To fill out Form 2555, you confirm you qualify under either the bona fide residence test or the physical presence test, report your foreign wages and housing costs across the form’s six parts, and attach the completed form to your Form 1040. The form lets U.S. citizens and resident aliens exclude up to $132,900 of foreign earned income for 2026, plus a portion of foreign housing costs.1Internal Revenue Service. Figuring the Foreign Earned Income Exclusion The steps below walk through each part in order, with the numbers and rules you need at each stage.
Confirm You Qualify Before You Start
Two conditions apply to every filer. You need foreign earned income, meaning wages, salaries, professional fees, or self-employment income for work performed in a foreign country. Investment income, pensions, and Social Security benefits don’t count. Your tax home must also be in a foreign country. Under 26 U.S.C. ยง 911(d)(3), you cannot claim a foreign tax home for any period when your “abode” is in the United States, unless you’re serving in a combat zone.2Office of the Law Revision Counsel. 26 USC 911 – Citizens or Residents of the United States Living Abroad In practice, your main home and economic ties need to be overseas, not just a temporary work assignment while your family stays stateside.
Then you must pass one of two tests.
Bona Fide Residence Test
You qualify if you’ve been a genuine resident of a foreign country for an uninterrupted period covering at least one full tax year (January 1 through December 31 for calendar-year filers).3Internal Revenue Service. Foreign Earned Income Exclusion – Bona Fide Residence Test The IRS weighs your intentions and the depth of your ties: long-term lease, local bank accounts, community involvement, children in local schools. Short business trips back to the U.S. don’t automatically break the residency period; moving your life back does.
Physical Presence Test
If bona fide residence doesn’t fit, you can qualify by being physically present in one or more foreign countries for at least 330 full days during any 12 consecutive months. The days don’t have to be consecutive, but each must be a complete 24-hour period outside the U.S.4Internal Revenue Service. Foreign Earned Income Exclusion – Physical Presence Test Time in transit over international waters or on brief U.S. layovers generally doesn’t count. Keep a detailed travel log with entry and exit dates.
Waiver for War or Civil Unrest
If war, civil unrest, or similar dangerous conditions forced you to leave a foreign country, the IRS can waive the time requirements. You must show you reasonably expected to meet the full-year or 330-day threshold before conditions forced your departure, and that you had a tax home in that country at the time.4Internal Revenue Service. Foreign Earned Income Exclusion – Physical Presence Test The IRS publishes an annual Revenue Procedure listing eligible countries and dates.
Gather Your Documents
Before opening the form, pull together your employer details, foreign address, a full travel log with dates for every entry into and exit from the United States, pay stubs or income statements showing foreign earnings, and housing receipts if you plan to claim the housing exclusion. Download the current Form 2555 and its instructions from IRS.gov. Having everything in front of you keeps the process from stalling.
Working Through the Six Parts of Form 2555
Part I: General Information
Enter your foreign address, occupation, employer name, and employer type: foreign company, U.S. company, self-employed, or foreign affiliate of a U.S. company.5Internal Revenue Service. Form 2555 – Foreign Earned Income If you’ve filed Form 2555 before, enter the most recent year you did. The IRS uses this section to confirm your tax home is genuinely foreign.
Part II or Part III: Your Qualifying Test
Complete Part II if you’re claiming bona fide residence, or Part III for physical presence. You fill out one or the other, not both. Part III is where your travel log matters: list each trip by date and destination to prove you met the 330-day threshold. The IRS will do the math, and a miscounted day can disqualify the entire exclusion.
Part IV: Foreign Earned Income
Report all income earned for services performed in a foreign country: wages, salaries, bonuses, commissions, and self-employment income. Non-cash compensation counts too. If your employer provided housing, meals, a car, or other benefits, list them at fair market value on line 21.5Internal Revenue Service. Form 2555 – Foreign Earned Income Separate income earned in the current tax year from income received this year but earned in a prior year. The Part IV total is the starting point for the exclusion.
Parts V and VI: Housing and Income Exclusion
Part V calculates the foreign housing exclusion (for employees) or deduction (for the self-employed). Part VI then determines how much of your remaining foreign earned income you can exclude, up to the $132,900 cap for 2026.1Internal Revenue Service. Figuring the Foreign Earned Income Exclusion Housing is calculated first because it reduces the income available for the earned income exclusion. If you weren’t abroad for the full tax year, both exclusions get prorated based on qualifying days.
