Foreign Earned Income Exclusion: 2026 Eligibility and Limit

The foreign earned income exclusion is an election for qualifying foreign earned income. For tax year 2026, its maximum is $132,900 per qualifying person, subject to the qualifying period and other limits. Living overseas alone does not establish eligibility.

Start with the income year

A return filed during 2026 usually reports 2025 income, whose maximum exclusion is $130,000. The $132,900 figure applies to 2026 income normally reported in 2027. Use the return year on Form 2555, not the year a tax article was published.

Establish a foreign tax home

You must have a tax home in a foreign country throughout the relevant qualifying period. Your tax home generally follows your principal place of business or employment. The IRS also considers whether your abode remains in the United States. A Florida address, foreign visa or long trip cannot independently resolve this test.

Choose a qualifying residence or presence test

The physical presence test requires at least 330 full days in foreign countries during a consecutive 12-month period. Time over international waters generally does not count as presence in a foreign country. The bona fide residence test instead requires an uninterrupted period including an entire tax year and eligibility under the citizenship or treaty rules. It turns on the nature of the residence, not just a day total.

Keep arrival and departure times, passport records and contracts. A qualifying 12-month period can cross calendar years; the annual exclusion may then be prorated.

Classify excluded and remaining amounts

The exclusion generally concerns compensation for services performed abroad. Dividends, capital gains, pensions and Social Security are not foreign earned income for this purpose. A US employer or US bank account does not by itself make foreign-performed services US-source.

FEIE does not eliminate self-employment tax. Foreign housing relief has separate limits. Tax on income remaining after the exclusion uses the applicable stacking calculation, so subtracting the exclusion from wages and using a simple bracket calculator is not a complete federal return.

Compare the credit before electing

You cannot claim a foreign tax credit for taxes allocable to excluded income. Compare the foreign tax credit using the same income, country and year. Revoking an exclusion election can restrict later re-election without IRS approval. Use Form 2555 and retain the eligibility calculation with the return.

Sources and scope

• IRS: foreign earned income exclusion
• IRS: the physical presence test
• IRS: tax home in a foreign country
• IRS: self-employment tax for businesses abroad
• IRS: foreign tax credit

Source review: September 17, 2026. This guide explains general rules and preparation steps. Your filing position depends on your facts and the rules for the relevant tax year.