Foreign Earned Income Exclusion 2025: FEIE Guide

Foreign Earned Income Exclusion (FEIE) 2025: What Every US Expat Needs to Know Before Filing Form 2555

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Vicky Sarin is the  founder of Eduyush, where he helps tax professionals and aspiring EAs deal with complex US tax provisions. With hands-on experience advising expats and international clients, he brings practitioner-level insight to every guide he publishes.

I still remember the first FEIE case that taught me what “tax home” really means in practice. My client — a software engineer on assignment in Singapore — assumed that because he kept a storage unit and a bank account in Texas, his tax home was still the US. He’d spent 340 days abroad. He filed Form 2555 claiming the exclusion. The IRS disagreed.

That case cost him $14,000 in back taxes and penalties because he didn’t understand one nuanced rule: your tax home follows your principal place of business, not your emotional attachment to a US address.

If you’re working outside the United States in 2025, the Foreign Earned Income Exclusion could save you up to $130,000 in federal income tax. But claiming it incorrectly — or failing to meet the qualifying tests — creates problems that are expensive to fix. This guide walks through exactly how FEIE works, the qualifying tests that trip people up, and the practical situations that tax practitioners in our Eduyush community are currently dealing with.

What Is the Foreign Earned Income Exclusion?

The Foreign Earned Income Exclusion (FEIE) is a provision under IRC Section 911 that allows qualifying US citizens and resident aliens to exclude a portion of their foreign-earned income from US federal income tax. For tax year 2025, the maximum exclusion is $130,000 per qualifying individual — up from $126,500 in 2024.

If both spouses qualify independently, a married couple filing jointly can exclude up to $260,000 in combined income.

Here’s a quick snapshot:

The IRS adjusts these figures for inflation annually under Section 911. For aspiring Enrolled Agents preparing for Part 1 of the Special Enrollment Examination, the FEIE is a high-frequency topic because it tests your grasp of qualification criteria, exclusion calculations, and how the exclusion interacts with other provisions.

Who Qualifies for the Foreign Earned Income Exclusion?

1. US Citizen or Resident Alien Status

You must be a US citizen or a US resident alien. Non-resident aliens generally cannot claim FEIE — with a single notable exception: if a non-resident alien spouse makes a Section 6013(g) election to file jointly, they can become eligible for Section 911 treatment.

2. Foreign Earned Income

The income must be earned (wages, salaries, professional fees, self-employment income) and sourced from work performed in a foreign country. Passive income, like dividends, interest, rental income, capital gains, pensions, and Social Security benefits, does not qualify.

3. Pass One of Two Qualifying Tests

This is where most claims succeed or fail. You must satisfy either:

The Physical Presence Examination — Be physically present in a foreign country for at least 330 full days during any period of 12 consecutive months. Partial days do not count. The 12-month period does not have to coincide with the calendar year.

The Bona Fide Residence Test — Establish genuine residence in a foreign country for an uninterrupted period that includes an entire tax year (January 1 – December 31 for calendar year filers). This test is more subjective — the IRS looks at your intentions, the nature of your stay, and your ties to the foreign country.

From my experience advising clients, the physical presence assessment is more straightforward because it’s a hard number — 330 days. The bona fide residence test requires stronger documentation: visa type, lease agreements, local tax filings, social ties, as well as intent to remain. If you’re studying for the EA exam, expect questions that test whether you can distinguish between these two tests in scenario-based problems.

Physical Presence Test vs. Bona Fide Residence Test: Which Should You Choose?

This decision shapes your entire Form 2555 filing, and the Eduyush community regularly debates it.

In a recent Eduyush community discussion, one practitioner highlighted a critical nuance: the 330-day physical presence count uses midnight-to-midnight days. Arrival and departure days in the foreign country don’t count for FEIE purposes (though they do count for the substantial presence examination — a distinction that the Enrolled Agent syllabus covers under Part 1). 

Another practitioner in the same thread noted that bona fide residence starts only after you’ve lived abroad for a complete calendar year. Once established, you can go back and amend prior returns to claim residency back to your first day of residence abroad.

The “Tax Home” Trap That Catches Expats

Here’s a rule that surprises most people: you cannot claim FEIE if your tax home is in the United States, even if you pass the physical presence or bona fide residence test.

Your “tax home” for FEIE purposes is your regular or principal place of business — not where your family lives, not where you maintain a bank account, and not where you vote. If you’re temporarily abroad but your employer’s principal office (where you report for work) is in the US, your tax home may remain in the US.

In our community forum, a practitioner shared a client case involving a dual US-Canadian citizen attending university in Canada who worked part-time there for 345 days. The key question wasn’t just whether she met the day count — it was whether Canada was genuinely her tax home or whether she was merely a student temporarily abroad with her principal place of abode still in the US.

