Expat tax · Form 2555
The foreign earned income exclusion can shelter up to $132,900 of pay earned abroad from federal income tax in 2026.
Under Section 911, you can exclude foreign earned income, the pay for work you do abroad, from federal income tax. To qualify, you need a foreign tax home and must pass the bona fide residence or physical presence test. You claim it on IRS Form 2555, filed with your Form 1040.
Updated · Sources
Tax year 2026
- $265,800
- can be excluded by a married couple who both qualify, at $132,900 each.
- 330
- full days in foreign countries, in any 12 months in a row, meet the physical presence test.
- $18,606
- of housing costs can also be excluded for a full year in most places, and more in high-cost cities.
The limit was $130,000 for 2025.
Do you qualify for the foreign earned income exclusion?
Your main place of work is abroad
Your tax home is your main place of work, even if your family lives somewhere else. It cannot be foreign while your abode, the place you really live, is in the United States. Keeping a house in the US, or a short stay there, does not by itself put your abode in the US.
The bona fide residence test
You must be a bona fide resident of another country for an uninterrupted period that includes a full tax year. Short trips to the US do not break it. A year abroad does not make you a resident by itself, since the IRS weighs why you are there and what you do there. You fail the test if you tell that country you are not a resident and it does not tax you as one.
Or the physical presence test
You must be in a foreign country or countries for at least 330 full days during any 12-month period. The days do not have to be consecutive. A US layover of under 24 hours, between two foreign stops, does not count as time in the US.
Pay for work done abroad
Foreign earned income is compensation for work you do abroad while you qualify, such as wages, salaries and professional fees. Interest, dividends, capital gains, pensions and US government pay to its employees never count. Pay received after the end of the year following the year you did the work does not count either.
If war or civil unrest forces you to leave a country, the IRS can waive the time tests for the time you spent there. The waiver covers only the countries the IRS lists. You must also show you would have met a test if you had not been forced to leave.
In this foreign earned income exclusion example, a $200,000 London salary leaves $28,364 for US income tax.
Qualifying housing costs include rent, utilities and insurance. The part above a base amount is excluded first. The foreign earned income exclusion then covers the pay that is left, up to its limit.
No exclusion
$200,000
Without Form 2555, the whole salary is income for US tax.
Exclusion only
$67,100
The exclusion takes out $132,900, the full 2026 limit.
Exclusion and housing
$28,364
Housing takes out $38,736 first, and the exclusion still takes out $132,900.
Each figure is the pay left for US income tax, before the standard deduction. The $60,000 of housing costs is under London’s 2026 cap of $68,600. The housing exclusion is those costs minus a base amount of $21,264, which is 16% of $132,900. After the housing exclusion, $161,264 of salary remains, which is more than the limit, so the exclusion takes its full amount. Under the stacking rule, the $28,364 still taxed is charged at the rates it would face if the $171,636 excluded were counted too. That tax is figured on the Foreign Earned Income Tax Worksheet in the Form 1040 instructions.
What is the foreign earned income exclusion amount for 2025 and 2026?
Section 911 sets the limit at $80,000, adjusted for inflation since 2004 and rounded down to the nearest $100. A late return for an earlier year, such as 2023, uses that year’s limit, shown in its Form 2555 instructions.
| 2025 | 2026 | |
|---|---|---|
| Exclusion limit | $130,000 | $132,900 |
| Housing base amount (full year) | $20,800 | $21,264 |
| Housing cap in most places (full year) | $39,000 | $39,870 |
| Largest housing exclusion in most places (full year) | $18,200 | $18,606 |
| Automatic extension from abroad | June 15, 2026 | June 15, 2027 |
| Due with Form 4868 | October 15, 2026 | October 15, 2027 |
You get an automatic extension to June 15 if your tax home and abode are outside the US and Puerto Rico on April 15. Interest on unpaid tax still runs from April 15. On a 2025 return, you can use a high-cost location’s 2026 housing cap if it is higher.
When does the exclusion fall short, or get lost?
Freelancers can still owe tax on excluded profit
The exclusion lowers income tax only. If you work for yourself abroad, you can still owe self-employment tax on your net profit, including the part you excluded.
Self-employed housing is a deduction
The housing exclusion covers only housing paid for with pay from an employer, such as a salary. If you are self-employed, you claim the same amount on Form 2555 as the foreign housing deduction. The deduction is capped at your foreign earned income minus what you excluded. Any amount over the cap carries forward one year, then expires.
Claiming the credit later can revoke it
Publication 54 treats claiming the credit instead of the exclusion on qualifying pay in a later year as revoking your choice. It treats skipping the exclusion in a later year you qualify the same way. Otherwise, the choice you made on Form 2555 carries into every later year. Once it is revoked, you need IRS approval to use the exclusion again within the next five tax years.
