Foreign Earned Income Exclusion

The Foreign Earned Income Exclusion (FEIE) is a provision in the U.S. tax code that allows U.S. citizens and residents living and working abroad to exclude a portion of their foreign-earned income from U.S. federal income tax. This can significantly reduce the taxable income of expatriates. Here’s a detailed explanation:

Key Points About the FEIE

1. Purpose
   • The FEIE is designed to prevent double taxation on income earned abroad, as U.S. citizens are taxed on their worldwide income regardless of where they live.
2. Exclusion Amount
   • For the 2024 tax year, the maximum exclusion is $120,000 per qualifying individual. This amount adjusts annually for inflation.
   • If both spouses work abroad and meet the requirements, each can claim the exclusion, potentially doubling the benefit.
3. Qualified Income
   • Only earned income is eligible for exclusion. This includes:
     • Wages
     • Salaries
     • Professional fees
     • Bonuses
   • Passive income such as dividends, interest, rental income, or capital gains is not eligible.
4. Eligibility Requirements
   • To claim the FEIE, you must:
     • Have a tax home in a foreign country.
     • Meet either the Physical Presence Test or the Bona Fide Residence Test.