One EA in the thread cautioned practitioners to check whether the taxpayer maintains a “place of abode” in the United States, as such a status can disqualify the FEIE claim entirely. This is the kind of subtle analysis that separates competent practitioners from those who simply check boxes — and it’s exactly what the EA certification prepares you for.

How to File Form 2555: Step-by-Step

Form 2555 is the vehicle for claiming the FEIE. Here’s the filing sequence:

Step 1: Determine Your Qualifying Test
Choose whether you’re claiming under physical presence (Part III) or bona fide residence (Part II). You only need to qualify under one test.

Step 2: Establish Your 12-Month Qualifying Period
For the physical presence test, identify the 12-month window where you have 330+ full days abroad. This can straddle two tax years — the period does not have to match the calendar year.

Step 3: Calculate Foreign Earned Income
Report all qualifying earned income from foreign sources. Remember: only earned income qualifies. Investment income, pensions, and US government employee wages are excluded.

Step 4: Apply the Exclusion Limit
For 2025, exclude up to $130,000. If you qualify for less than a full year, prorate the exclusion based on the number of qualifying days in the tax year.

Step 5: Consider the Foreign Housing Exclusion
If your housing costs abroad exceed the base amount ($20,800 for 2025), you may claim an additional exclusion of up to $39,000 (or higher in IRS-listed high-cost cities).

Step 6: Report on Form 1040
The Form 2555 exclusion flows through to your Form 1040, reducing your adjusted gross income. Note: the excluded income still affects the tax rate applied to your remaining taxable income (the “stacking” rule).

If you’re preparing for the EA exam, understanding how Form 2555 interacts with Form 1040 is fundamental. The Enrolled Agent course guide covers how individual tax forms connect in Part 1 preparation.

Foreign Housing Exclusion: The Benefit Most Expats Overlook

Beyond the $130,000 income exclusion, qualifying taxpayers can also claim a Foreign Housing Exclusion (for employees) or Foreign Housing Deduction (for the self-employed).

• Base housing amount: $20,800 (16% of FEIE limit) — your costs must exceed this threshold
• Standard cap: $39,000 (30% of FEIE limit) — the maximum you can exclude or deduct for qualified foreign housing expenses
• High-cost locality adjustments: IRS Notice 2025-16 provides higher city-specific caps for expensive locations like Hong Kong ($114,300), Moscow ($108,000), and others — always check the latest notice for your city

Qualifying housing expenses include: rent, utilities (excluding phone), property insurance, residential parking, and furniture rental. Non-qualifying expenses include: mortgage principal, home purchase costs, domestic labor, furniture purchases, and pay-TV subscriptions.

Here’s how the calculation works in practice:

Example: Sarah, an employee based in Singapore, pays $4,200/month in rent and $300/month in utilities, totaling $54,000 annually.

• Base housing amount (must exceed): $20,800
• Standard cap: $39,000
• Singapore is listed in Notice 2025-16 with a higher cap.
• Housing exclusion claimed: $39,000 - $20,800 = $18,200 (under standard cap) OR more if Singapore’s locality-specific limit applies

One detail I see practitioners miss regularly: if you qualify for less than a full year, both the base amount and the cap must be prorated daily ($56.99/day base, $106.85/day standard cap). A client who qualifies for 250 days cannot claim the full annual amount.

This layered calculation — FEIE plus housing exclusion — is exactly what the Enrolled Agent exam tests in Part 1. Candidates who understand the daily proration mechanic and the stacking rule have a meaningful edge. The EA exam pass rate data suggests that international tax topics, such as FEIE, are among the more challenging areas for candidates.

FEIE vs. Foreign Tax Credit: Which Is Better?

In our Eduyush community thread, veteran EA Mark Roberts noted there are many reasons to evaluate the foreign tax credit first before reaching for the earned income exclusion. His point: the FTC is more flexible because you can change your mind each year, while revoking FEIE triggers a mandatory 5-year lockout before you can reclaim it.

The stacking rule is the hidden trap. When you elect FEIE, the IRS requires you to compute tax on your remaining income as if the excluded income were still included — preserving your marginal rate at the higher bracket. This means a taxpayer earning $180,000 abroad who excludes $130,000 doesn’t pay tax on the remaining $50,000 at the lowest brackets. Instead, the $50,000 is taxed as if it sits on top of $130,000 in income. For expats in high-tax countries, this stacking effect, combined with the loss of FTC on the excluded portion, often makes FEIE the worst choice.

My recommendation: Run the numbers both ways. If you’re in a zero-tax or low-tax country (Dubai, Bahamas, Bermuda, Cayman Islands), FEIE almost always wins. If you’re in a country where the local tax rate exceeds your effective US rate, the Foreign Tax Credit typically provides better results — and you retain the flexibility to switch strategies annually.

