At a glance
- The 2026 exclusion is $132,900, per Rev. Proc. 2025-32. A married couple both working abroad can each claim it against their own earnings.
- It does not lower your bracket. Section 911(f) taxes whatever is left at the rates that sit on top of the excluded amount, not at the bottom of the table. On the example below that is $6,878 of tax nobody expects.
- It does not touch self-employment tax. The exclusion is for income tax. A self-employed American abroad still owes 15.3% unless a totalization agreement says otherwise.
- It blocks the refundable child credit. The instructions are one sentence long about it, and for a family with children it frequently costs more than the exclusion saves.
The foreign earned income exclusion is the first thing an American abroad hears about and the most over-recommended provision in the expat return. It is genuinely valuable in a low-tax or no-tax country — and rarely anywhere else. In a high-tax country it is usually the wrong choice, and in a household with children it can be an expensive one.
This page sets out what the exclusion is worth in 2026, the two tests for qualifying, and the four things it does not reach. The comparison with the foreign tax credit is a separate question and has its own page.
What the exclusion is worth in 2026
Section 911 lets a qualified individual exclude foreign earned income from gross income. Rev. Proc. 2025-32, section 4.39, sets the ceiling: “the foreign earned income exclusion amount under § 911(b)(2)(D)(i) is $132,900.”
A separate housing exclusion sits on top of it, and it is computed as a band rather than a flat amount. Section 911(c)(1)(B)(i) sets a floor of “16 percent of the amount (computed on a daily basis) in effect under subsection (b)(2)(D),” and section 911(c)(2)(A) caps qualifying expenses at 30 percent of the same figure. For 2026 that is a floor of $21,264 and a ceiling of $39,870, so the most a full-year taxpayer can exclude for housing in an ordinary location is $18,606. High-cost cities carry higher ceilings, published annually with the Form 2555 instructions, and in the expensive ones the difference is substantial.
Both exclusions are per person, not per return — which is worth saying plainly. Two spouses each working abroad each have their own $132,900. Neither of them can use the other’s unused portion.
What the exclusion actually does to your tax
If you read nothing else, read this. It is the part almost nobody is told.
The intuition is that excluding $132,900 drops you into the brackets that apply to what is left. Section 911(f) says otherwise — and it says it quietly. Tax is computed as the tax on your taxable income plus the excluded amount, minus the tax on the excluded amount alone. The excluded income is stacked underneath, and the remainder is taxed at the rates on top of it.
A single filer, 2026, $220,000 of foreign salary, standard deduction, no housing exclusion. Figures are illustrative and rounded to the dollar.
| On the return | What people expect | What section 911(f) does |
|---|---|---|
| Foreign salary | $220,000 | $220,000 |
| Foreign earned income exclusion | ($132,900) | ($132,900) |
| Adjusted gross income | $87,100 | $87,100 |
| Standard deduction, single | ($16,100) | ($16,100) |
| Taxable income | $71,000 | $71,000 |
| Rates that apply to it | 10% to 22% | 24% to 32% |
| Federal income tax | $10,332 | $17,210 |
$6,878 more tax on identical facts, because the same $71,000 of taxable income is taxed in the 24% and 32% bands rather than the 10%, 12% and 22% bands. The effective rate on what remains is 24.2%, not the 14.6% the first column implies.
The one-line version. The exclusion takes the income off your return. It does not take you out of your bracket. Figures are illustrative.
