Foreign Earned Income Exclusion 2026: Limits, Tests and Form 2555
By John Rush
Checked November 9, 2026 · How we score
US citizens are taxed on their worldwide income wherever they live. The foreign earned income exclusion (FEIE) is the main way Americans abroad legally take part of that income out of the US tax base. If you qualify, you can exclude up to $132,900 of foreign wages or self-employment income from federal income tax for 2026, plus part of your housing costs.
It's not automatic. You have to pass a residence or presence test, your tax home has to be abroad, and you claim it each year on Form 2555. The figures below are from the IRS's FEIE page and the 2026 inflation adjustments.
What is the foreign earned income exclusion for 2026?
| Item | 2025 | 2026 |
|---|---|---|
| Maximum foreign earned income exclusion | $130,000 | $132,900 |
| Housing base amount (16% of the exclusion, not excludable) | $20,800 | $21,264 |
| Standard housing expense cap (30% of the exclusion) | $39,000 | $39,870 |
| Maximum standard housing exclusion | $18,200 | $18,606 |
The exclusion is per person. A married couple who both work abroad and both qualify can exclude up to $265,800 between them in 2026, but each spouse can only exclude their own earnings. If you qualify for only part of the year, the cap is prorated by day.
Who qualifies for the FEIE?
You need three things:
- Foreign earned income. That's pay for work you physically perform outside the US: salary, wages, bonuses, and net self-employment income. It does not include dividends, interest, capital gains, rent, pensions, or Social Security.
- A tax home in a foreign country. Your regular or main place of business has to be abroad. If your "abode" is still in the US, for example you keep a house and family there and work abroad on rotation, you don't qualify.
- One of two tests, described next.
US government employees are excluded: pay from the US government doesn't qualify even if you work abroad.
Bona fide residence test vs physical presence test: which should you use?
| Bona fide residence test | Physical presence test | |
|---|---|---|
| Who can use it | US citizens, and resident aliens from a treaty country | Any US citizen or resident alien |
| What you must show | Residence in a foreign country for an uninterrupted full tax year (Jan 1 to Dec 31) | 330 full days abroad in any 12 consecutive months |
| How it's judged | Facts and circumstances: visa, lease, family, local ties, intent | Pure day count; full 24-hour days only |
| Short US trips | Allowed if you clearly intend to return | Every day in the US counts against you |
| Weak spot | Telling local authorities you're not a resident there kills it | A few extra days in the US break it |
The physical presence test suits digital nomads and people in their first year abroad. Days at sea or in transit over international waters don't count as foreign days, and travel days to and from the US usually don't count either. Plan for at least a few days of margin.
The bona fide residence test suits people who've settled in one country with a residence permit. It's more forgiving of US visits, but you have to have actually moved, and it only starts working once you've completed a full calendar year.
If you haven't met either test by your filing deadline, file Form 2350 for an extension until you do.
How do you claim it? (Form 2555)
You claim the exclusion on Form 2555, attached to your Form 1040. Americans living abroad get an automatic extension to June 15 to file, though interest on any tax owed runs from April 15.
Two rules catch people out:
- You have to elect it. The IRS treats the FEIE as an election, made on a timely return or later in limited cases. If you don't file, you don't get it.
- Revoking it locks you out. If you revoke the exclusion, perhaps because the foreign tax credit works better one year, you can't claim it again for five tax years without IRS consent.
How does the foreign housing exclusion work?
On top of the $132,900, you can exclude (if you're employed) or deduct (if you're self-employed) reasonable foreign housing costs above a base amount. Rent, utilities other than phone and TV, insurance, and parking count. Mortgage payments and furniture purchases don't.
For 2026, the first $21,264 of housing costs is not excludable. Above that, costs are capped at $39,870 in most places, which gives a maximum housing benefit of $18,606. The IRS publishes much higher caps for expensive cities such as Hong Kong, London, Singapore, Tokyo, and Zurich, so check the Form 2555 instructions for your city.
Worked example: $150,000 salary in Dubai
A single US citizen works for a UAE company in Dubai, earning $150,000. They pass the physical presence test, pay no UAE income tax, and take the 2026 standard deduction of $16,100.
Without the FEIE: taxable income is $133,900. US federal tax is about $24,700.
With the FEIE: $132,900 is excluded, leaving $17,100 of gross income and $1,000 of taxable income after the standard deduction. But the IRS uses a stacking rule: what's left is taxed at the rate it would have faced if the excluded income were still there. So that $1,000 is taxed at 24%, not 10%.
- Tax: about $240
- Saving: about $24,500 a year
Now suppose the same person were self-employed, billing through a single-member US LLC. Income tax works out about the same, but self-employment tax of roughly 15.3% on the first $184,500 of net earnings still applies. That's about $21,000 a year, because the FEIE doesn't touch Social Security and Medicare tax and the US has no totalization agreement with the UAE.
