A Comprehensive Guide to the Foreign Earned Income Exclusion (FEIE) for U.S. Expats
A Comprehensive Guide to the Foreign Earned Income Exclusion (FEIE) for U.S. Expats
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The Foreign Earned Income Exclusion (FEIE) is a valuable provision for U.S. citizens and resident aliens living and working abroad. It allows qualified individuals to exclude a significant portion of their earned income from U.S. taxation, providing much-needed relief from double taxation. In this article, we break down the FEIE rules, thresholds for 2025, eligibility requirements, and important considerations for expatriates.
The Foreign Earned Income Exclusion (FEIE) is a valuable provision for U.S. citizens and resident aliens living and working abroad. It allows qualified individuals to exclude a significant portion of their earned income from U.S. taxation, providing much-needed relief from double taxation. In this article, we break down the FEIE rules, thresholds for 2025, eligibility requirements, and important considerations for expatriates.
Last updated: Nov 14, 2025
Last updated: Nov 14, 2025
What Is the Foreign Earned Income Exclusion (FEIE)?
What Is the Foreign Earned Income Exclusion (FEIE)?
The Foreign Earned Income Exclusion permits eligible U.S. taxpayers to exclude a specific amount of their foreign earned income from their taxable income when filing their U.S. tax returns. For the 2025 tax year, the maximum exclusion is $130,000 per individual (IRS Source). If both spouses qualify, they may each claim the exclusion, potentially doubling the benefit.
The Foreign Earned Income Exclusion permits eligible U.S. taxpayers to exclude a specific amount of their foreign earned income from their taxable income when filing their U.S. tax returns. For the 2025 tax year, the maximum exclusion is $130,000 per individual (IRS Source). If both spouses qualify, they may each claim the exclusion, potentially doubling the benefit.
This provision is particularly helpful for expatriates earning income outside the U.S., as it reduces their U.S. federal tax burden while mitigating the effects of double taxation.
This provision is particularly helpful for expatriates earning income outside the U.S., as it reduces their U.S. federal tax burden while mitigating the effects of double taxation.
Who Qualifies for the FEIE?
Who Qualifies for the FEIE?
To claim the Foreign Earned Income Exclusion, you must meet three key criteria:
To claim the Foreign Earned Income Exclusion, you must meet three key criteria:
- You Must Have Foreign Earned Income:
- This includes income earned from work performed in a foreign country, such as salaries, wages, freelance income, and self-employment earnings.
- Unearned income (e.g., interest, dividends, pensions) does not qualify.
- Your Tax Home Must Be in a Foreign Country:
- Your tax home refers to your principal place of business or employment. It must be located in a foreign country for the duration of your qualifying period.
- You Must Pass Either the Bona Fide Residence Test or Physical Presence Test:
- Bona Fide Residence Test: You must reside in a foreign country for an uninterrupted period that includes at least one full tax year (January 1–December 31).
- Physical Presence Test: You must be physically present in a foreign country for at least 330 full days during any 12-month consecutive period.
How to Claim the Foreign Earned Income Exclusion
How to Claim the Foreign Earned Income Exclusion
To claim the FEIE, you must file your annual U.S. tax return and provide details of your qualifying income and residency or physical presence.
To claim the FEIE, you must file your annual U.S. tax return and provide details of your qualifying income and residency or physical presence.
- If you haven’t yet qualified for the full 12-month period under the Bona Fide Residence or Physical Presence tests, you may request an extension.
FEIE Threshold and Foreign Housing Exclusion/Deduction
FEIE Threshold and Foreign Housing Exclusion/Deduction
For the 2025 tax year:
For the 2025 tax year:
- If you have qualifying foreign housing expenses, you may also benefit from the Foreign Housing Exclusion/Deduction (FHE/FHD).
Foreign Housing Deduction (FHE/ FHD)
Foreign Housing Deduction (FHE/ FHD)
Foreign Housing Exclusion/Deduction (FHE/FHD)
Foreign Housing Exclusion/Deduction (FHE/FHD)
The Foreign Housing Exclusion (FHE) and Foreign Housing Deduction (FHD) are provisions designed to help offset the costs of living abroad for U.S. expatriates by reducing taxable income related to qualified housing expenses.
The Foreign Housing Exclusion (FHE) and Foreign Housing Deduction (FHD) are provisions designed to help offset the costs of living abroad for U.S. expatriates by reducing taxable income related to qualified housing expenses.
- Foreign Housing Exclusion (FHE): This applies to taxpayers who are employees and whose housing expenses are paid with earned income. The exclusion is claimed by deducting eligible housing costs from wages or salary.
- Foreign Housing Deduction (FHD): This applies to self-employed individuals. Unlike employees, self-employed taxpayers deduct eligible housing costs directly from their income, providing similar tax relief.
