What is the Foreign Earned Income Exclusion? The Foreign Earned Income Exclusion (FEIE) is a US-specific tax provision that lets qualifying Americans living abroad exclude a set amount of foreign-earned income from US federal income tax each year, provided they meet a physical-presence or bona-fide-residence test. It exists because the US taxes citizens on worldwide income regardless of residency, unusual among countries, so the FEIE prevents double taxation on earned income for Americans genuinely based abroad.
To qualify, you generally must pass either the Physical Presence Test (330 full days outside the US in any 12-month period) or the Bona Fide Residence Test (established residency in a foreign country for a full tax year). The exclusion applies only to earned income (wages, self-employment income), not passive income like dividends, interest, or capital gains.
Worked example: a US freelancer earns $95,000 from foreign clients while living abroad and passing the Physical Presence Test. The FEIE limit adjusts for inflation every year and has recently sat in the $120,000-$130,000 range, so the entire $95,000 is excluded from US federal income tax regardless of the exact current-year figure. Self-employment tax (Social Security/Medicare) still applies separately and is not excluded by the FEIE.
| Income type | Covered by FEIE? |
|---|---|
| Foreign wages/self-employment | Yes |
| Dividends, interest, capital gains | No |
| US self-employment tax | No, still owed |
The FEIE limit and the qualifying tests both have specific day-count and travel requirements that can change, so US nomads should verify the current-year figure and test rules directly with the IRS rather than relying on a prior year’s numbers.