Tax Forms & Schedules
Form 2555: The Foreign Earned Income Exclusion
Form 2555 is the IRS form U.S. citizens and resident aliens file to claim the foreign earned income exclusion (FEIE), which lets qualifying taxpayers exclude up to $132,900 of foreign wages and self-employment income from U.S. federal tax in 2026. You attach it to Form 1040. To qualify, you must have a foreign tax home and pass either the bona fide residence test or the physical presence test.
The exclusion does not erase your U.S. filing obligation. Americans abroad still file a return if their worldwide income exceeds the standard filing threshold, and the exclusion applies only after you claim it on Form 2555. Skip the form, and the income stays taxable. Excluding income also does not remove separate foreign reporting duties, such as the FBAR (FinCEN Form 114) for foreign accounts.
What Form 2555 does and who files it
Form 2555 claims the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction under Internal Revenue Code section 911. It is filed by U.S. citizens and resident aliens whose tax home is abroad and who have foreign earned income. You attach it to your Form 1040 for the year.
Only earned income qualifies. That means wages, salaries, professional fees, and net self-employment income for services performed in a foreign country. Passive income (dividends, interest, capital gains, pension and annuity payments, and most rental income) does not count as foreign earned income and cannot be excluded under section 911.
The exclusion is also separate from foreign asset disclosure. High-value foreign accounts and assets may trigger the Form 8938 FATCA asset report, and owning a foreign corporation can require Form 5471 for U.S. persons with foreign corporations, regardless of whether you exclude the income.
The form has a companion, Form 2555-EZ, which the IRS retired after the 2018 tax year. All filers now use the full Form 2555 regardless of how simple the situation is.
The 2026 exclusion amount
For tax year 2026, the maximum foreign earned income exclusion is $132,900 per qualifying person, up from $130,000 in 2025. The amount is indexed to inflation each year. Married taxpayers who each qualify may file separate Forms 2555 and exclude up to $132,900 each, for a combined $265,800.
The exclusion is per person, not per return, and it cannot be transferred between spouses. If one spouse earns $200,000 abroad and the other earns nothing, the couple excludes at most $132,900, not $265,800.
| Tax year | Maximum FEIE (per person) | Housing base amount (16%) | Standard housing limit (30%) |
|---|---|---|---|
| 2024 | $126,500 | $20,240 | $37,950 |
| 2025 | $130,000 | $20,800 | $39,000 |
| 2026 | $132,900 | $21,264 | $39,870 |
If you qualify for only part of the year, you prorate the maximum by the number of qualifying days. A person who meets the physical presence test for 200 days of a 12-month period, for example, claims roughly 200/365 of the annual cap.
Bona fide residence test vs physical presence test
You must pass one of two tests to claim the exclusion. The bona fide residence test looks at the nature and intent of your stay abroad and requires residency for an uninterrupted period that includes a full tax year. The physical presence test is a mechanical day count: 330 full days in a foreign country during any 12-month period.
The bona fide residence test is available only to U.S. citizens (and resident aliens who are citizens or nationals of a country with a U.S. income tax treaty). The physical presence test is open to both citizens and resident aliens and ignores intent entirely.
| Feature | Bona fide residence test | Physical presence test |
|---|---|---|
| Core requirement | Resident of a foreign country for an uninterrupted period including a full calendar year | 330 full days in a foreign country during any 12 consecutive months |
| What matters | Intent, ties, length and nature of stay, foreign taxes paid | Day count only |
| U.S. trips allowed | Yes, brief or temporary trips with intent to return | Yes, but every partial day in the U.S. reduces the 330 count |
| Who can use it | U.S. citizens; treaty-country resident aliens | U.S. citizens and resident aliens |
| Best for | Long-term expats settled abroad | Digital nomads, first-year movers, frequent travelers |
Under the physical presence test, a “full day” means a 24-hour period from midnight to midnight spent in a foreign country. Travel days over international waters or U.S. airspace do not count. Miss the 330 threshold by even one day and the test fails for that period, though you can often shift the 12-month window to capture a qualifying stretch.
The bona fide residence test can be more forgiving for settled expats because it permits longer and more frequent U.S. visits, as long as you clearly intend to return to your foreign home without unreasonable delay. Qualification turns on facts, including your visa status, family location, and whether you filed as a resident of the foreign country.
The foreign housing exclusion and deduction
The foreign housing exclusion lets you exclude qualifying housing costs above a base amount, on top of the FEIE. For 2026, you subtract a base amount of $21,264 (16% of the FEIE) from total housing expenses, and the standard cap on excludable housing is $39,870 (30% of the FEIE). The IRS raises that cap for high-cost cities under an annual notice.
Employees claim the foreign housing exclusion; self-employed taxpayers claim the parallel foreign housing deduction. Qualifying expenses include rent, utilities other than telephone, real and personal property insurance, occupancy taxes, nonrefundable security deposits, furniture rental, residential parking, and the fair rental value of employer-provided housing. Mortgage principal, purchased furniture, and domestic labor do not qualify.
IRS Notice 2026-25 sets higher location-specific housing limits for cities where costs exceed the U.S. baseline, covering roughly 137 locations. High-cost hubs such as Geneva, Zurich, Singapore, Hong Kong, and Tokyo carry limits well above the standard $39,870. The notice also lets filers apply a higher 2026 limit retroactively on a 2025 return for the 60-plus locations where the 2026 figure rose.
