Foreign earned income is wages or self‑employment income earned by a U.S. citizen or resident alien for services performed in a foreign country.
➡️ It does not include unearned income such as interest, dividends, pensions, or capital gains.
Key Points
- Income must be earned while physically working in a foreign country
- Includes:
- Salaries and wages
- Commissions
- Bonuses
- Self‑employment income
- Income must be reported in U.S. dollars, using the exchange rate for the year it was earned
💰 Tax Treatment
U.S. citizens and resident aliens are taxed on worldwide income, but they may be able to exclude some or all foreign earned income using the Foreign Earned Income Exclusion (FEIE).
- The exclusion is claimed using Form 2555
- For tax year 2024, up to $126,500 of foreign earned income may be excluded
(amount is adjusted annually for inflation)
✅ Requirements to Claim the Exclusion
To qualify for the Foreign Earned Income Exclusion, the taxpayer must:
- Have foreign earned income, and
- Have a tax home in a foreign country, and
- Meet one of the following tests:
Bona Fide Residence Test
- Lived in a foreign country for an entire tax year
Physical Presence Test
- Were physically present in a foreign country for at least 330 full days during any 12‑month period
📌 Example
A U.S. citizen works in Germany from January through December 2024 and earns $100,000 in wages.
- They meet the Bona Fide Residence Test
- They can exclude the full $100,000 using Form 2555
✅ The income is still reported on the tax return, but the exclusion reduces their taxable income.
💡 FilingTips
- ✅ You must still file a U.S. tax return, even if all income is excluded
- ✅ You may also qualify for the foreign housing exclusion or deduction if you paid housing costs abroad