What is the Foreign Earned Income Exclusion?

The Foreign Earned Income Exclusion (FEIE) allows qualifying U.S. citizens and resident aliens living abroad to exclude a certain amount of their foreign-earned income from U.S. federal income tax. For the tax year 2025, the exclusion amount is $130,000.

Foreign Housing Exclusion

In addition to the FEIE, individuals may also qualify for the Foreign Housing Exclusion, which permits the exclusion of certain housing expenses from gross income. The eligible housing expenses are generally limited to 30% of the maximum FEIE amount, equating to $39,000 for 2025, though this limit can vary based on the location of your foreign tax home.

Eligibility Criteria

To qualify for these exclusions, you must:

  1. Have a Tax Home in a Foreign Country: Your primary place of business or employment must be in a foreign country.
  2. Meet Either the Bona Fide Residence or Physical Presence Test:
  • Bona Fide Residence Test: Be a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year.
  • Physical Presence Test: Be physically present in a foreign country or countries for at least 330 full days during any 12-month period.

Benefits

  • Significant Tax Savings: Exclude up to $130,000 of foreign-earned income, substantially reducing taxable income.
  • Additional Housing Exclusion: Further decrease taxable income by excluding qualified housing expenses.
  • Compliance Assurance: Navigate complex tax regulations confidently, ensuring adherence to U.S. tax laws while maximizing benefits.

Our Services

  • Personalized Consultation: Assess your unique situation to determine eligibility and optimal tax strategies.
  • Comprehensive Documentation Assistance: Guide you through the preparation and filing of necessary forms, including Form 2555.
  • Ongoing Support: Provide continuous assistance to address any tax-related concerns or changes in circumstances.

Considering the complexity and individual nature of tax situations, we offer customized pricing based on the specific services required. Please contact us for a personalized quote.

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Important Criteria

U.S. Citizenship

You must be a U.S. citizen or a resident alien to be eligible for the FEIE.

Live Outside U.S.

Your tax home must be in a foreign country, meeting residence or presence tests.

Limit of $130,000

Exclude up to $130,000 of foreign-earned income in 2025 and up to $39,000 for the Foreign Housing Exclusion.

Common Questions

1. What types of income qualify for the FEIE?

Only foreign-earned income, such as wages and salaries earned from services performed in a foreign country, qualifies. Passive income like dividends, interest, and capital gains are not eligible.

2. Can I claim both the Foreign Earned Income Exclusion and the Foreign Tax Credit?

Yes, you can claim both; however, the Foreign Tax Credit cannot be claimed on income excluded under the FEIE. Strategic planning is essential to maximize benefits.

3. How do I determine my tax home?

Your tax home is generally your principal place of business or employment, regardless of where you maintain your family residence. It must be in a foreign country to qualify for the FEIE.

4: What happens if I don’t meet the Physical Presence or Bona Fide Residence Test?

If you don’t meet either test, you cannot claim the FEIE or Foreign Housing Exclusion for that tax year. It’s crucial to plan accordingly to maintain eligibility.

5. Are there specific forms required to claim these exclusions?

Yes, you must file Form 2555 with your U.S. tax return to claim the FEIE and Foreign Housing Exclusion.

6. Can self-employed individuals claim the FEIE?

Yes, self-employed individuals can claim the FEIE; however, the exclusion applies only to income tax, not self-employment tax.