Foreign Earned Income Exclusion (FEIE): The Complete Guide
The Foreign Earned Income Exclusion (FEIE) is the most powerful tax tool available to Americans living abroad. For 2024 (filed in 2025), it allows qualifying US citizens and residents to exclude up to $126,500 of foreign-earned income from US federal income tax. Understanding who qualifies, how to elect it, and when it's better than the Foreign Tax Credit can save thousands of dollars.
What is FEIE and how much can I exclude?
FEIE is an election available on Form 2555 that excludes foreign earned income from US taxable income. For tax year 2024, the exclusion limit is $126,500 (adjusted annually for inflation, it was $120,000 for 2023). This exclusion applies to earned income only: wages, salaries, professional fees, and self-employment income from work performed abroad. It does not apply to passive income such as dividends, interest, capital gains, or rental income.
Who qualifies: Physical Presence Test vs Bona Fide Residence Test
To claim FEIE, you must pass one of two tests. The Physical Presence Test requires you to be physically present in a foreign country (or countries) for 330 full days in any 12-month period, this doesn't have to be a calendar year, and the period can overlap with two calendar years. The Bona Fide Residence Test requires you to be a genuine resident of a foreign country for an uninterrupted period covering at least one full calendar year. This is a qualitative test based on your intent, ties to the foreign country, and your visa status. Most nomads use the Physical Presence Test; most long-term expats use Bona Fide Residence.
How FEIE interacts with the Foreign Housing Exclusion
If you qualify for FEIE, you may also claim the Foreign Housing Exclusion (also on Form 2555), which allows you to exclude certain housing expenses (rent, utilities, insurance) above a base amount ($16,800 for 2024) and up to a city-specific limit. Housing exclusion amounts vary by city, cities with high cost of living (London, Zurich, Singapore) have higher limits than lower-cost cities. The housing exclusion is in addition to, not part of, the $126,500 earned income exclusion.
FEIE vs Foreign Tax Credit: Which should you choose?
FEIE and the Foreign Tax Credit (FTC) can be used together, but with restrictions. The key decision: FEIE is generally better in low-tax countries (UAE, Cayman Islands, Singapore for lower earners), where you pay little or no local tax and can simply exclude the income. FTC is generally better in high-tax countries (UK, Germany, France), where local taxes paid can be credited against US tax dollar-for-dollar. A critical warning: once you elect FEIE, switching to FTC-only requires a 5-year bar, you can't freely switch back and forth. Getting this election right in your first year abroad is important.
Self-employment income and FEIE
FEIE reduces your income tax, but it does NOT eliminate self-employment (SE) tax. SE tax, currently 15.3% on net self-employment profit, applies regardless of FEIE. This surprises many expat freelancers and sole proprietors. If you're self-employed abroad, your effective tax rate is often 15.3% at minimum even after FEIE eliminates income tax. Structuring as an S-Corp with reasonable compensation can reduce SE tax exposure, though this adds complexity.
Our licensed CPAs and qualified accountants handle your filing from start to finish, applying all relevant exclusions, credits, and treaties.
See pricing →[INSERT: customer testimonial, e.g. "freelance developer in Barcelona, Spain, saved money and stress using Nomadic.Tax"]
- freelance developer, Barcelona, Spain
Frequently asked questions about Foreign Earned Income Exclusion (FEIE): The Complete Guide
What is the FEIE limit for 2025?
The FEIE limit for tax year 2024 (filed in 2025) is $126,500. This adjusts for inflation each year, it was $120,000 for 2023 and $112,000 for 2022.
Can I use FEIE if I work for a US employer from abroad?
Yes, if you're physically present in a foreign country and your income is for work performed in that foreign country. Working remotely for a US employer from another country still qualifies as 'foreign earned income' as long as the work is performed abroad.
What happens if I return to the US before the 330 days are up?
If you don't complete 330 days abroad in your chosen 12-month period, you can't use the Physical Presence Test for that period. However, you may be able to use a different 12-month window, or try the Bona Fide Residence Test instead. This is a common situation for nomads who visit home unexpectedly.
Do I still need to file a US tax return if FEIE eliminates all my tax?
Yes. Filing is required for all US citizens and residents with income above the filing threshold, regardless of whether you owe any tax. FEIE reduces or eliminates tax owed, but does not eliminate the filing requirement.