Foreign Earned Income Exclusion (FEIE) Calculator 2026 — Form 2555

What Is the Foreign Earned Income Exclusion (FEIE)?

The Foreign Earned Income Exclusion (FEIE), codified at IRC Section 911 and claimed on IRS Form 2555, lets US citizens and resident aliens working abroad exclude up to $130,000 of foreign earned income from US federal income tax in 2026. To qualify, the taxpayer must have a foreign tax home and meet either the Physical Presence Test (330 full days outside the US during any rolling 12-month period) or the Bona Fide Resident Test (uninterrupted bona fide residence in a foreign country for at least one full tax year). Source: IRS Publication 54.

FEIE is an exclusion, not a credit — it removes income from the US tax base entirely. It does not eliminate self-employment tax (Social Security and Medicare still apply unless covered by a Totalization Agreement), and it does not affect FBAR (FinCEN Form 114) or FATCA (Form 8938) reporting obligations. US citizens abroad must file a US return on their worldwide income regardless of where they live.

2026 FEIE Maximum and Proration Rules (Form 2555)

For 2026, the maximum FEIE is approximately $130,000, indexed annually for inflation by IRS Revenue Procedure (final 2026 figure published in Rev. Proc. 2025-19 / 2026-XX). The cap is per taxpayer — married couples where both spouses qualify each receive their own $130,000 ceiling against their own foreign earned income, for a combined family ceiling of $260,000. The exclusion does not transfer between spouses.

If the qualifying period covers only part of the tax year (common for first-year expats and repatriating taxpayers), the maximum is prorated as: $130,000 × (qualifying days in tax year ÷ 365). A taxpayer who qualifies for 200 of 365 days in 2026 is capped at approximately $71,233. The Physical Presence Test counts only full 24-hour days outside the US — travel days and partial days in US airspace don't count. The Bona Fide Resident Test requires an entire uninterrupted tax year of residence abroad before the test can first be met, so most BFR claims start in year two of an expat assignment.

Foreign Housing Exclusion vs Deduction

On top of the FEIE, qualifying taxpayers may exclude or deduct foreign housing costs above a base amount. The base (housing floor) equals 16% of the FEIE — about $20,800 in 2026. Reasonable housing expenses (rent, utilities other than phone, real and personal property insurance, occupancy taxes, parking, leasehold premiums) above this floor are excludable, capped at 30% of FEIE (~$39,000) for standard locations. IRS Notice 2025-XX publishes per-city overrides for high-cost locations: Hong Kong (~$114,300), Tokyo (~$76,000), London (~$77,000), Zurich (~$73,000), Singapore (~$73,000), Paris (~$72,800), Sydney (~$58,000), and Dubai (~$57,200) — verify with the current Notice for 2026.

Employees take a housing exclusion (it reduces gross income on Form 2555 line 36); self-employed taxpayers take a housing deduction (above the line, after FEIE, limited to foreign earned income minus FEIE). Mortgage principal, food, furniture, domestic labor, lavish expenses, and capital improvements are not eligible housing expenses under Section 911(c).

FEIE vs Foreign Tax Credit (FTC)

Many expats can claim either FEIE (Form 2555) or the Foreign Tax Credit (Form 1116) — but not both on the same dollar of income. FEIE works best when the foreign country has lower tax rates than the US (e.g., UAE 0%, Singapore lower brackets, Hong Kong). FTC works better when the foreign country taxes higher than the US (e.g., UK, Germany, France, Australia) because excess FTC carries forward 10 years. Once you elect FEIE, you must use it for five years before revoking — and revocation requires IRS consent for another five. Run the numbers both ways before filing year one. Last updated: May 3, 2026.