If you're a U.S. citizen or resident alien living and working outside the United States, the Foreign Earned Income Exclusion (FEIE) may allow you to exclude up to $132,900 of qualifying foreign earned income from your 2026 tax return (filed in 2027). You may also be eligible to claim a foreign housing exclusion or deduction for certain housing expenses paid while living abroad.
Who Qualifies for the Foreign Earned Income Exclusion?
To claim the FEIE on Form 2555, you must meet all of the following requirements:
- Have foreign earned income such as wages, salaries, commissions, or self-employment income earned while working in a foreign country.
- Have a tax home in a foreign country.
- Meet either:
- The Bona Fide Residence Test, or
- The Physical Presence Test.
Understanding the Qualification Tests
Tax Home Test
Your tax home is generally your regular place of business or employment. To qualify for the FEIE, your tax home must be located in a foreign country during the period you claim the exclusion.
In some cases, U.S. citizens serving in a designated combat zone may still qualify even if they maintain a residence in the United States.
Bona Fide Residence Test
You may qualify under this test if you are:
- A U.S. citizen who is a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year, or
- A U.S. resident alien who is a citizen or national of a country that has an income tax treaty with the United States and who is a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year.
Physical Presence Test
You may qualify if you are physically present in one or more foreign countries for at least 330 full days during any consecutive 12-month period.
A full day is a complete 24-hour period beginning at midnight. Days spent traveling over international waters generally do not count toward the 330-day requirement.
Foreign Housing Exclusion and Deduction
In addition to the FEIE, you may be able to exclude or deduct certain qualified housing expenses, including:
- Rent
- Utilities (other than telephone charges)
- Residential parking
- Furniture rental and certain household expenses
For 2026, the general limits are:
- Base housing amount: $21,264 (16% of the maximum FEIE)
- General housing expense limit: $39,870 (30% of the maximum FEIE)
- Higher limits may apply in certain high-cost foreign cities and locations.
Housing Exclusion vs. Housing Deduction
- Employees generally claim a foreign housing exclusion.
- Self-employed individuals may qualify for a foreign housing deduction instead.
Important Things to Know
- Form 2555-EZ is no longer available. All taxpayers claiming the FEIE must use Form 2555.
- Income earned as a U.S. government employee abroad does not qualify for the Foreign Earned Income Exclusion.
- If you qualify for only part of the year, your maximum exclusion may need to be prorated based on the number of qualifying days.
- Even if your income is excludable, you generally must still file a U.S. tax return and report the income to claim the exclusion.
Bottom Line
The Foreign Earned Income Exclusion can significantly reduce your U.S. taxable income if you live and work abroad. For the 2026 tax year, eligible taxpayers can exclude up to $132,900 of foreign earned income, and many can also benefit from the foreign housing exclusion or deduction. If you're filing from overseas, completing Form 2555 correctly is the key to claiming these valuable tax benefits.