What Is the Foreign Earned Income Exclusion?

The Foreign Earned Income Exclusion (FEIE) allows U.S. citizens and resident aliens living abroad to exclude a certain amount of their foreign-earned income from U.S. taxable income. This provision helps avoid double taxation on income earned and taxed in a foreign country.

Who Qualifies for the Foreign Earned Income Exclusion?

To qualify for the FEIE, you must be a U.S. citizen or resident alien with a tax home in a foreign country. Additionally, you must meet one of the following criteria:

• You are a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year.
• You have been physically present in a foreign country for at least 330 full days during any 12 consecutive months.

What Is the Maximum Foreign Earned Income Exclusion?

For the 2024 tax year, the maximum exclusion is $126,500. If you are married and both you and your spouse qualify, you can each claim the exclusion for a combined total of $253,000. Additionally, you may be eligible for the foreign housing exclusion, which allows you to exclude qualifying housing expenses.

Foreign Earned Income Exclusion vs. Foreign Tax Credit

The Foreign Tax Credit (FTC) allows you to offset your U.S. tax liability by the amount of foreign income tax you’ve paid. While the FEIE excludes foreign-earned income from your taxable income, the FTC reduces your tax bill dollar-for-dollar by the amount of eligible foreign tax paid. You can claim both the FEIE and the FTC in the same year, but not on the same income.

How to Claim the Foreign Earned Income Exclusion

To claim the FEIE, you must file a U.S. tax return (Form 1040) and complete Form 2555. If you are not claiming the foreign housing exclusion, you can use Form 2555-EZ. Be prepared to provide information about your employer, foreign-earned income, residence, and travel dates. If you need additional time to qualify, you can file for an extension using Form 2350.

The Bottom Line

If you’re an expat living and working outside the U.S., avoiding double taxation is crucial. The FEIE and the foreign housing exclusion offer valuable benefits, but understanding these provisions can be complex. Consulting a trusted tax advisor can help you navigate these options and choose the best strategy for your situation.

Contact O1ne Mortgage for Your Mortgage Needs

At O1ne Mortgage, we understand the unique financial challenges faced by expats. Whether you’re looking to buy a home abroad or need assistance with your mortgage, our team is here to help. Call us today at 213-732-3074 for expert advice and personalized mortgage solutions.