The short version
- The foreign earned income exclusion lets US citizens and some US residents who live and work abroad leave part of their foreign pay out of US income tax.
- The most you can exclude is $130,000 for 2025 and $132,900 for 2026, per person.
- Your tax home must be abroad, and you must pass one of two tests: a full tax year as a resident abroad, or 330 full days abroad in 12 months.
- You still file a US tax return and claim it on Form 2555. It does not lower self-employment tax.
What is the foreign earned income exclusion?
It is a US tax rule that takes some of the money you earn by working abroad out of your US income tax. It is for US citizens and US resident aliens who live abroad and meet the IRS tests.
The US taxes its citizens and resident aliens on their worldwide income, wherever they live. Moving abroad does not change that on its own. If you qualify, the exclusion removes foreign earned income, up to a yearly limit, from the income the US taxes. You can also exclude or deduct some foreign housing costs.
It is a choice, not automatic. You claim it on Form 2555 with your return. The IRS page on the foreign earned income exclusion sets out who qualifies, and the sections below go through each part.
What is the foreign earned income limit for 2026?
For 2026, the most you can exclude is $132,900 per person. For 2025, the year most people file for in 2026, it is $130,000. The IRS adjusts the limit for inflation each year.
| Tax year | Most you can exclude | Where the IRS says it |
|---|---|---|
| 2025 | $130,000 | Instructions for Form 2555 |
| 2026 | $132,900 | Rev. Proc. 2025-32 |
The limit is per person. If you are married and you both work abroad and both pass a test, each of you can claim your own exclusion. The IRS says a couple could exclude as much as $260,000 together for 2025.
It is a ceiling, not a set amount. You cannot exclude more than you earned abroad. If you qualify for only part of the year, the limit shrinks to match your qualifying days. The IRS page on figuring the exclusion shows both years' limits and how part years work.
Who can claim the exclusion?
US citizens and US resident aliens who have foreign earned income, have a tax home in a foreign country and pass one of two tests. You need to pass one test, not both.
| Test | Who can use it | What it asks |
|---|---|---|
| Physical presence test | US citizens and resident aliens | 330 full days abroad in 12 months |
| Bona fide residence test | US citizens, and resident aliens from treaty countries | A full tax year as a resident abroad |
Treaty countries are those with an income tax treaty in effect with the US. A US resident alien who is a citizen or national of one of those countries can use either test. Any other resident alien can use the physical presence test.
What counts as foreign earned income?
Pay for work you do in a foreign country, while your tax home is abroad and you pass one of the tests. That covers wages, salaries, professional fees, commissions, bonuses and tips. Self-employment income from work abroad can count too.
What matters is where you do the work. Publication 54 says pay for work done outside the US counts as earned abroad, even if a US employer pays you or the money goes into a US bank account. So remote work for clients or an employer back home can count, if you do it abroad. If you are still building that income, read how to earn money online before you move.
Some income never counts:
- Investment income. Dividends, interest and capital gains are not earned income.
- Pensions and annuities. Social security benefits included.
- Pay from the US government. As a military or civilian employee.
- Work in international waters or airspace. These are not a foreign country.
- Late pay. Money received after the end of the year after the year you did the work.
What is a foreign tax home?
Your tax home is the general area of your main place of work, wherever your family home is. You may have a foreign tax home if you work in a foreign country and expect to stay there for an indefinite period, not a temporary one.
The key word is abode. You do not have a foreign tax home while your abode is in the US. The IRS places your abode where your family, economic and personal ties are. Keeping a house in the US does not put your abode there on its own, but it can count towards it.
"Foreign country" has a set meaning here too. It does not include US territories such as Puerto Rico, Guam or the US Virgin Islands. Time on or over international waters does not count either.
How does the physical presence test work?
You pass it if you are in a foreign country or countries for at least 330 full days in any 12 months in a row. The 330 days do not have to be in a row. The test only counts days. It does not ask why you are abroad or whether you plan to come back.
How the days are counted:
- A full day runs midnight to midnight. It must be spent in a foreign country, so travel days often drop out.
- You pick the 12 months. Any 12 months in a row, starting on any day. You can choose the period that gives the biggest exclusion, and periods can overlap.
- Missed days are not excused. Fall under 330 days for any reason, like illness, a holiday or your employer's orders, and you do not pass.