FEIE vs foreign tax credit: which is better?
The foreign tax credit (Form 1116) gives a dollar-for-dollar credit for income tax you pay abroad. You can use both, but not on the same income.
| Situation | Usually better |
|---|---|
| You live in a zero- or low-tax country (UAE, Bahamas, Cayman, Monaco) | FEIE |
| You live in a higher-tax country (Germany, France, UK, Japan, Canada) | Foreign tax credit: foreign tax often exceeds US tax, and unused credits carry forward 10 years |
| You earn well above $132,900 in a low-tax country | FEIE on the first $132,900, then US tax on the rest |
| You want to contribute to an IRA or claim the refundable child tax credit | Foreign tax credit, because excluded income doesn't count as compensation for IRA purposes |
| Most of your income is dividends, rent, or capital gains | Foreign tax credit (or neither): the FEIE only covers earned income |
The five-year lockout matters here. If you might move from Dubai to Germany later, think about whether to elect the FEIE at all, or plan the switch deliberately.
Does the FEIE remove self-employment tax?
No. This is the most common misunderstanding. The FEIE only reduces income tax. Freelancers and owners of single-member LLCs still owe US self-employment tax on net earnings, unless they pay into the social security system of a country that has a totalization agreement with the US. There are about 30 of these, mostly in Europe plus Canada, Japan, Australia, South Korea, Chile, and Uruguay. In that case they get a certificate of coverage from the foreign system and pay there instead.
What if you own a foreign company or a US LLC?
- Single-member US LLC (disregarded): profits are your self-employment income. Income for work you perform abroad qualifies for the FEIE, but self-employment tax applies. See LLC for non-US residents for the entity side.
- Foreign corporation you control: a salary it pays you for work abroad is foreign earned income and qualifies. Profits left inside the company aren't earned income. If the company is a controlled foreign corporation, they can be taxed to you anyway under the CFC rules: Subpart F, and the regime formerly called GILTI, renamed net CFC tested income from 2026. That's true even if they're never distributed. Expect Form 5471 every year.
- Dividends from your own company never qualify for the FEIE, however small.
The usual pattern for a founder abroad is to pay a salary up to roughly the FEIE limit, and to plan the rest of the profits with a cross-border adviser. Read how to start a business abroad first.
Which countries make the FEIE work best?
The FEIE is worth the most where there's no local income tax on your salary. You pay nothing locally and nothing to the IRS on the first $132,900. Popular options include the UAE, Bahamas, Cayman Islands, Monaco, Bahrain, and Qatar. See the full list of countries with no income tax.
Two caveats:
- Puerto Rico is a US territory, so the FEIE doesn't apply there. Residents use a separate regime instead.
- Countries that don't tax foreign income only help if your work income counts as foreign-source locally. Remote work performed inside the country is usually local-source.
If the goal is to stop paying US tax altogether, the FEIE won't do it. Only giving up citizenship does that. See renouncing US citizenship and the US exit tax.
Not tax or legal advice. 2026 figures are from IRS inflation adjustments as of November 2026. Confirm your situation with a US expat tax professional.
Frequently asked questions
What is the foreign earned income exclusion amount for 2026?
$132,900 per qualifying person, up from $130,000 in 2025. On top of that you can exclude or deduct foreign housing costs above $21,264, capped at $39,870 in most locations, so the standard maximum housing benefit is $18,606. Married couples who both work abroad can each claim their own exclusion.
How many days do I need outside the US for the FEIE?
Under the physical presence test you need 330 full days in a foreign country during any 12 consecutive months. Partial days, such as travel days, don't count. The alternative bona fide residence test has no day count but requires you to be a resident of a foreign country for an uninterrupted full calendar year.
Do I still pay self-employment tax if I claim the FEIE?
Yes. The FEIE only reduces income tax. Self-employed Americans abroad still owe roughly 15.3% self-employment tax on net earnings, unless they're covered by the social security system of a country with a US totalization agreement and get a certificate of coverage.
Can I use the FEIE and the foreign tax credit together?
Yes, but not on the same income. You can exclude earned income up to $132,900 and claim the foreign tax credit on income above it or on investment income. If you revoke the FEIE to use only the credit, you can't elect the FEIE again for five years without IRS consent.
Does the FEIE cover dividends from my own company?
No. Only pay for personal services counts, meaning wages, salary, or net self-employment income. Dividends, retained profits, interest, rent, and capital gains never qualify. Profits in a foreign company you control may also be taxed to you each year under the CFC rules.
Related
Not tax or legal advice. Rates and rules change; we check official sources and update every page, but verify with a licensed adviser in the country before acting. Spotted something out of date? Use the correction form below.