Understanding when to use which provision is a skill the Enrolled Agent certification is specifically designed to develop. This kind of comparative tax planning is what clients pay premium fees for.

The Section 6013(g) Election: FEIE for Non-Resident Alien Spouses

One of the most complex FEIE scenarios involves L-visa holders and their spouses — a situation the Eduyush community recently tackled in detail.

The scenario: A taxpayer on an L1 visa (resident in the US) wanted to file jointly with their spouse on an L2 visa, who earned income in Dubai and traveled frequently between the US and UAE.

Key practitioner insights from the discussion:

On self-employment tax: The 6013(g) election only applies to Chapter 1 income taxes. Self-employment tax falls under Chapter 2. So an electing non-resident alien spouse with self-employment income from a country without a US Social Security totalization agreement (like the UAE) does NOT owe SE tax.

On FEIE eligibility after 6013(g): Once the election is made, the non-resident spouse is treated as a US resident and becomes eligible for Section 911. However, they must still meet either the 330-day physical presence test or the bona fide residence test independently.

On the “abode” problem: If the spouse frequently travels to the US and intends to immigrate, the IRS may challenge whether their foreign home is genuinely their abode — making FEIE eligibility uncertain.

On state tax implications: Some states — Pennsylvania was specifically flagged in the thread — do not recognize the federal FEIE. So income excluded federally may still be taxable at the state level. Always check your state’s conformity before assuming the exclusion flows through.

These are the kinds of multi-layered scenarios that proper EA exam preparation builds towards. Understanding how visa status, treaty provisions, and FEIE qualification tests intersect is what differentiates a passing EA candidate from one who struggles with Part 1.

How an Enrolled Agent Can Help You Navigate FEIE

The Foreign Earned Income Exclusion appears straightforward on the surface — file Form 2555, exclude up to $130,000, done. But as this guide shows,

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An Enrolled Agent is a federally authorized tax practitioner with unlimited representation rights before the IRS — the only credential besides CPAs and attorneys that carries this authority. EAs specialize in individual and small-business tax situations, making them ideal advisors for expats dealing with FEIE planning.

If you’re considering this career path, the Enrolled Agent registration guide walks through the full process. For those already studying, understanding international tax provisions like FEIE gives you a competitive edge — both on the exam and in building a client base of US expats who need qualified help.

For practitioners considering the credential, our comparison of Enrolled Agent vs CPA breaks down which path matches better with your professional objectives.

Frequently Asked Questions

What is the foreign earned income exclusion for 2025?

The FEIE allows qualifying US citizens and resident aliens to exclude up to $130,000 of foreign-earned income from federal income tax for 2025 — up from $126,500 in 2024. You claim it on IRS Form 2555. To qualify, you need a tax home in a foreign country and must pass either the physical presence test (330 full days abroad in any 12-month window) or the bona fide residence test (genuine residency for an entire calendar year). Only earned income qualifies — wages, salaries, and self-employment income. Passive income, like dividends, interest, rental returns, and pensions are excluded from the exclusion.

I travel back to the US frequently for work meetings and family visits. Can those trips disqualify me?

Yes — and this is one of the most common ways expats accidentally fail the physical presence test. Multiple short trips home for holidays, weddings, and business meetings can add up fast. If those trips push you below 330 full days abroad within your 12-month qualifying window, you lose the exclusion entirely. There’s no partial credit for coming close. In our Eduyush community, practitioners stress that clients should maintain a trip log from day one — not try to reconstruct travel history at filing time. Remember, only complete midnight-to-midnight days in a foreign country count. Your departure and arrival days in the US are neither here nor there — they don’t count toward your 330. 

What’s the difference between the foreign housing exclusion and the foreign housing deduction?

They use the same calculation but apply to different types of workers. Employees claim the foreign housing exclusionon Part VI of Form 2555 — it directly reduces gross income. Self-employed individuals claim the foreign housing deduction on Part IX of Form 2555 — it flows through as an adjustment to income on Schedule 1. The critical difference: the housing deduction does not reduce self-employment tax. If you had both W-2 and self-employment income in the same year, you can actually claim both, allocating housing expenses proportionally.

My tax home is abroad, but I kept my US apartment. Does that kill my FEIE claim?

It depends on the specifics, but maintaining a place of abode in the United States is a genuine risk to your claim. In an Eduyush community thread, Jean Mammen EA — a specialist in international tax — cautioned that a US abode can “scuttle FEIE” even when the day count is met. The IRS examines whether you maintained a dwelling in the US where you could live — even if you didn’t actually use it regularly. A storage unit generally doesn’t create an abode problem. An apartment with active utilities and your name on the lease very well might. If you’re being audited on FEIE, this is one of the first things the IRS looks at. 

Can I claim FEIE on a late-filed return?

