2026 Foreign Earned Income Exclusion
The 2026 FEIE rises to $132,900. Here's how the tests work, what counts, and when the FTC beats it.
The FEIE is the cornerstone deduction for U.S. expats. This guide reflects the 2026 inflation adjustment from Rev. Proc. 2025-32 and the latest Pub. 54 guidance.
What is the 2026 FEIE amount?
The 2026 Foreign Earned Income Exclusion is $132,900 per qualifying individual. You claim it on Form 2555 after meeting either the Bona Fide Residence or Physical Presence test.
- •FEIE 2026: $132,900 (was $130,000 in 2025)
- •Physical Presence: 330 full days abroad in any 12 consecutive months
- •Bona Fide Residence: full uninterrupted tax year as a foreign resident
- •Excludes income tax only — does NOT exclude SE tax
The Foreign Earned Income Exclusion is the single most valuable line for U.S. expats — but it only excludes earned income (wages, self-employment), not investment income, and as a U.S. citizen you keep filing every year your worldwide gross income — counted before the exclusion — reaches the filing threshold, wherever you live and whether or not your passport is current. Choosing FEIE vs. Foreign Tax Credit isn't obvious, and you can usually only switch one direction without IRS permission.
Real-world scenario
Remote software engineer based in Lisbon, $145K W-2 from U.S. employer
Qualifies via the Physical Presence Test (330 full days in any consecutive 12-month period in a foreign country or countries — days in different countries add up). 2026 FEIE: $132,900 excludable. Remaining $12,100 falls entirely under the $16,100 standard deduction, so federal INCOME tax is $0 (the stacking rule sets the rate on remaining TAXABLE income — with none left, there is nothing to tax) versus roughly $23,500 without FEIE (2026 brackets after the standard deduction, before credits). Housing exclusion applies to rent above the base amount (Lisbon carries a high-cost cap). One thing FEIE never touches: payroll tax. Whether U.S. Social Security and Medicare still apply to these wages depends on the U.S.–Portugal totalization agreement: a worker the employer sends to Portugal for a period not expected to exceed 5 years stays in the U.S. system, while a self-initiated move generally falls under Portuguese social security instead. A certificate of coverage from the country whose system applies documents it.
The part most people miss
FEIE doesn't exclude income from Social Security or self-employment tax. A solo consultant earning $130K abroad still owes 15.3% SE tax (~$18,400) unless their country has a totalization agreement with the U.S. (Portugal does; many don't). Salaried W-2 expats avoid this; freelancers often get blindsided.
2026 Numbers at a Glance
FEIE vs Foreign Tax Credit — which wins?
The FEIE excludes income from your U.S. return. The Foreign Tax Credit (FTC) instead credits foreign taxes you actually paid against U.S. tax. Rule of thumb:
- Low-tax country (UAE, Singapore on certain income, Caymans): FEIE usually wins.
- High-tax country (UK, Germany, France, Australia): FTC usually wins, sometimes generating excess credits to carry forward 10 years.
- Mixed strategy: FEIE on the first $132,900 and FTC on the excess.
- Once you revoke FEIE, you generally can't re-elect for 5 years without IRS consent.
Frequently Asked Questions
Source documents
Sources & References
Primary references used for this content
Foreign Earned Income
FEIE and foreign housing exclusion
View on irs.gov
Tax Guide for U.S. Citizens Abroad
Foreign earned income exclusion and housing amounts
View on irs.gov
Citizens or residents living abroad
Statutory basis for the FEIE
View on law.cornell.edu
✓3 primary sources; links re-checked on a weekly rotation by the source watcher