Updated for 2026
The foreign earned income exclusion rises to $132,900, from $130,000. The standard cap on housing expenses rises to $39,870. The child tax credit is $2,200 per child, of which $1,700 is refundable — and that refundable amount is the part filing Form 2555 takes away from you.
At a glance
- The 2026 exclusion is $132,900 of earned income, plus up to $18,606 of housing — a combined ceiling of $151,506.
- Claiming it costs you three things: the refundable child tax credit, any foreign tax credit on the excluded income, and nothing at all off your self-employment tax.
- For a family with children paying real foreign tax, the foreign tax credit is often the better route even though the exclusion looks larger.
- Living abroad moves your filing deadline to June 15 automatically — but interest still runs from April 15.
Most guides to expat tax open with the size of the exclusion, as though the only question were how much income you can keep off the return. That is the least interesting part. The exclusion is generous, easy to claim, and quietly expensive for a particular kind of household.
This guide covers the 2026 numbers, the two ways to qualify, and the filings that carry the real penalties. But it leads with what the exclusion costs, because that is the decision an American abroad actually has to make and it is the one most often made by default.
The 2026 numbers, in one place
| Figure | 2025 | 2026 |
|---|---|---|
| Foreign earned income exclusion | $130,000 | $132,900 |
| Housing expense limit, standard locations | $39,000 | $39,870 |
| Base housing amount, subtracted first | $20,800 | $21,264 |
| Maximum housing exclusion | $18,200 | $18,606 |
| Standard deduction, married filing jointly | — | $32,200 |
| Child tax credit, per child | — | $2,200 |
| Refundable portion, per child | — | $1,700 |
| Earned income plus housing you can exclude | $148,200 | $151,506 |
The exclusion figure comes from Rev. Proc. 2025-32, section 4.39. The housing figures are not published as dollar amounts; they are computed from it. Section 911(c) sets the limit at 30% of the exclusion and the base amount at 16% of it, so the most housing anyone in a standard location can exclude in 2026 is $39,870 less $21,264. High-cost cities have their own higher limits, published separately each year.
What the exclusion actually costs you
If you read nothing else, read this. Same family, same income, same foreign tax — two different elections.
Married couple filing jointly, two children under 17. One spouse earns $180,000 in a country that taxes it at roughly 29%, so $52,000 of foreign tax is paid. The question is whether to file Form 2555 and exclude, or Form 1116 and credit.
| On the return | Form 2555 — exclude | Form 1116 — credit |
|---|---|---|
| Foreign salary | $180,000 | $180,000 |
| Excluded from gross income | ($132,900) | — |
| Foreign tax paid | $52,000 | $52,000 |
| Foreign tax available as a credit | Only the part allocable to income you did not exclude | All of it, subject to the Form 1116 limit |
| Refundable child tax credit, two children | $0 | Up to $3,400 |
| Self-employment tax, if self-employed | Unchanged | Unchanged |
Filing Form 2555 costs this family up to $3,400 in refundable credit, on identical facts. Both routes may well produce zero US income tax. Only one of them also produces a refund. Figures are illustrative and rounded.
The one-line version. The exclusion removes income from the return — and anything that was attached to that income, including the foreign tax you paid on it, comes off with it.
That is not a drafting quirk. Section 911(d)(6) says no credit is allowed “to the extent such deduction, exclusion, or credit is properly allocable to or chargeable against amounts excluded from gross income.” You cannot exclude the income and still credit the tax on it.
The refundable credit rule is blunter still. The Schedule 8812 instructions state it in one sentence: “If you file Form 2555, you cannot claim the additional child tax credit.” At $1,700 refundable per child, a family of four in a high-tax country can be paying for the privilege of a larger-sounding exclusion.
The exclusion still wins in plenty of cases — a single filer in a country with little or no income tax, someone below the threshold entirely, anyone without children. The point is that it is a choice with a price, not a default.
Self-employment tax is not touched by the exclusion
This is the most expensive misunderstanding in expat tax, and it lands on freelancers, consultants and one-person companies — the people most likely to have moved abroad in the first place.
The exclusion is an income tax provision. Self-employment tax is a separate charge, and the IRS is explicit: “You must take all your self-employment income into account in figuring your net earnings from self-employment, even if all, or a portion of, gross income was excluded because of the foreign earned income exclusion.”