Yes, with conditions. You can claim the exclusion on a return filed after the normal due date if you either (a) owe no federal income tax after applying the exclusion, or (b) file before the IRS discovers you failed to make the election. If you owe tax even after applying FEIE, the late filing window narrows significantly — you generally need to file within one year of the original due date (without extensions) or amend a timely-filed return. The safest approach is to file on time, even if you need to request the automatic 2-month extension for taxpayers abroad (to June 15) or the additional extension to October 15. 

What happens if I revoke FEIE — and can I get it back early?

1. Not every switch is a revocation. If you return to the US, lose your foreign tax home, and claim FTC because you’re genuinely ineligible for FEIE — that is not a revocation. The 5-year clock only starts when you choose FTC while still qualifying for FEIE. 
2. You can petition for early reinstatement. Through a Private Letter Ruling, you can ask the IRS to allow re-election before the 5 years are up. The IRS has granted this when taxpayers changed employers, moved to a different country, or faced materially different foreign tax rates.

The bottom line: never revoke FEIE casually. Run the comparison math between FEIE and FTC for at least three forward-looking years before making the switch.

Does FEIE eliminate self-employment tax for expats?

No. This is the single most expensive misconception I encounter. FEIE only excludes income from federal income tax. The 15.3% self-employment tax (12.4% Social Security + 2.9% Medicare) still applies in full to your net foreign self-employment earnings.

Your only relief comes from Social Security totalization agreements. If you live and work in a country that has a totalization agreement with the US (UK, Germany, France, Japan, Canada, Australia, and about 25 others), you may be exempt from US SE tax. But if you’re in a country without an agreement — Dubai, Singapore, most of Latin America, most of Africa — you owe US SE tax on every dollar of net self-employment income, regardless of FEIE.

Can a non-resident alien spouse claim FEIE through the Section 6013(g) election?

Yes — this is an advanced planning technique our Eduyush community discussed in depth. When a US resident spouse makes the 6013(g) election, the NRA spouse is treated as a US resident for Chapter 1 (income tax) purposes, making them eligible for IRC Section 911.

• The NRA spouse must independently meet the 330-day physical presence test or bona fide residence test — the election alone doesn’t satisfy this.
• The 6013(g) election applies only to Chapter 1 taxes. Self-employment tax (Chapter 2) is unaffected — meaning an NRA spouse from a country without a totalization agreement remains exempt from US SE tax on foreign self-employment income.
• State tax trap: States like Pennsylvania don’t recognize federal FEIE. Income excluded federally can be fully taxable at the state level if the NRA spouse also elects Pennsylvania resident status under 72 P.S. § 7331©

Do all US states recognize FEIE?

• California: Does not recognize FEIE. All foreign-earned income is taxable if you’re a California resident.
• Pennsylvania: Does not allow FEIE. Also, eliminated the foreign tax credit effective 2014
• New York, Virginia, Massachusetts: Generally conform, but have specific domicile rules that can create unexpected state tax liability
• States with no income tax (TX, FL, NV, WA, etc.): No issue — there’s no state income tax to worry about

Always check your state’s conformity before assuming the federal exclusion flows through to your state return.

Is the FEIE prorated if I only qualify for part of the year?

Yes. The $130,000 limit is a full-year figure. If you meet the qualifying test for fewer than 365 days within the tax year, the exclusion prorates at approximately $356.16 per qualifying day. A taxpayer qualifying for 200 days can exclude roughly $71,233. The same daily proration applies to the foreign housing exclusion — the base amount ($56.99/day) and the standard cap ($106.85/day) also scale proportionally.

Closing: Why FEIE Mastery Matters — Whether You’re an Expat or a Tax Professional

The Foreign Earned Income Exclusion is one of the most powerful tax provisions available to Americans working abroad. At $130,000 for 2025, it can eliminate federal income tax entirely for many expats — especially those in zero-tax jurisdictions like the UAE, the Bahamas, or the Cayman Islands.

But as every practitioner discussion in our Eduyush community shows, the details matter enormously. A missed day in the physical presence count. A US apartment you neglected to give up. A revocation you didn’t realize you were making. These aren’t edge cases — they’re the mistakes that create five-figure tax bills and multi-year complications.

For expats: run the FEIE vs. FTC comparison every year. Keep meticulous travel records. Understand your state’s conformity position. And when the situation gets layered — dual citizenship, 6013(g) elections, housing exclusions in high-cost cities — work with an experienced specialist.

For tax professionals and EA candidates: international provisions like FEIE are in fact the real demand is. The Enrolled Agent credential gives you the authority to represent these clients before the IRS, and the expat tax market is growing year over year. If you’re preparing for the exam, our Enrolled Agent course guide maps out the full study path — and you’ll find that the time you invest in mastering Section 911 pays dividends long after you pass Part 1.