FEIE Eligibility & Exclusions
FEIE Tax Rules
- ⚠️ Passive Income: Dividends, interest, rental incomes, and pension distributions do *not* qualify for the exclusion. Only earned salary/wages are eligible.
- ⚠️ Not Automatic: You must actively file Form 2555 to elect this benefit; the IRS will not apply it automatically.
- ⚠️ Foreign Tax Credit: If you exclude income using the FEIE, you cannot claim the Foreign Tax Credit (FTC) on the same excluded income.
Claiming Form 2555?
Excluding self-employment income or combining the FEIE with the Foreign Tax Credit (FTC) requires careful planning to avoid double taxation.
Let us connect you with a qualified expat CPA to structure your Form 2555 election and maximize your savings.
Foreign Earned Income Exclusion (FEIE) FAQ
What is the difference between the Physical Presence Test and Bona Fide Residence Test?
The Physical Presence Test requires you to be physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months. The Bona Fide Residence Test requires you to be a resident of a foreign country for an uninterrupted period that includes an entire tax year (January 1 to December 31) and show clear intent to remain.
Can self-employed individuals claim the FEIE?
Yes. Self-employed U.S. citizens/residents working abroad can exclude their foreign self-employment earnings. However, the exclusion only applies to income tax; it does not exempt you from paying U.S. Self-Employment Tax (15.3% for Social Security and Medicare) unless you reside in a country with a Totalization Agreement with the U.S.
How does the FEIE interact with state taxes?
Many states (like California, New York, and Virginia) do not recognize the federal Foreign Earned Income Exclusion. If you maintain state tax residency, you may still owe state income tax on your excluded foreign earnings. Check our State Tax Treaty Conformity Guide for details.