The foreign earned income exclusion, explained
For 2026, US citizens and residents living abroad can exclude up to $132,900 of foreign earned income, and $130,000 for 2025. You qualify under the physical presence test or the bona fide residence test, and you claim it on Form 2555. It covers earned income only, and it doesn't cut self-employment tax.
Updated November 2026 · By Pankil Kumar, Managing Partner
Quick facts
- 2026 limit. $132,900 for 2026, $130,000 for 2025
- Form. Form 2555 with your Form 1040
- Doesn't cover. Investment income, and self-employment tax
Who qualifies?
You need a tax home in a foreign country, foreign earned income, and you have to pass one of two tests.
| Test | What it takes |
|---|---|
| Physical presence | 330 full days outside the US in any 12-month period |
| Bona fide residence | A full tax year living abroad as a genuine resident |
Physical presence is just counting days, so track travel carefully. Bona fide residence looks at your ties, like a home, family and local tax status. It's better for long-term expats who visit the US often.
What counts as foreign earned income?
Wages and self-employment income for work done abroad. Work done while in the US doesn't count, even if a foreign company pays you. Dividends, interest, capital gains, pensions and rental income don't qualify. You may also claim a housing exclusion or deduction for some foreign housing costs.
Exclusion or foreign tax credit?
| Situation | Often better |
|---|---|
| Low-tax or no-tax country | Exclusion |
| High-tax country, such as many in Europe | Foreign tax credit |
| Income above the limit | Often the credit, or both |
| You want to contribute to an IRA | Credit, since excluded income doesn't count |
| Children and refundable credits matter | Credit may help |
You can combine them, but not for the same income. If you claim the exclusion and later revoke it, you generally can't claim it again for five years without IRS consent. So think before you switch.
What's the self-employment catch?
The exclusion reduces income tax, but self-employment tax still applies. A freelancer abroad making $80,000 can owe no income tax, and still owe around $11,000 in SE tax. A totalization agreement with your country can remove it, if you pay into its social system. Keep a certificate of coverage on file.
When do you file?
Expats get an automatic extension to June 15 to file and pay, though interest runs from April 15. You can extend to October 15 with Form 4868. If you need more time to meet the 330-day test, Form 2350 can help. Your FBAR may also be due.
You have to file a return to claim the exclusion, even if you end up owing nothing. If you've missed years, read how to catch up from abroad. Our expat service can compare both methods for you.
Sources
General information, not tax advice for your situation.
Filing from outside the US?
ITINs, expat returns, non-resident returns and Form 5472.
See our ITIN and cross-border serviceWhat is the foreign earned income exclusion for 2026?
$132,900 per qualifying person. A married couple who both qualify can each claim it.
Do I have to file a return if my income is excluded?
Yes. You need to file to claim the exclusion, even if you owe nothing.
Does the exclusion apply to self-employed expats?
Yes, for income tax, but not for self-employment tax.
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