Foreign Earned Income Exclusion lets US citizens abroad exclude $132,900 from US taxes (2026). Alternative: Foreign Tax Credit.
The FEIE ($132,900 exclusion for 2026) works best in low-tax countries like Dubai, Singapore, or Portugal. The Foreign Tax Credit (FTC) is usually better in high-tax countries like Germany, France, or Japan. Earning $100K in Thailand? FEIE saves ~$22,000. Earning $100K in Sweden? FTC typically saves more because Swedish tax exceeds US tax. You can combine both strategies for income above $132,900.
US citizens and green card holders living abroad face worldwide taxation—but the Foreign Earned Income Exclusion (FEIE) can eliminate US tax on up to $132,900 of foreign earned income for 2026. Married couples filing jointly can exclude up to $265,800 combined if both spouses qualify. The alternative Foreign Tax Credit (FTC) may be better if you live in a high-tax country or earn above the FEIE limit. Use our calculator below to compare both strategies and see which saves you more.
The Foreign Earned Income Exclusion (FEIE) limit for 2026 is $132,900 per person. Married couples filing jointly where both spouses qualify can exclude a combined $265,800. This is up from $130,000 in 2025.
You must be physically present in a foreign country (or countries) for at least 330 FULL days during any 12-month period. A full day means all 24 hours from midnight to midnight. Travel days and time in international waters/airspace usually don't count. Keep detailed records and build in a buffer—if you're exactly at 330 days, one miscalculation disqualifies you.
Yes, many expats use both. Apply FEIE to the first $132,900 of earned income, then use FTC for income above that limit or for passive income (dividends, interest, rental income). This strategy is common for high earners in high-tax countries.
No. FEIE only excludes income from federal income tax. Self-employed individuals still owe ~15.3% self-employment tax (Social Security and Medicare) on their net earnings, regardless of FEIE. Check if your country has a totalization agreement with the US to avoid double social security contributions.
Yes. You must file Form 1040 and Form 2555 to claim FEIE, even if your tax liability is zero. Failure to file can result in penalties, loss of the exclusion, and an extended statute of limitations (IRS can audit 6 years back instead of 3). US expats get an automatic 2-month extension to June 15.
Income above $132,900 is taxable at US rates. For example, if you earn $150,000, FEIE excludes $132,900 and you pay US tax on the remaining $17,100. You can apply Foreign Tax Credit to the excess if you paid foreign tax on it. This is where combining FEIE + FTC becomes valuable.
Yes, this is a critical trap for families. If FEIE excludes all your earned income, you become ineligible for the refundable Additional Child Tax Credit (ACTC), worth up to $1,800 per child under 17 in 2026. For families with 2+ kids, the $3,600+ ACTC often makes Foreign Tax Credit a better strategy, even if FEIE would eliminate your tax.
Physical Presence Test: Bright-line rule—330 full days in a foreign country during any 12-month period. Good for digital nomads and those who travel. Bona Fide Residence Test: Must be a bona fide resident of a foreign country for an entire tax year (Jan 1 - Dec 31). Requires intent to live there indefinitely. Better for expats with long-term foreign residence (job assignment, permanent move). You only need to meet ONE test.
Yes. If FEIE excludes all your earned income, you have $0 of qualifying compensation for IRA purposes, making you ineligible to contribute. Foreign Tax Credit preserves IRA eligibility because it reduces tax owed but doesn't exclude income from the tax calculation. If you want to contribute to an IRA, use FTC or only take partial FEIE.
Yes, but there's a penalty. If you elect out of FEIE (revoke the election), you cannot use FEIE again for 5 years without IRS permission. This is why long-term planning matters. If you move from a high-tax country (where FTC is better) to a low-tax country, being locked out of FEIE for 5 years is costly.
Usually no. For a day to count, you must be in a foreign country for the entire 24-hour period (midnight to midnight). If you're in the air, at sea, or in transit at midnight, that day doesn't count. Conservative approach: only count days where you wake up AND go to sleep in a foreign country.
Low-tax countries where FEIE typically outperforms FTC: UAE (Dubai), Qatar, Monaco, Bahamas, Cayman Islands, Bermuda (0% tax); Singapore, Hong Kong (low rates); Thailand, Malaysia, Portugal (special regimes for foreigners); Panama, Costa Rica (territorial tax). In these countries, FEIE's $132,900 exclusion saves more than the minimal foreign tax credit would.
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