Foreign Earned Income Exclusion (FEIE) Explained for US Expats

What Is the Foreign Earned Income Exclusion?

The FEIE allows qualifying US expats to exclude a significant portion of foreign-earned income from US taxation.

For many expats, it’s the main way to reduce or eliminate US tax liability.

How Much Can You Exclude?

The exclusion amount exceeds $120,000 per person (adjusted annually).

Married couples may exclude more if:

• Both spouses earn income, and

• Each qualifies independently

What Income Qualifies?

Eligible:

• Salaries

• Wages

• Professional fees

• Self-employment income (earned portion)

Not eligible:

• Dividends

• Interest

• Capital gains

• Rental income (generally)

FEIE Qualification Tests

1️⃣ Physical Presence Test

Be physically outside the US for 330 full days in a 12-month period.

2️⃣ Bona Fide Residence Test

• Be a resident of a foreign country

• Show intent to remain

• Establish local ties

FEIE Housing Exclusion

Some expats qualify for a foreign housing exclusion for excess housing costs, increasing savings in high-cost cities.

Common FEIE Mistakes

• Claiming FEIE without qualifying

• Using FEIE when FTC is better

• Resetting FEIE improperly

• Missing housing exclusion opportunities

Once revoked, FEIE cannot be reclaimed for five years without IRS approval.

FEIE vs Foreign Tax Credit

FEIE works best when:

• You earn under the exclusion limit

• You live in a low-tax country

FTC is better when:

• You pay high foreign taxes

• You earn above FEIE limits

Self-Employed Expats and FEIE

FEIE excludes income but does not remove self-employment tax.

Staying Compliant Without Stress

FEIE is powerful, but only when applied correctly.

If you’re unsure whether FEIE or FTC is right for your situation, Exemplary’s experts can review your income and country to create a tax-efficient strategy. [Get your free 1 year with Exemplary →]