US Expat Tax · FEIE
The Foreign Earned Income Exclusion explained
The Foreign Earned Income Exclusion (FEIE), claimed on Form 2555, lets qualifying Americans abroad exclude their foreign earned income from US tax up to an annually-set limit. You qualify by having a foreign tax home and meeting either the bona fide residence test or the physical presence test (at least 330 full days abroad in a 12-month period). It applies only to earned income — not investment, rental or pension income — and for many Americans in the UK the Foreign Tax Credit is the better choice.
The Foreign Earned Income Exclusion is one of the two main ways Americans abroad avoid double taxation. Claimed on IRS Form 2555, it lets you exclude your foreign earned income from US tax up to a limit that is set annually and rises with inflation.
The crucial word is earned. The FEIE only covers pay for services — wages and self-employment income. It does not cover investment income, dividends, rental income or pensions; for those, the Foreign Tax Credit is usually the relevant relief.
To qualify, you need a tax home in a foreign country and you must meet one of two tests — the bona fide residence test or the physical presence test. And there is an important catch for people in the UK: because UK tax rates are generally higher than US rates, the FEIE is often not the best choice here. The Foreign Tax Credit frequently does more — which is why the decision deserves real thought before you elect.
FEIE at a glance
- Form
- Form 2555
- Excludes
- Foreign earned income
- Limit
- Set annually (inflation-linked)
- Covers
- Wages & self-employment only
- Qualify via
- Bona fide residence OR 330 days
- Re-electing
- 5-year rule after revoking
Who the FEIE typically suits
- Americans in lower-tax countries or situations
- Those whose earned income is below the annual exclusion limit
- Self-employed people working abroad
- New arrivals before Foreign Tax Credit carryforwards build up
- People without significant investment, rental or pension income
- Those who clearly meet the bona fide residence or 330-day test
The two qualifying tests
Bona fide residence test. You are a genuine, settled resident of a foreign country for an uninterrupted period that includes an entire US tax year. This is about the substance of your life abroad, not just day-counting.
Physical presence test. You are physically present in a foreign country or countries for at least 330 full days during any 12 consecutive months. The days need not be consecutive, but they must be full days — and the 12-month window can be chosen to your best advantage.
FEIE vs the Foreign Tax Credit
This is the decision that matters most. For Americans in the UK the comparison usually favours the Foreign Tax Credit — but not always, and the two can sometimes be combined across different slices of income.
| FEIE | Foreign Tax Credit | ||
|---|---|---|---|
| Form | Form 2555 | Form 1116 | |
| How it works | Excludes earned income up to a set limit | Credits foreign tax paid against US tax | |
| Best when | Foreign tax is low or nil | Foreign tax rate is higher (e.g. UK) | |
| Covers investment & rental income | |||
| Can create carryforwards | |||
| Election can be "sticky" | Yes — 5-year rule on re-electing | No |
- Form
- Form 2555
- How it works
- Excludes earned income up to a set limit
- Best when
- Foreign tax is low or nil
- Covers investment & rental income
- Can create carryforwards
- Election can be "sticky"
- Yes — 5-year rule on re-electing
FEIE
- Form
- Form 1116
- How it works
- Credits foreign tax paid against US tax
- Best when
- Foreign tax rate is higher (e.g. UK)
- Covers investment & rental income
- Can create carryforwards
- Election can be "sticky"
- No
Foreign Tax Credit
- Form
- How it works
- Best when
- Covers investment & rental income
- Can create carryforwards
- Election can be "sticky"
Read the other side in full on our Foreign Tax Credit guide, or estimate your double-tax position.
Common mistakes we see
The recurring errors: treating investment or rental income as earned and trying to exclude it; miscounting the 330 days (part-days and travel days catch people out); defaulting to the FEIE in the UK when the Foreign Tax Credit would have left them better off; and revoking the election without realising they then cannot re-elect for five years without IRS approval.
Related forms and reliefs
The FEIE (Form 2555) sits alongside the Foreign Tax Credit (Form 1116) and the US–UK tax treaty. Used together correctly, they ensure you are not taxed twice — and that you keep as many future credits as possible.
How we handle it
The right election, made deliberately
Check eligibility
We confirm whether you meet the bona fide residence or physical presence test, and that your income qualifies.
Model the options
We compare the FEIE against the Foreign Tax Credit — and combinations — for your specific income mix.
Elect & file
We make the election correctly on Form 2555, or advise the Foreign Tax Credit instead where it serves you better.
Plan ahead
We keep the multi-year picture in view, so an election today does not cost you in future years.
Related areas we handle
Frequently asked questions
The Foreign Earned Income Exclusion (FEIE) lets qualifying US persons living abroad exclude their foreign earned income from US tax, up to an annually-set limit, by filing IRS Form 2555. It applies only to earned income — wages and self-employment income — not to investment, rental or pension income.
You must have foreign earned income, a tax home in a foreign country, and meet one of two tests: the bona fide residence test (being a genuine resident of a foreign country for an uninterrupted period that includes a full tax year), or the physical presence test (being physically present in a foreign country for at least 330 full days during any 12-month period).
The physical presence test is met if you are physically present in a foreign country or countries for at least 330 full days during a period of 12 consecutive months. The 330 days do not need to be consecutive, but they must be full days, and the 12-month window can be chosen to your advantage.
No. The FEIE applies only to earned income — broadly, pay for services such as wages and self-employment income. Investment income, dividends, rental income and pensions are not earned income and cannot be excluded under the FEIE. The Foreign Tax Credit is usually the relevant relief for those.
For many Americans in the UK the Foreign Tax Credit works better, because UK tax rates are generally higher than US rates and the credit can fully offset the US liability while building carryforwards. The FEIE tends to suit those in lower-tax situations or below the exclusion limit. The right choice depends on your income mix, and combining them requires care.
You can revoke a FEIE election, but once revoked you generally cannot elect it again for five years without IRS approval. This is why the FEIE-versus-Foreign-Tax-Credit decision should be made deliberately, ideally with advice, rather than defaulted into.
Is the FEIE actually your best option?
For many Americans in the UK it isn't — and the election is hard to undo. Book a free consultation and we'll model the FEIE against the Foreign Tax Credit for your situation.