Form 2555 Explained — Claiming the 2025 Foreign Earned Income Exclusion (FEIE)
If you live and work outside the United States, you may qualify to exclude up to $130,000 of foreign earned income from your 2025 U.S. tax return using Form 2555 (FEIE).
This guide breaks down eligibility rules, the 330-day test, how “tax home” is determined, and the common mistakes that prevent expats from receiving the exclusion.
1. What Is Form 2555?
Form 2555 allows qualifying U.S. citizens and resident aliens to exclude foreign earned income from U.S. taxation.
It applies only to wages, salaries, and self-employment income earned in a foreign country.
2. Who Qualifies for FEIE?
You must meet all of the following conditions:
- Your tax home is in a foreign country.
- You have foreign earned income.
- You meet either:
- Physical Presence Test, or
- Bona Fide Residence Test
3. Physical Presence Test — 330 Days Abroad
You qualify if you spend at least 330 full days outside the United States during any 12-month period.
The 12-month period does not need to be the calendar year, which gives taxpayers flexibility.
4. Bona Fide Residence Test — Establishing Long-Term Residency
This test is based on your intent to live abroad indefinitely.
Factors that help establish bona fide residence include:
- Long-term visa or residency permit
- Local lease or home ownership
- Paying local taxes
- Family or economic ties to the country
5. 2025 FEIE Maximum Exclusion
The 2025 Foreign Earned Income Exclusion amount is:
⭐ $130,000
Both spouses may claim FEIE separately if each qualifies, allowing a combined exclusion of $260,000.
6. When FEIE Does *Not* Apply
- Your employer is U.S.-based and the income is treated as U.S.-sourced.
- You work remotely for a U.S. company while abroad (depends on facts; often considered U.S.-sourced).
- You maintain your tax home in the U.S. even while temporarily overseas.
- Self-employment tax (Social Security + Medicare) is not excluded by FEIE.
- Military or U.S. government employees overseas generally do not qualify.
7. FEIE vs. Foreign Tax Credit
The FEIE may seem appealing, but it is not always the best choice.
In high-tax countries, Form 1116 (Foreign Tax Credit) often results in a lower U.S. tax liability than FEIE.
If you pay high foreign taxes, FTC usually wins.
If you pay little or no foreign tax, FEIE is typically more beneficial.
8. Example Case — How FEIE Works
Daniel works in Singapore and earns $118,000 in 2025. He was physically present abroad for 333 days.
→ He meets the Physical Presence Test.
→ His entire $118,000 qualifies for exclusion (up to the $130,000 limit).
→ His U.S. taxable income is reduced accordingly.
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