What is the Foreign Earned Income Exclusion?

What is the Foreign Earned Income Exclusion?

  • Writer: The Liberty Team

    The Liberty Team

  • Feb 8
  • 2 min read

Updated: Feb 16

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What is the Foreign Earned Income Exclusion?


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What is the Foreign Earned Income Exclusion?


The Foreign Earned Income Exclusion (FEIE) is a U.S. tax provision that allows qualifying U.S. citizens and resident aliens who live and work abroad to exclude a certain amount of their foreign-earned income from U.S. taxation. As U.S. persons are taxed on their worldwide income, the FEIE can limit the sting of the long-arm of Uncle Sam.


Key Points About the FEIE:


  1. Exclusion Limit: For the 2024 tax year, the maximum exclusion is $126,500 per qualifying individual. This amount is adjusted annually for inflation.


  2. Qualification Criteria: To qualify, you must meet one of the following tests:

    • Bona Fide Residence Test: You must be a resident of a foreign country for an entire tax year (January 1 – December 31).

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


  1. Only Earned Income is Excludable: This applies to wages, salaries, professional fees, and self-employment income but not passive income like rents, dividends, pensions, or capital gains.


  1. Foreign Housing Exclusion/Deduction: You may also qualify for a housing exclusion or housing deduction for certain living expenses incurred while living abroad.


  2. Filing Requirement: Even if you exclude all foreign income, you must still file a U.S. tax return (Form 1040) and attach Form 2555 to claim the exclusion.


  3. Self-Employment Tax Still Applies: The FEIE does not exclude self-employment tax (Social Security & Medicare) on self-employment income.


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Who Should Consider It?


  • U.S. expats working full-time abroad

  • Digital nomads earning income outside the U.S.

  • Entrepreneurs running businesses overseas


Would you like help determining if you qualify or how to claim it? If so, please reach out to us to discuss your options: 817-995-5008 or info@libertytaxdefenders.com.


We’re here to help!


Cheers!




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