Foreign Earned Income Exclusion: Eligibility, 2026 Limit, and Housing

To claim the Foreign Earned Income Exclusion, your tax home must be in a foreign country and you must pass either the bona fide residence test or the physical presence test; if you qualify, you can exclude up to $132,900 of foreign earnings from federal income tax for the 2026 tax year. That cap is up from $130,000 in 2025 and $126,500 in 2024.¹² The rules below determine whether you’re in and how much of your pay actually escapes tax.

Your Tax Home Must Be Abroad

Your tax home is wherever your main place of business or employment sits. That sounds simple, but a second concept sits on top of it. The IRS defines your “abode” as the place where you maintain your family, economic, and personal ties, and if your abode remains in the United States, you don’t have a foreign tax home no matter where the job is.³

Keeping a home in the U.S. doesn’t automatically disqualify you. But the more of your financial and personal life stays anchored domestically, the harder it becomes to show your abode has actually moved. Short overseas assignments while your primary ties remain stateside will not clear this bar.

The Bona Fide Residence Test

This test asks whether you’re a genuine resident of a foreign country for an uninterrupted period that includes at least one full tax year (January 1 through December 31 for most filers).⁴ The IRS looks at your intentions and how deeply integrated you are into local life. A long-term lease, local bank accounts, kids in local schools, and community involvement all help.

Brief trips back to the U.S. for vacation or business don’t break continuity. But if you’ve told the foreign country you’re a nonresident there to sidestep its income tax, expect the IRS to treat that statement as an admission that you’re not a bona fide resident.

The Physical Presence Test

If you can’t establish bona fide residency, you can still qualify by being physically present in one or more foreign countries for at least 330 full days during any 12 consecutive months.⁴ Every counted day is a complete 24-hour period on foreign soil. Days spent traveling between the U.S. and a foreign country generally don’t count, because you weren’t in either place for a full day.

The 330 days don’t have to be consecutive, so short trips home are fine. The math is tight though: 330 days out of 365 leaves only 35 days for U.S. visits over the qualifying year. Miss the threshold by a single day and you lose the exclusion for that 12-month period.

Waiver for War or Civil Unrest

If dangerous conditions force you out of a foreign country before you hit the full-year or 330-day threshold, the IRS can waive the time requirement.⁴ You need to show you were a resident or present in the country before the departure date Treasury designates, and that you would have met the requirement absent the disruption. Treasury publishes an annual list of qualifying countries and dates; recent lists have included Ukraine, Haiti, Lebanon, and Iraq.

What Income Actually Qualifies

Only earned income from personal services performed in a foreign country qualifies. Wages, salaries, bonuses, commissions, and professional fees count, even when your employer is a U.S. company; what matters is where you physically did the work.⁴

Passive and investment income does not qualify at all. Dividends, interest, capital gains, rental income, pension payments, Social Security benefits, and alimony are outside the exclusion regardless of where you live. Royalties only qualify if they’re tied to personal services you performed, not to ownership of property or intellectual rights.

The 2026 Limit and How It Prorates

The maximum for 2026 is $132,900 of qualifying foreign earned income.¹ Earnings above the cap are fully taxable at regular federal rates.

If you don’t qualify for the entire calendar year, the exclusion prorates by qualifying days. For 2026, $132,900 divided by 365 is roughly $364 per day. Move abroad in March with 250 qualifying days and your ceiling is about $91,000, not the full amount.

The Stacking Rule

Even though excluded income doesn’t show up on your taxable income line, it still counts when figuring which bracket applies to whatever income you do owe tax on. The IRS calls this “stacking,” and it means your non-excluded income is taxed at the same marginal rate you would have faced if you hadn’t excluded anything.⁵

In practice, if you earn $200,000 abroad and exclude $132,900, the remaining $67,100 isn’t taxed starting in the lowest bracket. It’s taxed as though it sits on top of $132,900 in income, landing it in higher brackets. Before 2006, excluded income came off the top and the deal was better; that’s no longer how it works.

Foreign Housing on Top of the Cap

Separately from the earned income exclusion, you can exclude or deduct certain foreign housing costs. When an employer pays or reimburses your housing, the excess over a base amount qualifies as a housing exclusion; if you cover housing out of self-employment income, you claim a housing deduction instead.⁶

For 2026, the base housing amount is $21,264 (16 percent of the earned income cap) and the general limit on qualifying housing expenses is $39,870 (30 percent of the cap).⁷ Your housing amount is what you actually spent minus the base, capped at the ceiling. High-cost cities such as Tokyo, London, and Hong Kong get higher limits, listed in the annual IRS notice.

Qualifying costs include rent, utilities (other than telephone), insurance, parking, and similar expenses of maintaining a foreign home for you, your spouse, and your dependents. Mortgage principal, furniture, home improvements, meals, and employer-provided lodging that’s already been excluded from your gross income do not count.⁶

What the Exclusion Does Not Cover

Two boundaries catch people off guard.

First, self-employment tax. The FEIE reduces income tax, not self-employment tax. If you’re a freelancer or independent contractor abroad, you owe the full 15.3 percent (Social Security plus Medicare) on your net earnings even if every dollar is excluded from income tax.⁸ A self-employed expat earning $132,900 might owe zero federal income tax and still face roughly $20,000 in self-employment tax.

Second, the exclusion is per-person, not per-household. When both spouses work abroad and each independently meets the tax home and residency tests, each claims a separate exclusion, for a combined 2026 ceiling of $265,800.⁹ If only one spouse works abroad, only that spouse’s earnings qualify; unused exclusion cannot be shifted to the other.

How to Claim It

You claim the exclusion by attaching Form 2555 to your Form 1040 or 1040-SR.¹⁰ The form asks for:

Every date you entered or left the United States, including time in international waters, since that log drives the 330-day count.
The full name and address of your foreign employer, or your business address if you’re self-employed.
Your foreign earnings broken out into wages, bonuses, allowances, and non-cash compensation.
For the bona fide residence test, documentation such as work visas, local leases, and utility bills showing your presence in the country.

U.S. citizens and resident aliens living abroad get an automatic two-month filing extension, moving the deadline from April 15 to June 15 with no request required.¹¹ Interest on unpaid tax still runs from April, so pay by April 15 if you can. A further extension to October 15 is available on Form 4868.

Keep copies of the return, passport pages with entry and exit stamps, and supporting documentation for at least three years after filing. If you missed the exclusion in a prior year, you can still claim it retroactively on an amended return, though the process gets harder the longer you wait.

1
Internal Revenue Service. Figuring the Foreign Earned Income Exclusion
2
Internal Revenue Service. 2024 Instructions for Form 2555
3
Internal Revenue Service. Foreign Earned Income Exclusion – Tax Home in Foreign Country
4
Office of the Law Revision Counsel. 26 USC 911 – Citizens or Residents of the United States Living Abroad
5
Internal Revenue Service. Calculating Foreign Earned Income Exclusion – Employee
6
Internal Revenue Service. Foreign Housing Exclusion or Deduction
7
Internal Revenue Service. Determination of Housing Cost Amounts Eligible for Exclusion or Deduction for 2026 (Notice 2026-25)
8
Internal Revenue Service. Self-Employment Tax for Businesses Abroad
9
eCFR. 26 CFR 1.911-5 – Special Rules for Married Couples
10
Internal Revenue Service. Instructions for Form 2555 (2025)
11
Internal Revenue Service. U.S. Citizens and Resident Aliens Abroad – Automatic 2-Month Extension of Time to File