Foreign Earned Income Exclusion

The Foreign Earned Income Exclusion (FEIE) is designed to help taxpayers who live and work abroad avoid double taxation and reduce their tax liability. To qualify for the FEIE, taxpayers must meet certain requirements, including a residency test and either a physical presence test or a bona fide residence test.

Taxpayers must first determine their foreign-earned income and housing amounts to figure the Foreign Earned Income Exclusion. Foreign-earned income includes wages, salaries, and self-employment income earned while living and working abroad. The housing amount includes the amount of reasonable expenses incurred for housing while living abroad. Once these amounts have been calculated, taxpayers can determine their FEIE using the maximum exclusion amount, adjusted annually for inflation. For the tax year 2024, the maximum exclusion amount is $111,600.

Who is Eligible for Foreign Earned Income Exclusion?

Taxpayers must meet certain requirements to be eligible for the Foreign Earned Income Exclusion. First, they must have a tax home in a foreign country and be either a bona fide resident of that country or meet the physical presence test. Additionally, taxpayers must have foreign-earned income and file a U.S. tax return. Some individuals, such as U.S. government employees or those working for a foreign government, may not be eligible for the FEIE.

How to Claim Foreign Earned Income Exclusion?

Taxpayers can claim the Foreign Earned Income Exclusion by filing Form 2555 with their U.S. tax return. This form requires taxpayers to provide information about their foreign-earned income, housing expenses, and residency status. Taxpayers can also claim the FEIE by attaching a statement to their tax return. It’s important to note that taxpayers must meet certain requirements and follow specific rules when claiming the FEIE, so it’s recommended to consult with a tax professional or use tax preparation software to ensure proper filing.