So a consultant in Lisbon earning $120,000 can exclude every dollar of it from income tax and still owe self-employment tax on the whole amount. Form 2555 does nothing about that.
The relief comes from a totalization agreement, not from the exclusion. The United States has bilateral social security agreements with a number of countries, and under them “dual coverage and dual contributions (taxes) for the same work are eliminated.” If you are covered by the foreign country’s system, you are not also paying into the US one.
Claiming it is a paperwork exercise with a specific shape:
| Step | What it involves |
|---|---|
| Confirm an agreement exists | Totalization agreements are country by country. There is no general rule. |
| Request a certificate of coverage | From the social security agency of the foreign country, not from the IRS. |
| If the country will not issue one | Request a statement from the US Social Security Administration that your income is not covered by the US system. |
| Attach it | A photocopy of the certificate or statement goes with your Form 1040. |
Without the certificate, the position is not supported. This is worth reading about in more detail if you are self-employed abroad — we cover it in the totalization agreement guide.
The two ways to qualify
You cannot claim the exclusion simply because you live abroad. Your tax home has to be in a foreign country, and you have to meet one of two tests.
| Bona fide residence | Physical presence | |
|---|---|---|
| The test | A bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year | Physically present in a foreign country for at least 330 full days during any period of 12 months in a row |
| Counts days? | No — it is about the character of your residence | Yes, and strictly |
| Who it suits | Someone settled abroad with a home, a lease, a life | Someone who moved mid-year, or moves around |
| The usual failure | Claiming it for a period that does not include a full calendar year | Travel days and stopovers eroding the 330 |
US citizens can use either. The physical presence test is mechanical, which makes it safer for a first year abroad; the bona fide residence test is more flexible once you are settled, because it does not break when you take a long trip home.
The four filings people miss
The exclusion is the part everyone knows about. The penalties live elsewhere.
| Filing | When it applies | Notes |
|---|---|---|
| Form 2555 | To claim the exclusion or the housing exclusion | Filed with the 1040. Claiming it forfeits the refundable child tax credit. |
| Form 1116 | To credit foreign income tax instead of excluding income | Often the better answer where foreign tax is high and there are children. |
| FinCEN Form 114 (FBAR) | Foreign financial accounts exceeding $10,000 in aggregate at any time in the year | Not filed with the return. Aggregate, not per account — four accounts of $3,000 each trigger it. |
| Form 8938 | Living abroad: over $200,000 at year end or $300,000 at any point, single; $400,000 / $600,000 filing jointly | Filed with the return. Separate from the FBAR, and both can apply to the same account. |
The FBAR threshold catches people out more than any other number here, because $10,000 is low and it is measured across every account you have signature authority over, at the highest point in the year. Penalties are set in statute and adjusted annually for inflation; the non-willful ones are serious and the willful ones are considerably worse. The FBAR deadlines and requirements are worth knowing before you need them.
The dates, and the interest nobody mentions
If you are a US citizen or resident and you live outside the United States, you get an automatic two-month extension to June 15. You do not request it. You do not file anything to get it.
What the automatic extension does not do is stop the clock on money owed. The IRS is direct about this: “Even if you are allowed an extension, you will have to pay interest on any tax not paid by the regular due date of your return.” Interest runs from April 15 regardless.
| Date | What happens |
|---|---|
| April 15 | Regular due date. Interest starts running on unpaid tax from here, extension or not. |
| June 15 | Automatic filing deadline if you live abroad. No request needed. |
| October 15 | Filing deadline with Form 4868, which must be filed before June 15. |
| October 15 | FBAR deadline. Due April 15, but automatically extended — again, no request needed. |
The exclusion is a choice, not a default. Whether Form 2555 or Form 1116 leaves you better off turns on how much foreign tax you actually pay and whether you have children — and it is settled before the return is prepared. How the firm handles US tax for Americans abroad.
Where you live changes the answer
Everything above is US law and applies wherever you are. What varies is the other side of the ledger: how much foreign tax you pay, whether the local regime gives you a break that the US then claws back, and how the treaty allocates the pieces.