To reach the housing exclusion, you must first qualify under the same bona fide residence or physical presence test used for the FEIE. Housing costs below the base amount produce no exclusion.
FEIE vs the foreign tax credit
The foreign earned income exclusion (Form 2555) removes foreign income from U.S. tax, while the foreign tax credit (Form 1116) offsets U.S. tax dollar-for-dollar with income taxes paid to a foreign government. You cannot apply both to the same dollar of income, so the better choice often depends on the local tax rate.
In high-tax countries such as the UK, Germany, France, Canada, and Australia, the foreign tax credit often eliminates U.S. tax on the income entirely and, unlike the exclusion, can leave room to claim the refundable Additional Child Tax Credit. In low-tax or no-income-tax jurisdictions, the exclusion tends to win because there are few or no foreign taxes to credit.
| Factor | Foreign earned income exclusion (Form 2555) | Foreign tax credit (Form 1116) |
|---|---|---|
| Mechanism | Excludes income from U.S. tax | Credits foreign income tax against U.S. tax |
| Income covered | Earned income only, up to $132,900 (2026) | Earned and passive income |
| Best when | Foreign tax rate is low or zero | Foreign tax rate is high |
| Child Tax Credit | Excluded income cannot support the refundable credit | Leaves earned income available for the credit |
| Once revoked | Cannot re-elect for 5 years without IRS consent | May switch freely year to year |
High earners often combine the two. You can exclude the first $132,900 of earned income under Form 2555, then claim the foreign tax credit on earned income above the cap and on passive income, provided you never credit tax on income you already excluded.
One trap: electing the FEIE and then revoking it locks you out of the exclusion for the next five tax years unless you obtain IRS consent. Switching from the exclusion to the credit counts as a revocation, so run the numbers before you change course.
How to file Form 2555
You claim the exclusion by completing Form 2555 and attaching it to Form 1040. The form walks through your tax home, the qualifying test, your travel dates, foreign earned income, and the housing figures, then flows the excluded amount to Schedule 1 as a negative adjustment.
- Confirm your tax home is in a foreign country for the qualifying period.
- Choose and document the bona fide residence test or the physical presence test, including exact dates and any U.S. days.
- Report total foreign earned income (wages plus net self-employment income).
- Calculate the housing exclusion or deduction if your costs exceed the base amount.
- Carry the excluded amount to Schedule 1, line 8d, as a subtraction from income.
- Attach Form 2555 to your Form 1040 and file by the applicable deadline.
Because excluded income is pulled off the top, the tax on your remaining income is figured using the Foreign Earned Income Tax Worksheet, which applies the rates that would have applied without the exclusion. This “stacking” rule prevents the exclusion from also lowering the bracket on your non-excluded income.
Americans abroad get an automatic two-month extension to June 15 to file, though interest still accrues on tax owed from the original April deadline. You can request more time with Form 4868 to extend a personal return, and expats can push the date further to meet a qualifying test.
FAQ
What is the foreign earned income exclusion for 2026?
For 2026, the foreign earned income exclusion is $132,900 per qualifying person, up from $130,000 in 2025. The amount is indexed to inflation annually. Married taxpayers who each meet the tests can file separate Forms 2555 and exclude up to $132,900 each, for a combined $265,800. Only foreign earned income (wages and self-employment income) qualifies.
Who qualifies to file Form 2555?
U.S. citizens and resident aliens whose tax home is in a foreign country and who have foreign earned income can file Form 2555. You must also pass either the bona fide residence test (residency for a full tax year) or the physical presence test (330 full days abroad in a 12-month period). The exclusion covers earned income only, not investment or pension income.
What is the difference between the bona fide residence and physical presence tests?
The bona fide residence test looks at intent and requires you to reside in a foreign country for an uninterrupted period that includes a full calendar year, and it is generally available only to U.S. citizens. The physical presence test is a day count, requiring 330 full days in a foreign country during any 12 consecutive months, and it ignores intent. Nomads often use the physical presence test.
Can I claim both Form 2555 and the foreign tax credit?
You can use both, but not on the same dollar of income. Many high earners exclude the first $132,900 of earned income under Form 2555, then claim the foreign tax credit on Form 1116 for income above the cap and for passive income such as dividends and rent. Crediting foreign tax on income you already excluded is not allowed.
Do I still have to file a U.S. tax return if I qualify?
Yes. The exclusion is not automatic and does not remove your filing obligation. If your worldwide income exceeds the standard filing threshold, you file Form 1040 and attach Form 2555 to claim the exclusion. Miss the form, and the foreign income stays fully taxable. Americans abroad get an automatic extension to June 15.
What housing costs can the foreign housing exclusion cover?
The foreign housing exclusion covers qualifying costs above a base amount ($21,264 for 2026), up to a standard cap of $39,870 or a higher city-specific limit under IRS Notice 2026-25. Eligible costs include rent, utilities other than phone, insurance, occupancy taxes, nonrefundable deposits, furniture rental, and parking. Mortgage principal, purchased furniture, and domestic help do not qualify.
What happens if I revoke the exclusion?
Revoking the foreign earned income exclusion, including by switching to the foreign tax credit on the same income, locks you out of the exclusion for the next five tax years unless you get IRS consent to re-elect sooner. Because this choice has multi-year consequences, compare the FEIE and the foreign tax credit carefully before changing your approach.
Reviewed by The Ledgerism Editorial Team. Last reviewed: July 2026.