FEIE — Foreign Earned Income Exclusion.
An election on Form 2555 letting qualifying Americans abroad exclude a six-figure amount of earned income from US tax. Popular, often the right answer — and often not, in a high-tax country like the UK.
Figures on this page are stated for tax year 2025/26 UK · 2025 US. Thresholds change annually.
Exclusion versus credit is the real question
You qualify via the physical presence test (330 days abroad) or bona fide residence. But UK tax rates usually exceed US ones, so foreign tax credits alone often wipe the US bill anyway — while leaving excess credits to carry forward and keeping IRA contributions possible. The exclusion covers only earned income, and revoking it locks you out for 5 years.
It is an election with a 5-year memory. We model both routes before filing, every time.
- Covers salary and self-employment income only — not investment income
- Physical presence or bona fide residence required
- Interacts with credits, IRAs and child tax credits
Two ways to qualify
The physical presence test counts days: 330 full days outside the United States during any period of 12 consecutive months. The window does not have to match the calendar year, which helps in the year you move.
The bona fide residence test looks at where you have genuinely made your home, for an uninterrupted period that includes an entire tax year. Most long-term residents of Britain meet it, and it is less sensitive to a few extra days of travel.
| Tax year | Maximum exclusion per person |
|---|---|
| 2026 | $132,900 |
| 2025 | $130,000 |
What it does not cover
Only earned income qualifies: wages, salary and self-employment income for personal services. Pensions, dividends, interest, rental income and capital gains are outside it, so someone living on investment income or a pension gets nothing from the exclusion.
It also interacts with other reliefs. Income you exclude cannot also generate a foreign tax credit, and claiming the exclusion affects the refundable part of the child tax credit. That is why the choice deserves modelling rather than habit.
Questions we get about this
For most people paying British income tax on a salary, the foreign tax credit is at least as good and often better, because British tax usually exceeds the American tax on the same pay. The credit also leaves excess credits to carry forward. Model both before choosing.
No. The exclusion applies only to earned income, meaning pay for personal services. Pension income, investment income and rent are not earned income, so they stay in the American tax base and rely on credits and treaty provisions instead.
Revoking the election means you generally cannot claim it again for five years without IRS consent. That is why the first year's choice matters. Switching back and forth to suit each year is not available.
Yes. The exclusion is claimed on the return, so you must file to use it. Excluded income still counts when deciding whether you meet the filing threshold in the first place.
Related pages
- Glossary
Streamlined Procedures: definition
The catch-up route: 3 years of returns, 6 of FBARs, one certification — penalty-free on the Foreign route.
- Pillar guide
Tax specialists for US and UK
What US and UK tax specialists handle that a general accountant does not: residence tests, treaty relief, FBAR, PFICs, pensions, property and catch-up filings.
- Service
Foreign earned income exclusion
Foreign Earned Income Exclusion explained: Form 2555, the physical presence and bona fide residence tests, the housing exclusion, and when credits beat it.
- Pillar guide
Accountants for US and UK
How to choose accountants for US and UK tax: what each credential permits, how to verify it, what drives the fee, and when you do not need a specialist.
- Free tool
Foreign Earned Income Exclusion
See what the Foreign Earned Income Exclusion covers for your tax year, which qualification test you meet, and when foreign tax credits beat it in the UK.
- Service
Property & capital gains
Cross-border property and capital gains: selling a home, rental income, currency gains and the 60-day UK reporting deadline, handled on both returns.
Further reading
- The foreign housing exclusion: two numbers people keep confusing
Rent in London is high enough that the foreign housing exclusion is worth claiming. It is also worth understanding, because the ceiling on qualifying expenses and the amount you can actually exclude are different numbers.
- Self-employment tax: the 15.3% the exclusion does not touch
The foreign earned income exclusion wipes out the income tax and leaves self-employment tax standing. For an American freelancing in Britain, the answer is a certificate of coverage.
- Building a financial plan when two tax systems both claim you
Most cross-border mistakes are not technical. They happen because two competent advisers each optimise half a position, and nobody owns the join between them.
Last reviewed · Figures stated for tax year 2025/26 UK · 2025 US. Thresholds and rates change annually — check figures against the current tax year before relying on them.
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