Both the FHE and FHD aim to reduce the financial burden of living abroad, where housing costs may be higher compared to the U.S., but they are subject to specific rules and limits set by the IRS.
Both the FHE and FHD aim to reduce the financial burden of living abroad, where housing costs may be higher compared to the U.S., but they are subject to specific rules and limits set by the IRS.
Qualifying Expenses Include
Qualifying Expenses Include
- Furniture rental
- Necessary repairs
- Occupancy taxes
- Property insurance
- Rent
- Residential parking
- Utilities
Expenses Not Covered
Expenses Not Covered
- Domestic labor (e.g., hiring cleaners or home chefs)
- Furniture purchases
- Home improvement projects
- Lavish or excessive expenses
- Mortgage payments
The Foreign Housing Exclusion (FHE) and Foreign Housing Deduction (FHD) don’t operate as dollar-for-dollar write-offs. Instead, the allowable amount is calculated using IRS-set thresholds. For 2025, the FEIE limit is $130,000, which sets the base housing amount at $20,800 (16% of the FEIE). Only housing costs above this base can be excluded or deducted, and they remain subject to an overall standard cap of $39,000 (30% of the FEIE). Higher limits may apply if you live in one of the IRS-designated high-cost foreign cities. This structure ensures that only reasonable, location-based housing expenses tied to your foreign tax home qualify.
The Foreign Housing Exclusion (FHE) and Foreign Housing Deduction (FHD) don’t operate as dollar-for-dollar write-offs. Instead, the allowable amount is calculated using IRS-set thresholds. For 2025, the FEIE limit is $130,000, which sets the base housing amount at $20,800 (16% of the FEIE). Only housing costs above this base can be excluded or deducted, and they remain subject to an overall standard cap of $39,000 (30% of the FEIE). Higher limits may apply if you live in one of the IRS-designated high-cost foreign cities. This structure ensures that only reasonable, location-based housing expenses tied to your foreign tax home qualify.
Special Considerations for U.S. Expats
Special Considerations for U.S. Expats
- Self-Employment Tax:
The FEIE does not exclude self-employment income from Social Security and Medicare taxes. U.S. expats who are self-employed must still pay these taxes unless exempt under a totalization agreement with their host country.
The FEIE does not exclude self-employment income from Social Security and Medicare taxes. U.S. expats who are self-employed must still pay these taxes unless exempt under a totalization agreement with their host country.
- Foreign Tax Credit vs. FEIE:
The Foreign Tax Credit (FTC) allows you to offset U.S. tax liability with taxes paid to a foreign government. However, you cannot claim both the FEIE and FTC on the same income. Deciding between the two requires careful tax planning.
The Foreign Tax Credit (FTC) allows you to offset U.S. tax liability with taxes paid to a foreign government. However, you cannot claim both the FEIE and FTC on the same income. Deciding between the two requires careful tax planning.
- State Taxes:
Some U.S. states may still tax your foreign income, regardless of the FEIE. Check the residency and tax rules in your home state.
Some U.S. states may still tax your foreign income, regardless of the FEIE. Check the residency and tax rules in your home state.
- Foreign Bank Account Reporting (FBAR):
If you have foreign bank accounts exceeding $10,000 at any point during the year, you must file a FinCEN Form 114 (FBAR) in addition to your regular tax return.
If you have foreign bank accounts exceeding $10,000 at any point during the year, you must file a FinCEN Form 114 (FBAR) in addition to your regular tax return.
Key Deadlines for Filing
Key Deadlines for Filing
- Regular Filing Deadline: April 15, 2026 (for the 2025 tax year)
- Automatic Extension for Expats: June 15, 2026
- Further Extensions: Expats can file for an extension until October 15, 2026
Final Thoughts
Final Thoughts
The Foreign Earned Income Exclusion and Foreign Housing Exclusion/Deduction can significantly reduce the U.S. tax liability for expatriates. However, the rules are complex, and eligibility depends on meeting specific tests and filing requirements. Consulting with our tax professionals experienced in expatriate taxation can help ensure compliance and optimize your tax strategy.
The Foreign Earned Income Exclusion and Foreign Housing Exclusion/Deduction can significantly reduce the U.S. tax liability for expatriates. However, the rules are complex, and eligibility depends on meeting specific tests and filing requirements. Consulting with our tax professionals experienced in expatriate taxation can help ensure compliance and optimize your tax strategy.
Disclosure: This article is for informational purposes only and does not constitute tax, legal, or professional advice. For personalized guidance tailored to your circumstances, please schedule a consultation with one of our CPAs and we would be happy to assist you. The first consultation is always on us 🙂
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