FEIE: The Foreign Earned Income Exclusion
How US citizens living and working abroad exclude up to $126,500 of foreign earned income from federal taxes under IRC §911 — legally reducing their US tax bill to near zero.
Live abroad. Work abroad. Pay almost nothing to the IRS.
The United States taxes its citizens on worldwide income — regardless of where they live. But IRC §911 provides a powerful offset: the Foreign Earned Income Exclusion (FEIE). If you qualify, you can exclude up to $126,500 (2024) of foreign earned income from your US federal tax return, plus a separate housing exclusion on top.
For a digital nomad, remote worker, or overseas entrepreneur earning under the exclusion limit, this can reduce the federal income tax bill to zero — while remaining fully compliant with US filing requirements.
The Portugal Expat Example
Scenario: A US citizen living in Portugal earns $150,000 in freelance income.
- Total Foreign Earned Income: $150,000
- FEIE Exclusion (2024): –$126,500
- Remaining US Taxable Income: $23,500
- Estimated US Federal Tax: ~$2,600
- Tax Wealth Reclaimed vs. US-based filing: $28,000+
Foreign housing costs can add a separate exclusion on top of the $126,500 base — further reducing US taxable income.
The Two Qualifying Tests
You must satisfy one of these two tests to claim the FEIE:
- Physical Presence Test: You must be physically present in a foreign country (or countries) for at least 330 full days during any consecutive 12-month period. The days do not need to be consecutive within the period. Travel days in and out of the US do not count. This test is objective — you either have 330 days or you don't.
- Bona Fide Residence Test: You must be a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year. This test is subjective — the IRS evaluates your intent, ties to the foreign country, visa type, and whether you set up a permanent home abroad. Harder to prove, but allows more flexibility on travel.
Implementation Steps
- Track Every Day: Keep a travel log with passport stamps, flight records, and calendar entries showing your physical presence in foreign countries. The 330-day count is your audit shield.
- Determine Your Test: Choose Physical Presence (strict day count, objective) or Bona Fide Residence (intent-based, requires stronger foreign ties). Most expats use Physical Presence for certainty.
- File Form 2555: Attach Form 2555 to your Form 1040 to claim the exclusion. The form asks for your foreign tax home, qualifying period, and income earned abroad.
- Claim the Housing Exclusion: If your foreign housing costs exceed the base amount ($19,200 in most locations in 2024), the excess qualifies for an additional housing exclusion on Form 2555, Part VIII.
- Report Foreign Accounts: File FinCEN Form 114 (FBAR) if you have foreign financial accounts exceeding $10,000 at any point during the year. Failure to file carries penalties up to $10,000 per violation.
Audit Protection
The 330-day rule is exact — not "approximately 11 months." Build in a buffer of at least 10–15 extra days beyond 330 to account for unexpected travel or medical emergencies that pull you back to the US. The IRS can verify passport stamps and airline records. Also: the FEIE does not eliminate self-employment tax. Even if all income is excluded from income tax, SE tax (15.3%) still applies to net self-employment earnings — unless you are in a country with a US Social Security Totalization Agreement. Consult a licensed expat tax professional before claiming the FEIE for the first time.
See how this applies to your situation.
Consult a licensed professional before implementing any tax strategy. Individual results vary.
Ask Genie →