2026 FEIE Update: Maximum Exclusion Amount and Annual Rules

The Foreign Earned Income Exclusion (FEIE) amount for 2026 is $132,900, compared with $130,000 for 2025. The number is only the starting point: tax home, foreign earned income, the qualifying period, housing rules, filing status, and the interaction with the Foreign Tax Credit determine whether the exclusion helps in a particular return.

The increase is $2,900, but it is not a refund and it does not mean that every taxpayer can exclude that amount. Use the current IRS instructions and a complete day-count before relying on the figure.

What Is the Foreign Earned Income Exclusion (FEIE)?

The Foreign Earned Income Exclusion (FEIE) is a tax benefit that lets qualifying Americans living abroad exclude foreign earned income from their U.S. tax return. You claim it on Form 2555.

If you earn foreign wages and qualify, Form 2555 may exclude some or all of the qualifying earned income up to the applicable limit. The exclusion does not apply to every income type, does not remove self-employment-tax questions automatically, and may affect the rate applied to other income. Use the FEIE calculator as a planning aid, not a filing determination.

FEIE Limits: Recent History

The IRS adjusts this limit annually for inflation. The jump from $130,000 to $132,900 is a 2.2% increase.

Who Qualifies for the FEIE?

To claim the Foreign Earned Income Exclusion, you must meet three requirements:

1. Foreign Earned Income

The FEIE only covers earned income from foreign sources:

• Wages and salaries
• Self-employment income
• Professional fees
• Bonuses and commissions

It does not cover:

• Investment income (dividends, capital gains)
• Rental income
• Pensions or Social Security
• U.S.-source income

2. Tax Home in a Foreign Country

Your tax home must be in a foreign country. This generally means where your principal place of business is located, not just where you happen to live.

If you work remotely for a U.S. company but live abroad, your tax home is typically where you perform the work — abroad.

3. Meet One of Two Tests

You must meet either the Bona Fide Residence Test or the Physical Presence Test.

Bona Fide Residence Test:

• Be a bona fide resident of a foreign country
• For an uninterrupted period that includes an entire tax year
• Requires demonstrating intent to live abroad (visa, housing, local ties)

Physical Presence Test:

• Be physically present in a foreign country
• For at least 330 full days during any 12-month period
• Days don't need to be consecutive
• Partial days don't count

Most expats use the Physical Presence Test because it's more objective.

The Housing Exclusion Bonus

In addition to the $132,900 income exclusion, you may also qualify for the Foreign Housing Exclusion. This lets you exclude qualifying housing expenses above a base amount.

For 2026, the base housing amount is approximately $21,264 (16% of the FEIE limit). Expenses above this amount, up to certain limits, can also be excluded.

This is particularly valuable if you live in high-cost cities like London, Singapore, or Hong Kong.

Married Couples: Double the Benefit

If both spouses work abroad and each qualifies for the FEIE, you can each claim the full exclusion.

2026 married couple maximum: $132,900 × 2 = $265,800 of excluded foreign income.

You'll each need to file a separate Form 2555, but the combined benefit is substantial.

Self-Employment Tax Warning

Here's something the FEIE doesn't help with: self-employment tax.

Even if you exclude all your income with the FEIE, you still owe the 15.3% self-employment tax on net self-employment income. The FEIE only applies to income tax, not SE tax.

If you're self-employed abroad, factor this into your planning.

FEIE vs. Foreign Tax Credit

The FEIE isn't always the best choice. If you live in a high-tax country (Germany, UK, Scandinavia), the Foreign Tax Credit may save you more.

Quick rule of thumb:

• Low-tax country → FEIE usually wins
• High-tax country → Foreign Tax Credit usually wins
• Income over $132,900 → Consider combination strategy

I wrote a detailed comparison in my FEIE vs. Foreign Tax Credit post.

The Five-Year Revocation Trap

If you claim the FEIE and later revoke your election to switch to the Foreign Tax Credit, you generally cannot re-elect the FEIE for five years without IRS approval.

Think carefully before switching strategies. Run the numbers for multiple years, not just the current year.

How to Claim the FEIE in 2026

1. Determine eligibility using either the Bona Fide Residence or Physical Presence test
2. Calculate your foreign earned income for the year
3. Complete Form 2555 with your Form 1040
4. File by the deadline — for tax year 2026 returns, June 15, 2027 for expats (automatic extension), or October 15, 2027 with Form 4868

If you've never claimed the FEIE before, you must make an election with your first claim. Once made, it continues automatically until revoked.

Planning Ahead for 2026

With the higher $132,900 limit, here's what to consider:

1. Track your days abroad — the Physical Presence Test requires 330 days in a 12-month period
2. Keep housing receipts — if you want to claim the housing exclusion
3. Monitor your income — if you'll exceed $132,900, plan for how to handle the excess
4. Consider timing — you may be able to time income to maximize the exclusion

The Bottom Line

The 2026 FEIE increase to $132,900 means more tax-free income for qualifying Americans abroad. Combined with the housing exclusion, a single expat could potentially exclude $150,000 or more from U.S. taxation.

Make sure you're taking full advantage of this benefit. Not sure whether the FEIE or Foreign Tax Credit is a better fit? Let's look at the numbers together.

Official IRS sources

• About Form 2555
• Foreign earned income exclusion