Expat Tax Equalization 2027
Tax equalization: company makes expat 'whole' so they pay same tax as if home-country assigned. Employer covers excess; expat keeps savings. This estimates hypo tax + equalization payment.
| Salary | — |
| Hypothetical home tax | — |
| Host country actual | — |
| FEIE amount excluded | — |
| US residual after FEIE | — |
| Total actual tax | — |
| Equalization payment | — |
Tax equalization is a common expat package element where the employer makes the assignee 'whole' — they pay no more (and no less) tax than they would have at home. Employer absorbs host-country tax differential.
How Equalization Works
Hypothetical tax computed annually based on stay-home scenario. Expat pays only hypo tax via payroll deduction. Employer pays all actual taxes (host + home residual). At year-end, true-up balances.
Tax Protection Variant
Similar to equalization but employee KEEPS any tax savings from lower-tax host countries. More employee-favorable than equalization. Less common, costlier for employer.
Foreign Earned Income Exclusion (FEIE)
US Section 911: exclude up to $130,000 (2026 est) of foreign earned income from US federal tax. Must meet bona fide residence or physical presence (330 days/yr abroad) test. Combined with FTC for high earners.
Foreign Tax Credit
Alternative or supplement to FEIE: claim credit (not deduction) on US return for foreign income tax paid. Better for high earners in high-tax host countries (UK, Germany, France).
Last updated May 2026. Sources: IRS Foreign Earned Income, IRS Pub 54.