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What is the Foreign Earned Income Exclusion?
What is the Foreign Earned Income Exclusion?
The Foreign Earned Income Exclusion (FEIE) is a U.S. tax provision that allows qualifying U.S. citizens and resident aliens who live and work abroad to exclude a certain amount of their foreign-earned income from U.S. taxation. As U.S. persons are taxed on their worldwide income, the FEIE can limit the sting of the long-arm of Uncle Sam.
Key Points About the FEIE:
Exclusion Limit: For the 2024 tax year, the maximum exclusion is $126,500 per qualifying individual. This amount is adjusted annually for inflation.
Qualification Criteria: To qualify, you must meet one of the following tests:
Bona Fide Residence Test: You must be a resident of a foreign country for an entire tax year (January 1 – December 31).
Physical Presence Test: You must be physically present in a foreign country for at least 330 full days within a 12-month period.
Only Earned Income is Excludable: This applies to wages, salaries, professional fees, and self-employment income but not passive income like rents, dividends, pensions, or capital gains.
Foreign Housing Exclusion/Deduction: You may also qualify for a housing exclusion or housing deduction for certain living expenses incurred while living abroad.
Filing Requirement: Even if you exclude all foreign income, you must still file a U.S. tax return (Form 1040) and attach Form 2555 to claim the exclusion.
Self-Employment Tax Still Applies: The FEIE does not exclude self-employment tax (Social Security & Medicare) on self-employment income.
International Reporting DFW
Who Should Consider It?
U.S. expats working full-time abroad
Digital nomads earning income outside the U.S.
Entrepreneurs running businesses overseas
Would you like help determining if you qualify or how to claim it? If so, please reach out to us to discuss your options: 817-995-5008 or info@libertytaxdefenders.com.
We're here to help!
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