Understanding the Foreign Earned Income Exclusion (FEIE): A Guide for U.S. Expats

If you’re a U.S. citizen or green card holder living abroad, navigating taxes can feel overwhelming. Fortunately, the Foreign Earned Income Exclusion (FEIE) allows you to exclude a significant portion of your foreign income from U.S. taxation. Here’s what you need to know.

What is the FEIE? The FEIE allows qualifying taxpayers to exclude up to $112,000 (2022 limit) of foreign-earned income from their taxable income. You can also exclude certain housing costs, making it an essential tool for U.S. expats.

How to Qualify

1. Bona Fide Residence Test (BFR):

   • You must be a resident of a foreign country for an uninterrupted tax year.

   • Example: Jane moved to Dublin, Ireland, for a three-year work assignment starting January 1, 2023. She qualified for BFR because she established her residence there.
     

2. Physical Presence Test (PPT):

   • You must be physically present in a foreign country for at least 330 days within a 12-month period.

   • Example: Mike traveled to Europe for work on June 1, 2023, and stayed abroad for 330 non-consecutive days by mid-2024, meeting the PPT.
     

Key Considerations

• Claiming the FEIE requires filing Form 2555 with your tax return.

• Not all income qualifies; for example, earnings from U.S.-based employers may be excluded.
  

How Arc&Ledger Can Help We assist U.S. expats in maximizing their tax benefits while staying compliant. Contact us today to simplify your expatriate tax filing.