Foreign Earned Income Exclusion (FEIE)
The Foreign Earned Income Exclusion (FEIE) allows qualifying US taxpayers living and working abroad to exclude up to $130,000 (2025) of foreign earned income from US taxation. Taxpayers must meet either the bona fide residence test or the physical presence test (330 days in a 12-month period).
Exam Tip
FEIE = $130,000 exclusion (2025). Two tests: bona fide residence (full tax year) or physical presence (330 full days). Still owe SE tax. Form 2555 required.
What is the FEIE?
The FEIE under IRC Section 911 allows US citizens and resident aliens working abroad to exclude foreign earned income from US tax. The US taxes worldwide income, so this exclusion prevents double taxation.
2025 Exclusion Amounts
| Exclusion | Amount |
|---|---|
| Foreign earned income | Up to $130,000 |
| Foreign housing exclusion | Varies by location |
Qualifying Tests
| Test | Requirements |
|---|---|
| Bona fide residence | Established residence in foreign country for entire tax year |
| Physical presence | Present in foreign country 330 full days in any 12-month period |
What Qualifies as Foreign Earned Income
| Qualifies | Does NOT Qualify |
|---|---|
| Wages and salaries | Investment income |
| Self-employment income | Pensions and annuities |
| Professional fees | US government employee pay |
| Commissions | Meals/lodging excluded under Section 119 |
Exam Alert
FEIE exclusion = $130,000 (2025). Must file Form 2555. Physical presence = 330 FULL days (not partial). Cannot exclude US-source income. Choosing FEIE may limit foreign tax credit. Self-employed taxpayers still owe SE tax even if income is excluded.
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Related Terms
Adjusted Gross Income (AGI)
Adjusted Gross Income (AGI) is gross income minus above-the-line deductions (adjustments to income). AGI is the key threshold used to determine eligibility for many tax credits, deductions, and phase-outs on Form 1040.
Modified Adjusted Gross Income - MAGI (EA Exam)
Modified Adjusted Gross Income (MAGI) is AGI with certain deductions and exclusions added back. The specific add-backs vary by tax provision. MAGI is used to determine Roth IRA eligibility, premium tax credit, Medicare surcharges, passive activity loss limits, and education credit phase-outs.
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