That is where the general answer stops being useful. A few of the places we see most:
| Where you are | What tends to drive the US answer |
|---|---|
| Portugal | A local regime that lowers Portuguese tax can leave you with less foreign tax to credit — and a larger US bill than you expected. |
| Spain | High headline rates usually mean the credit route beats the exclusion, particularly with children. |
| Germany | Rates high enough that most people are crediting rather than excluding; the questions move to pensions and timing. |
| United Kingdom | Treaty interaction and UK pension treatment do most of the work. See also the US–UK treaty guide. |
| Puerto Rico | Not foreign at all for these purposes — a different regime entirely, and one of the few that can genuinely eliminate US tax on the right income. |
If you own a US LLC from abroad, or a foreign person owns one with you, that carries its own filing on top of everything here — see the foreign-owned LLC guide.
What to do about it
- Work out the credit position before you elect. Run the return both ways in the first year abroad. The exclusion is easy to claim and awkward to leave — once revoked, you generally cannot claim it again for five years without IRS consent.
- If you are self-employed, chase the certificate of coverage. That, not Form 2555, is what addresses self-employment tax. It comes from the foreign agency and takes time.
- Add up every account, at its highest balance. Do the FBAR arithmetic before you conclude you are under $10,000. It is aggregate and it is the peak, not the year-end figure.
- Mark April 15, not June 15. The filing date moves; the interest date does not.
- Deal with missed years deliberately. The IRS has procedures for taxpayers who did not know they had to file. They work considerably better before the IRS makes contact than after.
Frequently asked questions
Do I have to file a US return if I already pay tax where I live?
Yes. The United States taxes its citizens on worldwide income regardless of where they live or where the income arises. Paying foreign tax does not remove the filing obligation — it changes what you owe, through the foreign tax credit or the exclusion, but the return is still due.
Is the foreign earned income exclusion always the better option?
No. It is better where foreign tax is low or nil and there are no refundable credits at stake. Where foreign tax is high and there are children, the foreign tax credit frequently produces the same zero US tax while preserving up to $1,700 per child of refundable credit that Form 2555 forfeits.
Does the exclusion reduce my self-employment tax?
No. All self-employment income counts in figuring net earnings from self-employment even if the income was excluded. Relief from US self-employment tax comes from a totalization agreement and a certificate of coverage from the foreign social security agency, which is attached to the Form 1040.
What counts as a full day for the 330-day test?
A full day is a period of 24 consecutive hours beginning at midnight, and you must be in a foreign country for all of it. Days spent traveling over international waters do not count. The test is 330 full days within any 12 consecutive months, which need not match the calendar year.
I have several small foreign accounts. Do I need an FBAR?
Possibly. The threshold is the aggregate value of all foreign financial accounts exceeding $10,000 at any time during the calendar year, not the balance of any single account and not the year-end figure. Four accounts holding $3,000 each cross it.
What is the difference between the FBAR and Form 8938?
Different thresholds, different agencies, different forms — and both can apply to the same account. The FBAR goes to FinCEN and starts at $10,000 aggregate. Form 8938 is filed with your return and, for taxpayers living abroad, starts at $200,000 at year end or $300,000 at any point for a single filer, doubled for a joint return.
I have not filed for several years. What now?
The IRS operates procedures for taxpayers whose failure to file was not willful, and they are designed for exactly this situation. What matters is coming forward before the IRS initiates contact, because eligibility for the favorable treatment generally closes once an examination begins. This is worth a conversation before anything is filed.
Related reading
- Totalization agreements: what self-employed expats need to know
- FBAR filing deadlines and requirements
- The US–UK tax treaty, in plain English
- Foreign-owned US LLCs: reporting and taxes
- International tax services for Americans abroad
Have someone check the depreciation schedule
It is the largest number on this list and the one most likely to have been set once and rolled forward ever since. We look at the land allocation, the in-service dates and whether anything should have been broken out of the building, and tell you what a corrected schedule is worth before you commit to anything. We can work with you in any state.
This article is general information, not advice for your situation. Figures apply to the 2026 tax year and are drawn from Rev. Proc. 2025-32, 26 U.S.C. § 911, the Form 2555 instructions (2025 revision), the Schedule 8812 instructions (2025 revision), the Form 8938 instructions, and IRS guidance for US citizens and resident aliens abroad. Housing figures are computed from the statutory percentages in § 911(c) and apply to standard locations; high-cost locations have separate limits published annually. Worked figures are illustrative and rounded.
