Last Updated: April 2026
US expats have two main tools to avoid double taxation: the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC). Choosing correctly can save thousands—or cost thousands if you get it wrong.
This guide compares both options with real calculations to help you decide.
| Factor | FEIE | FTC |
|---|---|---|
| Mechanism | Excludes income | Credits tax paid |
| Limit | $126,500 | US tax on foreign income |
| Investment income | No | Yes |
| Excess foreign tax | N/A | Carries forward |
| Social Security tax | Still owed (SE) | Still owed (SE) |
FEIE shines when foreign tax is lower than US tax:
Without FEIE:
With FEIE:
FEIE saves: $17,500
Additional exclusion for housing costs exceeding base (~$19,000):
FTC shines when foreign tax exceeds US tax:
With FEIE:
With FTC:
Both result in same total tax—but FTC creates excess credit carryforward useful if you later earn investment income or move to low-tax country.
With FEIE:
With FTC:
FTC saves: $5,640
You can use FEIE for earned income and FTC for:
FEIE + FTC Strategy:
Result: Pay German tax only ($44,000 total), excess credits carry forward.
When you use FEIE, your remaining income is taxed at rates as if you hadn't excluded anything ("stacking"). The $73,500 above is taxed starting at higher brackets.
| Situation | Best Choice |
|---|---|
| Foreign tax rate < US rate | FEIE |
| Foreign tax rate > US rate | FTC (build credits) |
| 0% foreign tax | FEIE (essential) |
| Investment income present | FTC on investment |
| Income over $126,500 | FEIE + FTC combination |
| Self-employed | Either (still owe SE tax) |
| Planning to return to US | FTC (credits useful later) |
| Country | Typical Choice | Why |
|---|---|---|
| UAE | FEIE | 0% local tax |
| Singapore | FEIE | Low rates |
| UK | FTC | Higher rates, build credits |
| Germany | FTC | High rates + solidarity |
| France | FTC | High rates |
| Portugal | Depends | 20% NHR was FEIE, standard rates FTC |
| Spain | FTC | High rates (even Beckham) |
| Georgia | FEIE | 1% IT regime |
If foreign tax exceeds US tax anyway, FEIE wastes the opportunity to build FTC carryforwards. Those credits could offset US tax on investment income or after returning to US.
Neither FEIE nor FTC eliminates self-employment tax (15.3%). Self-employed abroad still owe SECA unless:
Once you revoke FEIE, you cannot re-elect for 5 years without IRS approval. Consider carefully before switching from FEIE to FTC-only.
For FEIE, you need 330 days abroad in a 12-month period. Days in US count against you. Track carefully—losing FEIE qualification is expensive.
First-time FEIE election must be timely filed (with extension is OK). Late filing for initial election may forfeit FEIE for that year.
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Choosing between the Foreign Earned Income Exclusion and Foreign Tax Credit is one of the most important decisions a US expat makes — and the wrong choice can cost thousands. Greenback's expat CPAs analyse your specific situation and file optimally.
Get Expert Help Choosing FEIE vs FTC →Yes, but not on the same income. Use FEIE to exclude up to $126,500 of earned income, then use FTC for: taxes on earned income above the limit, taxes on investment income, and taxes on other income types (rental, etc.). Strategic combination often yields best results.
FEIE is essential. UAE has 0% income tax, so FTC provides no benefit (no foreign tax to credit). Without FEIE, you'd owe ~$13,000 US tax. With FEIE, you owe $0. For low/no-tax countries, FEIE is always the right choice.
FTC is likely better. UK tax on $150K is ~$45,000 while US tax is ~$30,000. Using FTC, you pay UK tax and credit it against US tax, creating $15,000 excess credits. Using FEIE, you'd exclude $126,500 but still owe US tax on $23,500 at high rates—worse outcome.
No. Self-employed expats still owe 15.3% self-employment tax on net earnings, even with FEIE. The only way to avoid this is through a totalization agreement—if you pay into the foreign country's social system and have proper documentation (Certificate of Coverage).
You can switch, but revoking FEIE has consequences. Once revoked, you cannot re-elect FEIE for 5 years without IRS approval. This matters if you might move to a low-tax country later. Consider your long-term plans before switching.