Earned income from work abroad
Pay for personal services you performed in a foreign country.
TAX GUIDE · 2025 RETURNS
Foreign earned income exclusion, explained.
The foreign earned income exclusion (Form 2555) can reduce the earnings included in your US income tax calculation.
General tax education for the 2025 federal return, not personal tax advice or a determination that a return is supported. Sources checked 22 October 2026.
THE BASICS
Three things must all be true.
Qualifying takes more than living overseas: your work, your home and your time abroad all matter. You need earned income from work abroad, a foreign tax home, and one of two qualifying tests.
A foreign tax home
Your main place of work is abroad and your abode is not in the United States.
Residence or physical presence
You meet the bona fide residence test or the physical presence test.
2025 MAXIMUM$130,000per qualifying person
For 2025, the maximum exclusion is $130,000 per qualifying person, subject to your eligible income and any part-year reduction. It is an income exclusion, not a payment or refund.
WHAT INCOME COUNTS
It follows where you did the work.
The exclusion concerns compensation for services performed in a foreign country. Where your employer is based, where the money arrives, or the currency you are paid in does not decide where it was earned. Work performed during a US visit needs separate attention.
| Type of income | Foreign earned income? | Notes |
|---|---|---|
| Salary, wages, commissions, bonuses, professional fees | May be eligible | For qualifying work performed abroad. Pay you receive this year for work you did abroad last year goes against last year's limit, not this year's; pay for work two or more years back cannot be excluded. |
| Earnings from working for yourself | May be eligible, in part | Only as pay for personal services. Where capital is a material income-producing factor, no more than 30% of net profit can be treated as earned income. |
| Interest, dividends, royalties and other investment income | No | Passive income, not earned income. |
| Pension or annuity payments, including social security benefits | No | Listed by the IRS as not foreign earned income. |
| Pay as a US government employee | No | Listed by the IRS as not foreign earned income. |
| Pay for services in international waters or airspace | No | These are not a foreign country. |
A payment being foreign does not make it eligible. The only foreign earned income is income from personal services performed abroad.
TAX HOME
Where you work, not your lease.
Your tax home is generally the general area of your main place of business, employment or post of duty, where you are permanently or indefinitely engaged to work. It is not simply the address on your lease.
You do not have a foreign tax home for any period your abode is in the United States. Abode turns on your family, economic and personal ties. Maintaining a US dwelling does not by itself put your abode in the US.
THE QUALIFYING TESTS
Meet one of two tests.
Either test can qualify you, alongside a foreign tax home. They measure different things.
Physical presence test
At least 330 full days in foreign countries during any 12 consecutive months.
- For US citizens and resident aliens.
- The days need not be consecutive.
- A full day runs from midnight to midnight.
- International waters and airspace do not count as a foreign country.
- The 12-month period can cross two calendar years.
Bona fide residence test
An uninterrupted period of bona fide residence abroad that includes an entire tax year.
- For US citizens, and qualifying US resident aliens who are citizens or nationals of a US income tax treaty country.
- Depends on your circumstances and intentions.
- Not met just by having spent a year abroad.
ILLUSTRATION ONLY
A 12-month window can cross years
Hypothetical, not an eligibility calculation. The 2025 tax year runs January to December 2025. A possible physical presence window is September 2024 to August 2025. For a 2025 calendar-year return, the exclusion limit depends on your qualifying days within 2025, and a part-year qualification reduces the annual maximum.
LIMIT AND HOUSING
How much can be excluded.
For 2025 the exclusion is the lesser of your foreign earned income or $130,000 per qualifying person, reduced for a part-year qualification. The limit is also constrained by your eligible earnings and any housing exclusion.
Spouses qualify and calculate separately. One spouse's qualification does not automatically cover the other.