How the Housing Exclusion Math Works
The housing exclusion covers reasonable expenses you actually paid for foreign housing: rent, utilities, insurance, and residential parking for you and family members who lived with you. It does not cover mortgage payments, furniture purchases, home improvements, domestic labor, or anything the IRS considers lavish.6Internal Revenue Service. Foreign Housing Exclusion or Deduction
Two numbers drive the calculation. For 2026, the base housing amount you subtract from your actual expenses is $21,264 (16% of the $132,900 maximum exclusion). The general cap on housing expenses you can claim is $39,870 (30% of $132,900).7Internal Revenue Service. Determination of Housing Cost Amounts Eligible for Exclusion or Deduction for 2026 Your housing exclusion is the difference between qualifying expenses (up to the cap) and the base amount.
The IRS adjusts the housing cap upward for expensive cities. For 2026, Hong Kong’s annual limit is $114,300, Geneva’s is $116,900, London’s is $68,600, and Berlin’s is $44,100.7Internal Revenue Service. Determination of Housing Cost Amounts Eligible for Exclusion or Deduction for 2026 If you live in a higher-cost location, look up your city in IRS Notice 2026-25 before completing Part V. The difference can be worth tens of thousands of dollars. Keep your lease, utility bills, and insurance receipts as backup.
Filing the Form and Meeting the Deadline
Attach the completed Form 2555 to your Form 1040 (or Form 1040-NR) and file the combined return. E-filing is faster and gives you an immediate confirmation of receipt. Most tax software used by expats supports Form 2555, and the IRS generally processes e-filed returns within 21 days.8Internal Revenue Service. Processing Status for Tax Forms
If you file on paper, the mailing address depends on whether you’re enclosing a payment:9Internal Revenue Service. Where to File Form 1040 Addresses for Taxpayers and Tax Professionals
- No payment enclosed: Department of the Treasury, Internal Revenue Service, Austin, TX 73301-0215, USA
- Payment enclosed: Internal Revenue Service, P.O. Box 1303, Charlotte, NC 28201-1303, USA
Use a mailing service with tracking when sending documents from overseas. Paper returns take six weeks or longer to process.10Internal Revenue Service. Refunds
U.S. citizens and resident aliens living abroad get an automatic two-month extension to file, pushing the deadline from April 15 to June 15 without filing any paperwork.11Internal Revenue Service. U.S. Citizens and Resident Aliens Abroad Any tax you owe is still due by April 15, and interest starts accruing on unpaid balances from that date.
If you haven’t yet met the physical presence or bona fide residence test by your filing deadline but expect to qualify later in the year, file Form 2350 to request an extension specifically for this situation.12Internal Revenue Service. Application for Extension of Time To File U.S. Income Tax Return Form 2350 is a one-time tool for your first year abroad. For later extensions, use Form 4868. Form 2350 extends only the filing deadline, not the payment deadline.
Two Things To Know Before You Commit
Income Above the Exclusion Is Taxed at Higher Brackets
Income above the exclusion doesn’t start at the 10% bracket. The IRS uses a stacking rule: your non-excluded income is taxed at the rates that would have applied if the excluded income were still part of your total.13Internal Revenue Service. Foreign Earned Income Exclusion If you earned $180,000 and excluded $132,900, the remaining $47,100 is taxed as if it were the slice between $132,901 and $180,000, putting much of it in the 24% bracket. You calculate this using the Foreign Earned Income Tax Worksheet in the Form 1040 instructions for line 16. Long-term capital gains and qualified dividends keep their preferential 0%, 15%, or 20% rates.
The Election Locks You In
Filing Form 2555 elects the exclusion for the current year and every future year. You don’t re-elect annually.14Internal Revenue Service. Choosing the Foreign Earned Income Exclusion You can revoke it later, but once revoked you cannot re-elect the exclusion until the sixth taxable year after revocation, unless the IRS approves a private letter ruling.15Office of the Law Revision Counsel. 26 USC 911 – Citizens or Residents of the United States Living Abroad Revoke for 2026 and you’re locked out until 2032.
You also cannot claim both the Foreign Earned Income Exclusion and the Foreign Tax Credit on the same dollars. Taking a credit or deduction for taxes on income you excluded (or could have excluded) triggers an automatic revocation.14Internal Revenue Service. Choosing the Foreign Earned Income Exclusion In some high-tax countries, running the numbers under the Foreign Tax Credit alone before you file Form 2555 is worth the effort.