The two tests, and which one you can actually use
Section 911(d)(1) offers two routes. You need one of them — plus a tax home in a foreign country.
| Bona fide residence | Physical presence | |
|---|---|---|
| What it measures | Where your life is | Where your body is |
| The requirement | Bona fide residence in a foreign country for an uninterrupted period that includes a full tax year | 330 full days in foreign countries during any 12 consecutive months |
| Who can use it | US citizens. A resident alien only if a “citizen or national of a country with which the United States has an income tax treaty in effect” | Citizens and resident aliens alike |
| Trips back to the US | Brief trips do not break it, if you intend to return | Every full day in the US costs you one of the 330 |
| Your first year abroad | Not available until a full tax year has passed abroad | Available immediately; the 12 months may straddle two tax years |
| How it is usually lost | A stated intention to return, a home kept, a visa that says temporary | Arithmetic. It is 330, not 329 |
Two details on the physical presence test that decide more cases than they should. A full day is “a period of 24 consecutive hours, beginning and ending at midnight,” so a departure day and an arrival day are usually both lost. And time “on, or over international waters does not count as time in a foreign country.” The 330 days themselves do not have to be consecutive, which is the flexibility people miss when they are counting.
The bona fide residence test is the more durable of the two once it applies, because it survives travel. Getting to it takes a full tax year abroad — so a move in June means the physical presence test for the first year, and a choice after that.
The four things the exclusion does not reach
| What it misses | What that means |
|---|---|
| Self-employment tax | Section 911 excludes income for income tax. A self-employed American abroad still owes 15.3% on net earnings, on income that is not taxed at all. Only a totalization agreement can switch it off |
| The refundable child credit | “You can’t take the additional child tax credit if you claim either of the exclusions.” For a family with two or three children, that is often larger than the exclusion saves |
| IRA contributions | Publication 590-A lists as not compensation “any amounts (other than combat pay) you exclude from income, such as foreign earned income and housing costs.” Exclude everything and you may have no compensation to contribute against |
| State income tax | States write their own rules. Several do not recognize the exclusion at all, and a few treat a move abroad as a temporary absence rather than a change of domicile |
The earned income credit is lost on the same terms as the child credit: “You can’t take the earned income credit if you claim either of the exclusions.” Between the two, a family at moderate income abroad can be measurably worse off electing the exclusion than not, which is the single most common expensive mistake on an expat return.
The election is stickier than it looks
Choosing the exclusion is not a year-by-year decision. Once made, the choice “remains in effect for that year and all future years unless it is revoked.” Revoking it is easy — undoing the revocation is not: “If you revoke your choice, you can’t claim the exclusion(s) for your next 5 tax years without the approval of the IRS.” Section 911(e)(2) puts it as no new election “before the 6th taxable year after the taxable year for which such revocation was made.”
That matters because the right answer changes with circumstances. A year in Dubai and a year in Germany are different problems, and a household that revokes to take the foreign tax credit during a high-tax posting is locked out of the exclusion for the five years that follow. Decide the pattern, not the year — five years of it.
Filing it
- Form 2555, attached to a Form 1040. There is no separate expat return, and living abroad does not remove the filing requirement.
- An automatic extension to June 15. Taxpayers abroad are “automatically granted a 2-month extension of time to file.” It extends filing, not payment; interest runs from April.
- Form 2350 where you are waiting to qualify. If your 330 days or your first full tax year will not be complete by the deadline, this is the extension that waits for them rather than the ordinary October extension.
- The other forms do not go away. The FBAR and Form 8938 are separate regimes with separate thresholds, and the exclusion has no effect on either.
What to do about it
- Run the foreign tax credit first if you live in a high-tax country. In most of Western Europe the credit alone eliminates the US liability and keeps the child credit, the IRA and the flexibility. We work the comparison through in FEIE against the foreign tax credit.
- Count your days before you rely on 330. Count them the way the rule counts them: midnight to midnight, travel days out, international waters out.
- If you are self-employed, find out whether a totalization agreement covers you before assuming the exclusion solved anything. It did not touch the larger of the two taxes.
- Add up the credits you would give up if you have children. The comparison is not exclusion against no exclusion. It is exclusion against credit, with the child credit on one side of the scale.
- Settle your state position separately. Leaving the country is not the same as leaving a state, and some states are much harder to leave than others.
Frequently asked questions
How much is the foreign earned income exclusion for 2026?