A part year gets part of the limit
Your limit is prorated by day, at $364.11 for each qualifying day in 2026. If you moved abroad mid-year, you may not meet a test by your filing deadline. Form 2350 extends that deadline until after you meet it.
A late return can still claim it
A return filed within a year of its original due date can still elect the exclusion. After that, you can still elect it if the exclusion leaves you owing no tax. If tax is still due, you must file before the IRS finds that you did not elect. If you have missed several years, see the streamlined filing compliance procedures.
Weigh the exclusion against the credit with a CPA before you file Form 2555.
We prepare US returns for Americans abroad, and file Form 2555 with your return for every year you qualify.
- We prepare a separate Form 2555 for each spouse who qualifies, and Form 1116 for a foreign tax credit that needs one.
- We run your figures under the exclusion and under the credit before you elect.
- We plan estimated payments for the self-employment tax you still owe.
- We prepare your US return only, and work alongside the accountant who files your return where you live.
- If the IRS writes about a return we prepared, our reply is part of your fee.
- Individual return
- from $195
- Business return
- from $495
We quote a flat fee before work starts. We do not bill hourly.
Foreign earned income exclusion questions.
What is the foreign earned income exclusion limit for 2026?
The foreign earned income exclusion limit for 2026 is $132,900 per qualifying person. The IRS set it in Rev. Proc. 2025-32. It is prorated by day if you qualify for only part of the year. Spouses who both qualify each get their own limit, so a couple can exclude up to $265,800. The foreign housing exclusion adds up to $18,606 for a full year in most places, or more where the IRS sets a higher cap.
Who qualifies for the foreign earned income exclusion?
You qualify for the foreign earned income exclusion if your tax home is in a foreign country and you pass either of two tests. Under the bona fide residence test, you live in another country through at least one full tax year. Under the physical presence test, you spend 330 full days in foreign countries within any 12 consecutive months. Citizens can use either test. The IRS says green card holders can use the residence test only if they are nationals of a treaty country.
Can I use the exclusion and the foreign tax credit together?
Yes, you can claim the foreign earned income exclusion and the foreign tax credit in the same year, but not on the same income. You cannot claim the credit for foreign tax on pay you excluded. You can claim it for the share of foreign tax on pay you did not exclude, and on income such as dividends. The exclusion lowers the income you are taxed on, while the credit cuts the tax itself. If you revoke the exclusion to rely on the credit, you cannot use the exclusion again for five years without IRS approval.
Does the exclusion reduce self-employment tax?
No, the foreign earned income exclusion does not reduce self-employment tax. That tax is figured as if the exclusion did not exist, so a freelancer abroad can owe it with no income tax due. The foreign tax credit cannot offset self-employment tax either, because the credit reduces only income tax. For most Americans abroad, only a totalization agreement can remove self-employment tax. Such an agreement is a social security treaty between the US and another country.
How do I qualify under the physical presence test?
Under the physical presence test, you qualify with at least 330 full days in foreign countries during any 12 consecutive months. Only full days count, midnight to midnight, so travel days to or from the US usually do not. The 12 months can start on any day. Your tax home must also be in a foreign country. US citizens and green card holders can both use this test.
Do US citizens have to pay taxes on foreign income?
Yes, US citizens and resident aliens, including green card holders, are taxed on their worldwide income wherever they live. For 2026, the foreign earned income exclusion can take up to $132,900 of foreign pay out of US tax. The foreign tax credit offsets US tax on other foreign income. Excluded pay still counts toward the filing threshold, so you file even when you will owe nothing.
Sources
- 26 U.S.C. § 911, Citizens or residents of the United States living abroad
- 26 C.F.R. § 1.911-2, Qualified individuals
- 26 C.F.R. § 1.911-3, Determination of amount of foreign earned income to be excluded
- 26 C.F.R. § 1.911-7, Procedural rules
- IRS, Rev. Proc. 2025-32 (2026 inflation adjustments)
- IRS, Notice 2026-25, Determination of housing cost amounts eligible for exclusion or deduction for 2026
- IRS, Instructions for Form 2555 (2025)
- IRS, Publication 54 (12/2025), Tax Guide for U.S. Citizens and Resident Aliens Abroad
- IRS, Foreign earned income exclusion: bona fide residence test
- IRS, About Form 2350, Application for Extension of Time to File U.S. Income Tax Return
- 26 U.S.C. § 1402, Definitions (net earnings from self-employment)
- 26 U.S.C. § 901, Taxes of foreign countries and of possessions of United States
- 26 C.F.R. § 1.1-1, Income tax on individuals
- IRS, Instructions for Form 1040 (2025)
Reviewed and updated September 2026. General information, not advice for your situation.