There is one exception. If you have to leave a country because of war, civil unrest or similar conditions, the IRS can waive the minimum time. It publishes the list of countries each year. You still have to show you would have met the test otherwise.
How does the bona fide residence test work?
You pass it if you are a genuine resident of a foreign country for an unbroken period that includes a full tax year. For most people, that means 1 January to 31 December.
Living abroad for a year does not make you a bona fide resident by itself. The IRS looks at the facts: why you are there, what you do there and whether you pay tax there. If you go abroad to work for a set period, you usually will not count, even if it lasts a year or more. Moving for an indefinite or long period and setting up a home there for yourself and your family points the other way.
Short trips back to the US or elsewhere are fine, as long as you clearly plan to return to your home abroad. One thing rules you out: telling the foreign country's authorities you are not a resident there, if they then hold that you are not subject to their income tax as a resident.
The IRS decides mostly from the facts you give on Form 2555. It cannot decide until you file it.
Do you still file a US tax return?
Yes. The IRS calls it a common misconception that excluded income does not need to be reported. The exclusion only applies if you file a return that reports the income, with Form 2555 attached to Form 1040 or 1040-SR.
Income you can exclude still counts when you work out whether you have to file at all. If you are self-employed with net earnings of $400 or more, you have to file even if your gross income is under the normal threshold.
If you live outside the US and Puerto Rico on the due date, and your tax home is outside them too, you get an automatic 2-month extension. For a 2025 return, that moves the date from 15 April to 15 June 2026. You attach a statement saying you meet both conditions, and interest still runs on tax paid after 15 April.
In your first year, you may not have passed a test by then. The Instructions for Form 2555 give two options: ask for more time on Form 2350, or file on time without the exclusion and amend your return once you qualify.
Does the exclusion lower self-employment tax?
No. If you are self-employed, the exclusion lowers your regular income tax but not your self-employment tax. You work out self-employment tax on all your self-employment income, including the part you exclude.
The IRS gives an example: a consultant abroad who qualifies for the exclusion and makes a net profit of $68,000 still pays self-employment tax on the full $68,000.
Employees can owe social security and Medicare tax on wages wherever the work is done. The US has agreements with some countries, which the IRS calls "totalization agreements", so the same work is not taxed for social security in both. Under them, you generally pay social security tax only where you work.
What changes when you claim the exclusion?
A few things. Once you choose it, the choice stays in place for later years until you revoke it. If you revoke it and want it back within 5 tax years, you need IRS approval.
- No foreign tax credit on excluded income. You cannot take a credit or deduction for foreign tax on income you excluded or could have excluded. You can still take a credit on foreign earned income above what you excluded.
- Rates on the rest. Income you do not exclude is taxed at the rates that would apply if you had not claimed the exclusion. The Form 1040 instructions have a worksheet for this.
- Two credits go. You cannot take the earned income credit or the additional child tax credit for that year.
The foreign tax credit is a separate option with its own rules. Publication 54, the IRS tax guide for US citizens and resident aliens abroad, covers both.
What about foreign housing costs?
You may be able to exclude or deduct part of your housing costs abroad as well. The housing exclusion covers costs paid for with pay from an employer. The housing deduction covers costs paid for with self-employment earnings.
The housing costs you can count are capped. The cap is generally 30% of the exclusion limit: $39,000 for 2025 and $39,870 for 2026. It varies with where your foreign tax home is. If you claim the housing exclusion, you work it out first, because it lowers the earned income you can then exclude.
Does the exclusion let you live abroad?
No. It is a US tax rule. The right to live in another country comes from that country, through a visa or residence permit.
That matters for the 330 days. Visitor rules often allow far less. In Europe's Schengen area, for example, many passports get 90 days in any 180-day period without a visa. To stay longer, people use a permit from one country. The digital nomad visa finder shows the countries open to your passport, with the income each one asks for. For the order to do it in, read how to become a digital nomad.
Where can you get help with your own case?
From the IRS or a tax adviser who works with Americans abroad. This page explains the general rules. Your own answer depends on your dates, your income and where you live. The IRS also has a free Interactive Tax Assistant that helps you check whether income you earned abroad can be excluded.
If you are still planning the move, our free Sovereignty Score quiz asks 10 quick questions on income, banking, companies, visas, tax and passports. It gives you a score from 0 to 100 and shows where to start.