Here’s How You Can Benefit from the Foreign Earned Income Exclusion (FEIE) as an Expat:
1. Exclude Up to $126,500 (2025) in Foreign Earned Income (FEIE)
If you qualify, you can exclude up to $126,500 of earned income from your U.S. taxable income (per person).
Example:
- You earned $100,000 working in Germany.
- You qualify for FEIE.
- You exclude the entire $100,000 — and pay no U.S. federal income tax on it
If you're married and both spouses qualify, you can exclude up to $253,000 jointly (2 × $126,500).
2. Add a Housing Exclusion for High-Cost Locations
You may also qualify to exclude housing costs above a base amount (~$20,240 in 2025).
Example:
You live in London and pay $40,000/year in rent and utilities.
-You might exclude an additional $15K–$25K, depending on city-specific limits. This helps high-income expats reduce more of their tax liability.
3. Reduce Double Taxation Risk
Without FEIE, you'd owe: U.S. tax and Foreign taxes (to the country you live in)
FEIE lets you avoid U.S. tax on income you're already taxed on abroad — especially helpful if you live in low- or no-tax countries (e.g., UAE, Singapore, etc.).
In higher-tax countries (like Germany or France), you might still benefit more from the Foreign Tax Credit (FTC) — or use both together strategically.
4. Use FEIE to Defer or Minimize U.S. Tax
You might not owe U.S. tax now, but:
You’re still building foreign retirement accounts, saving, investing.
FEIE allows more take-home pay abroad by keeping U.S. tax off your paycheck.
Tip: FEIE can also reduce your Adjusted Gross Income (AGI), which helps with:
- Reducing exposure to U.S. tax brackets
- Lowering thresholds for deductions (like medical expenses)
Avoiding or reducing Net Investment Income Tax (NIIT)
5. Apply It Automatically (if you qualify)
File Form 2555 with your U.S. tax return
Pass one of these residency tests:
Physical Presence Test
(330 full days abroad in 12 months)
Bona Fide Residence Test
(live abroad full tax year and make it your main home)
When the FEIE Might Not Be Best
- You earn more than $126,500 and live in a high-tax country –> the Foreign Tax Credit might give you a better deal
- You have unearned income(rent, dividends, etc.) –> not excluded under FEIE
- You’re self-employed –> you’ll still owe self-employment tax (15.3%), even if income is excluded
Scenario #1
You are a U.S. citizen living in Spain:
Salary: $110,000
Rent: $2,500/month
You pass the Bona Fide Residence test.
Your U.S. tax situation:
Exclude $110,000 using FEIE
Exclude ~$10K–$15K in housing (depends on limits)
Result: $0 in U.S. income tax owed