Housing exclusion or deduction
| Point | Housing exclusion | Housing deduction |
|---|---|---|
| Generally relates to | Employer-provided earnings | Self-employment earnings |
| Conditions | Requires qualifying conditions | Requires qualifying conditions |
| Limits | A base amount and a location-dependent limit apply | A base amount and a location-dependent limit apply |
Because of the base amount and the limit, the benefit is not your entire rent bill. Buying a home, furniture purchases, meals and property improvements are not qualifying housing expenses. Keep records of reasonable housing costs during the qualifying period.
Not qualified by the filing date?
IRS guidance describes two routes: apply for an extension on Form 2350 to a date after you expect to qualify, or file on time without the exclusion and amend with Form 1040-X after you qualify. Extra time does not remove interest: interest is charged on tax due on the postponed return.
For a 2025 return, a Form 2350 request was due by April 15, 2026, or June 15, 2026 if you qualified for the automatic two months for living abroad. Both dates have passed. Filing dates and extensions
OTHER EFFECTS
What the exclusion does not do.
The right approach depends on your full return and your prior choices.
FOREIGN TAX CREDITSELF-EMPLOYMENT TAX TAX RATES CREDITS
No credit on excluded income
If you also paid income tax abroad, the foreign tax credit deserves a look. You cannot claim a credit for foreign taxes allocated to income excluded under the exclusion.
Understand the foreign tax creditNot reduced
The exclusion does not reduce self-employment tax.
Rates before the exclusion
Tax on your nonexcluded income uses the rates that would apply before the exclusion.
Some credits are affected
Claiming the exclusion can affect eligibility for certain credits, including the additional child tax credit and the earned income credit.
RECORDS
What to have ready.
- Pay statements and where the work was performed.
- Travel dates including US visits and transit days.
- Evidence of your work base and residence abroad.
- Housing expenses and employer-paid amounts.
- Earlier Forms 2555 and any election or revocation statements.
- Original currency amounts and conversion records for US dollar figures.
OUR COVERAGE
What ExpatReturn.us prepares.
Our current 2025 preparation scope includes qualifying foreign earned income exclusion and housing calculations. The interview collects your work, residence, travel and prior-claim details. Income and housing amounts can be entered in another currency and are converted at the IRS yearly average rate for the year; a currency with no rate for the year is refused by name, never converted at a guessed rate.
A prior revocation is handled: declining the exclusion after an earlier claim files a revocation statement, and claiming inside the five-year bar without approval is refused.
A first claim of the exclusion on a Form 1040-X for a 2025 return we e-filed is prepared when the original return was filed on time (extensions count) and the amendment comes within 3 years of that filing. When the original was filed late, or those 3 years have passed, it is refused by name.
Does choosing the exclusion affect later years?
The election generally continues until revoked. After revocation, choosing it again within the next five tax years requires IRS approval. Check previous returns before switching approaches.
Does my spouse qualify if I do?
Not automatically. Spouses qualify and calculate separately.
Is $130,000 a payment I receive?
No. It is the 2025 maximum income exclusion per qualifying person, not a payment or refund.
Does it matter where my employer is based?
No. The source of earned income follows where you performed the work, not where the employer is based, where the money arrives or which currency you receive.
Official sources
- IRS: Foreign earned income exclusion overview (opens in a new tab)
- IRS: 2025 Form 2555 instructions (opens in a new tab)
- IRS: What is foreign earned income? (opens in a new tab)
- IRS: Tax home in a foreign country (opens in a new tab)
- IRS: Physical presence test (opens in a new tab)
- IRS: Bona fide residence test (opens in a new tab)
- IRS: Figuring the exclusion (opens in a new tab)
- IRS: Foreign housing exclusion or deduction (opens in a new tab)
- IRS: Choosing the exclusion (opens in a new tab)
- IRS: Revoking the exclusion (opens in a new tab)
- IRS: Publication 54 (opens in a new tab)
Last reviewed 22 October 2026
CHECK COVERAGE
See what Form 2555 covers today.
Review the forms and limits in our current 2025 preparation scope before you start.
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