$132,900 per qualifying person, under Rev. Proc. 2025-32. A separate housing exclusion can add up to $18,606 in an ordinary location, being the gap between the 30% ceiling of $39,870 and the 16% floor of $21,264, with higher ceilings in expensive cities. Spouses each working abroad each have their own exclusion, and neither can use the other’s unused amount.
Does the exclusion put me in a lower tax bracket?
No, and this is the most common misunderstanding about it. Section 911(f) computes your tax as the tax on your taxable income plus the excluded amount, minus the tax on the excluded amount alone. The effect is that the excluded income is stacked at the bottom and everything left is taxed at the rates above it. On $220,000 of foreign salary in 2026, a single filer pays about $17,210 rather than the $10,332 the ordinary brackets would suggest.
Do I still owe self-employment tax if I claim the exclusion?
Yes. Section 911 is an exclusion from gross income for income tax purposes and does nothing to self-employment tax, so a freelancer or consultant abroad can exclude every dollar of income and still owe 15.3% on net earnings. The only thing that changes that is a totalization agreement assigning your coverage to the country you live in, evidenced by a certificate of coverage. For most self-employed Americans abroad this is the larger of the two taxes.
What is the difference between the bona fide residence test and the physical presence test?
The physical presence test is mechanical: 330 full days in foreign countries during any 12 consecutive months, counted midnight to midnight, with travel days and time over international waters excluded. The bona fide residence test is about where your life is, requires an uninterrupted period covering a whole tax year, and tolerates travel once it applies. Physical presence is the only one available in your first partial year abroad. Bona fide residence is the more comfortable one to live with afterwards.
Can I claim the FEIE if I work remotely for a US employer?
Yes. What matters is where you perform the services, not where your employer is or where you are paid. A US citizen living in Lisbon and working for a company in Texas has foreign earned income for the days worked in Portugal. What does not qualify is work performed while physically in the United States, which has to be carved out, and neither does pay from the US government.
Does the exclusion apply to state income taxes?
Not automatically. States are not bound by section 911 and several do not follow it, so income excluded federally can still be taxed by a state you have not properly left. The harder problem is domicile: a few states treat a move abroad as a temporary absence and continue to tax you until you demonstrate an intention not to return. Settle the state position on its own terms, before the year you leave if possible.
Can I take the child tax credit if I claim the exclusion?
You can take the non-refundable portion against tax you actually owe. You cannot take the refundable additional child tax credit: “You can’t take the additional child tax credit if you claim either of the exclusions.” Since the exclusion often eliminates the liability the non-refundable portion would offset, the practical answer for many families is that the credit is worth nothing once the exclusion is claimed. Run the foreign tax credit alternative before electing.
Can I switch between the exclusion and the foreign tax credit?
Not freely. The election continues automatically until revoked, and after a revocation you cannot elect again for five tax years without IRS approval. You can claim the foreign tax credit on income above the exclusion in the same year without revoking anything, which is the usual way both are used together. What you cannot do is alternate year by year according to which produces the better result.
Related reading
- FEIE or the foreign tax credit. The comparison, worked through.
- Foreign tax credits. How the alternative works.
- Credit or deduction. Why the credit almost always wins.
- Totalization agreements. The only thing that reaches self-employment tax.
- The US expat tax guide. Everything in one place.
- FBAR or Form 8938. Two regimes, two thresholds.
- FBAR deadlines. The one with real penalties.
- The US-UK treaty. Where the credit usually wins.
- The US-Germany treaty. Same conclusion, different arithmetic.
- International tax services. What we do and what it costs.
Schedule a call
A short conversation about your situation, our read on it, and whether it is a mutual fit. We can run the exclusion and the foreign tax credit against your actual numbers and tell you which one your country and your family make the better choice.
General information, not advice for your situation. Figures apply to the 2026 tax year and are illustrative. Sources: IRC section 911, Rev. Proc. 2025-32, Instructions for Form 2555, IRS physical presence test, IRS bona fide residence test and IRS Publication 590-A.
