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What Is Foreign Earned Income Exclusion?

By George Dimov in Tax Blog

Foreign Earned Income Exclusion (FEIE) allows U.S. citizens and resident aliens living abroad to exclude up to $126,500 of foreign-earned income from U.S. federal income tax for 2024. To qualify, you must meet either the Bona Fide Residence Test or the Physical Presence Test, and your income must be earned in a foreign country. This exclusion applies only to wages and compensation for services performed abroad, not to unearned income like dividends or interest.

Steps to Claim the Foreign Earned Income Exclusion:

  1. Meet Eligibility Criteria: Ensure you meet the Bona Fide Residence or Physical Presence Test.
  2. File Form 2555: Attach this form to your annual Form 1040.
  3. Calculate Your Exclusion: Determine the amount of income to be excluded, up to the limit of $126,500.
  4. Include Housing Exclusion (if applicable): Exclude eligible housing costs exceeding the base housing amount.

2024 Foreign Earned Income Exclusion Limits

YearMaximum Exclusion Limit
2024$126,500

Frequently Asked Questions

1. Who qualifies for Foreign Earned Income Exclusion?

U.S. citizens or resident aliens living abroad who meet either the Bona Fide Residence Test or the Physical Presence Test can qualify.

2. What income is eligible for exclusion?

Only earned income, such as wages and salaries for services performed abroad, qualifies. Unearned income, like dividends and interest, does not.

3. How do I file for the exclusion?

You must file Form 2555 with your annual tax return, Form 1040.

4. How does the Foreign Earned Income Exclusion work?

The Foreign Earned Income Exclusion lets U.S. taxpayers abroad exclude up to $126,500 of foreign-earned income in 2024. You must meet the Bona Fide Residence or Physical Presence tests and file Form 2555.

5. What are the residency tests for Foreign Earned Income Exclusion?

To qualify, you must pass one of these tests:
– Bona Fide Residence: Be a resident in a foreign country for a full tax year.
– Physical Presence: Be abroad for 330 days in any 12-month period.

6. Can I exclude housing costs with Foreign Earned Income Exclusion?

Yes, you can also exclude foreign housing expenses that exceed the base housing amount, known as the Foreign Housing Exclusion.

If you have questions about the Foreign Earned Income Exclusion or need assistance with your tax filings, our team of specialists is here to help. Contact us today to ensure you maximize your tax benefits while living abroad.