Foreign Earned Income Exclusion 2026
Published on February 2026
Living abroad shouldn't mean paying taxes twice. Yet thousands of U.S. expatriates overpay annually because they don't understand the Foreign Earned Income Exclusion—or worse, miss the deadline to claim it.
The problem? The IRS doesn't automatically grant the exclusion. You must file Form 2555, meet strict qualification tests (330 days abroad or bona fide residence), and track documentation meticulously. One missed detail can cost you $30,000+ in unnecessary taxes.
This guide shows you exactly how to claim up to $126,500 in tax-free foreign income for 2026. We break down the Physical Presence Test vs. Bona Fide Residence Test, eligible income types, housing exclusions, and filing strategies that maximize your savings while keeping you IRS-compliant.
The Foreign Earned Income Exclusion allows U.S. citizens working abroad to exclude up to $126,500 of foreign earned income from taxation. Understanding qualification tests and proper filing prevents double taxation while staying compliant.
Qualification Requirements
Meet either the Physical Presence Test (330 full days abroad in 12 months) or Bona Fide Residence Test (full tax year abroad). Choose the test that best fits your situation and track documentation carefully.
What Income Qualifies
Only earned income (wages, self-employment) qualifies for FEIE. Passive income like dividends, interest, rental income, and capital gains cannot be excluded and faces full U.S. taxation regardless of where you live.
Housing Exclusion Benefits
Beyond FEIE, exclude qualified housing costs exceeding base amounts. Rent, utilities, and real estate taxes qualify. High-cost cities allow larger exclusions, potentially saving thousands in additional taxes.
Filing Requirements
File Form 2555 with your tax return to claim FEIE. The exclusion is not automatic. Missing this form means losing the exclusion and facing full taxation on foreign earned income.
Tax Planning Strategies
Time income recognition around 330-day periods to maximize exclusions across two years. Consider foreign tax credits versus FEIE based on which provides greater benefit in high-tax countries.
Frequently Asked Questions
What is the Foreign Earned Income Exclusion (FEIE) for 2026?
The FEIE allows U.S. citizens and residents working abroad to exclude up to $126,500 of foreign earned income from U.S. taxation in 2026. You must meet either the Physical Presence Test (330 full days abroad in 12 months) or Bona Fide Residence Test (full tax year abroad) to qualify.
What's the difference between Physical Presence Test and Bona Fide Residence Test?
Physical Presence Test requires 330 full days abroad in any 12-month period and is easier to track with exact dates. Bona Fide Residence Test requires establishing permanent residence in a foreign country for a full tax year (January 1 to December 31), which works better for long-term expatriates with stable foreign housing.
What types of income qualify for FEIE?
Only earned income qualifies: wages, salaries, self-employment income, and professional fees earned while physically abroad. Passive income like dividends, interest, capital gains, rental income, pensions, and Social Security benefits do NOT qualify and face full U.S. taxation regardless of residence.
Can I claim FEIE and Foreign Tax Credit on the same income?
No, you cannot double-dip. Choose either FEIE or Foreign Tax Credit (FTC) for the same income. Generally, use FEIE if foreign tax rates are low and FTC if foreign rates are high. You can use FEIE on earned income and FTC on passive income simultaneously since they're different income types.
What is the Foreign Housing Exclusion and how much can I exclude?
Foreign Housing Exclusion allows you to exclude qualified housing costs (rent, utilities, real estate taxes) exceeding 16% of FEIE maximum ($20,240 for 2026). Maximum exclusion is generally 30% of FEIE ($37,950), but high-cost cities allow higher limits. For example, Tokyo allows up to $114,300 housing exclusion.
How do I claim FEIE on my tax return?
File Form 2555 (Foreign Earned Income) with your Form 1040 tax return. The exclusion is NOT automatic—you must file this form annually. Include supporting documents like employer letters, housing contracts, passport stamps, and day-counting records to prove qualification tests.
What happens if I fail the 330-day test?
If you spend fewer than 330 full days abroad in your 12-month period, you lose FEIE eligibility unless you qualify under Bona Fide Residence Test. Strategic timing matters: a single U.S. trip can break the 330-day count, so track days carefully and consider shifting the 12-month period to maximize days abroad across calendar years.
Do I still need to file U.S. taxes if I claim FEIE?
Yes, U.S. citizens must file tax returns regardless of where they live or work. FEIE reduces taxable income but doesn't eliminate filing obligations. You still report worldwide income, claim the exclusion on Form 2555, and may owe taxes on amounts exceeding $126,500 or on passive income.
Conclusion
The Foreign Earned Income Exclusion provides substantial tax savings for expatriates when properly claimed. Track days abroad meticulously, choose optimal qualification tests, and file Form 2555 annually to exclude foreign earned income from U.S. taxation.
Use our Tax Calculator to estimate your tax liability and optimize your tax strategy for 2026.