking" method means the excluded income is treated as occupying the bottom of your bracket stack, so your remaining income is taxed at the higher rates that would have applied above the excluded amount — not at the lower rates from the bottom of the bracket. This prevents FEIE claimants from benefiting from the lowest bracket rates twice.
Worked example
A single US citizen lives and works in Singapore in 2025, earning $155,000 in salary. She qualifies under the Physical Presence Test and claims the full FEIE.
- Step 1: Foreign earned income = $155,000. FEIE limit = $130,000. Excluded = $130,000.
- Step 2: Remaining earned income = $155,000 − $130,000 = $25,000.
- Step 3: Subtract standard deduction: $25,000 − $15,000 = $10,000 taxable income.
- Step 4: Apply stacking: calculate tax on $145,000 (excluded + standard deduction), then subtract from tax on $155,000 (full income). Net tax ≈ $1,855.
Without the FEIE, this taxpayer would owe roughly $28,000 in federal income tax. The exclusion is worth over $26,000 in this scenario — which illustrates why the FEIE is such a high-value provision for mid-income expats.
When to use the FEIE calculator
Use this estimator to evaluate FEIE scenarios during tax planning — not as a substitute for a filed return.
- Evaluating a job offer abroad: Quantify the after-tax value of an overseas position before accepting. A $150,000 salary in London with no FEIE and high UK taxes may net less than a $130,000 salary in a low-tax jurisdiction with full FEIE.
- Comparing FEIE vs. Foreign Tax Credit: In high-tax countries (France, Germany, Scandinavia), the Foreign Tax Credit (FTC) is often more valuable than the FEIE because it credits dollar-for-dollar against US tax owed. This calculator helps model the FEIE side; compare it to Form 1116 FTC calculations.
- Planning the physical presence qualifying period: The Physical Presence Test requires 330 full days outside the US in any 12-month period. Use this calculator to project your tax liability for partial years while you establish qualifying presence.
- Self-employment income abroad: Note that FEIE does NOT reduce self-employment (SE) tax — only income tax. A freelancer earning $130,000 abroad can exclude all of it from income tax but still owes approximately $18,371 in SE tax (15.3% on 92.35% of net self-employment income).
Common mistakes
FEIE errors are expensive — both in overpaid tax and in IRS penalties for incorrect claims.
- Claiming FEIE on passive income: FEIE applies only to earned income. Dividends, interest, rental income, and capital gains are not excludable regardless of where you live. Many expats incorrectly exclude all foreign-source income without distinguishing earned from unearned.
- Confusing Physical Presence and Bona Fide Residence tests: The Physical Presence Test counts calendar days (330 required in any 12-month period). The Bona Fide Residence Test requires establishing a tax home in a foreign country for an uninterrupted tax year — this is a facts-and-circumstances determination, not a day count. Using the wrong test for your situation can result in a disallowed exclusion.
- Forgetting the SE tax obligation: Self-employed expats are often shocked to discover they still owe the 15.3% self-employment tax on net earnings even after claiming the full FEIE. The exclusion reduces income tax only.
- Missing the Foreign Housing Exclusion: Expats in high-cost cities (Zurich, Hong Kong, London) may qualify for the Foreign Housing Exclusion or Deduction, which allows additional exclusion of housing costs above a base amount. This is separate from the income FEIE and can significantly reduce taxable income for high-rent locations.
Limitations of this FEIE calculator
This estimator models the core FEIE income exclusion and the stacking calculation. It does not model the Foreign Housing Exclusion, the Foreign Tax Credit, state income taxes, self-employment tax, the Net Investment Income Tax (3.8% on passive income), FBAR/FATCA reporting obligations, or treaty provisions. For a taxpayer with a complex situation — self-employment income, investment income, residency in a treaty country, or prior year FEIE elections — a CPA specializing in expat taxation is essential.
The 2026 FEIE limit is estimated at approximately $134,000 based on IRS inflation-adjustment methodology, but the official figure is published each fall. Do not rely on estimated figures for an actual filing — verify the current limit at IRS.gov or in the most recent IRS Revenue Procedure.
Frequently asked questions
What is the 2025 FEIE limit?
The 2025 Foreign Earned Income Exclusion limit is $130,000 per qualifying individual (up from $126,500 in 2024). Married couples both living abroad can each claim the exclusion, for a potential combined exclusion of $260,000. The limit is indexed to CPI and the IRS publishes the annual amount each fall.
Physical Presence Test vs. Bona Fide Residence: which should I use?
The Physical Presence Test is objective: 330 full days outside the US in any 12-month period (not necessarily the calendar year). Bona Fide Residence is subjective and harder to establish — it requires genuine residence in a foreign country with no intention to return. Most expats use the Physical Presence Test for its clarity, especially in the first qualifying year.
Can I claim the FEIE and the Foreign Tax Credit together?
You can claim both in the same year, but you cannot apply the Foreign Tax Credit to income that was already excluded by the FEIE. For income above the FEIE limit, or for passive income not covered by the FEIE, the Foreign Tax Credit may reduce or eliminate remaining US tax. Many expats in high-tax countries find the FTC alone is more beneficial than FEIE.
What happens if I return to the US before the end of the qualifying period?
If you claim the Physical Presence Test and return to the US before reaching 330 days, you generally don't qualify for the FEIE for that period. You may be able to qualify for a different 12-month window or use the Bona Fide Residence Test. A partial-year return can create complex pro-ration calculations that require careful planning.
Related calculators
These calculators are directly relevant to the US expat tax picture:
- Foreign Exchange Cost Calculator — understand the true cost of currency conversion when moving money between your foreign and US accounts.
This calculator is for educational purposes. Consult a CPA or tax attorney for advice on your specific situation.