The Foreign Earned Income Exclusion, and its five-year memory.
The FEIE lets qualifying Americans abroad exclude a substantial amount of earned income from US tax — $132,900 for 2026 and $130,000 for the 2025 tax year, indexed annually. It is the best-known expat relief and, in the UK, often not the best one.
Figures on this page are stated for tax year 2025/26 UK · 2025 US. Thresholds change annually.
Qualifying is a factual test
You qualify either by physical presence — 330 full days outside the United States in any rolling twelve months — or by bona fide residence, which means being settled abroad for an uninterrupted tax year with the intent and the ties to match.
Only earned income counts: salary, wages and self-employment profit. Dividends, interest, rent, pensions and capital gains never qualify, however long you have been abroad. A separate housing exclusion can extend the relief where accommodation costs are high.
- 330 days abroad, or bona fide residence for a full tax year
- Earned income only, with a per-person cap
- The housing exclusion stacks on top in expensive cities
Electing it closes doors
Excluded income cannot also generate foreign tax credits, and it does not count as compensation for IRA purposes. It can also cost you the refundable portion of the child tax credit — a real cash difference for families.
Revoking the election locks you out of it for five years without IRS consent. In a high-tax country like the UK, credits alone usually eliminate the US bill anyway, which is why we model both before the first return rather than defaulting to the famous one.
Questions we get about this
An inflation-adjusted cap - $132,900 of earned income for 2026, $130,000 for 2025 - available per qualifying person, so a working couple each has their own.
The exact figure changes annually, and we apply the one in force for the year being filed.
Yes. The exclusion is an election made on a filed return - it does not exist unless Form 2555 is submitted.
The FBAR and any other disclosure forms remain due as normal, regardless of the exclusion.
For most UK employees, credits - they cover all income types, build carryforwards and protect IRA and child tax credit eligibility.
The exclusion tends to win in genuinely low-tax countries, or where UK tax on the income is unusually light.
Under physical presence, possibly not - the 330-day test is strict and counts full days outside the country across a rolling twelve months.
Bona fide residence is more forgiving about travel, which is why the choice of test matters for people who visit the US regularly.
Related pages
- Service
IRS Form 3520
Form 3520 explained: reporting foreign gifts and inheritances over $100,000, foreign trust transactions, Form 3520-A, and the 25% penalty for missing it.
- Glossary
FEIE: definition
The Foreign Earned Income Exclusion — Form 2555 and the choice against foreign tax credits.
- 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.
- 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.
- 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.
- Service
183-day US residence status
The US 183-day rule explained: the substantial presence test formula, exempt individuals, the closer connection exception and the treaty tie-breaker.
Further reading
- Form 2555 or Form 1116: choosing your relief from the UK
Both reliefs can zero your US tax on a UK salary. Only one keeps your refundable credits and IRA room - and switching back later is not quick.
- Filing a US return from the UK: what actually changes
The obligation does not go away when you move. What changes is which reliefs you claim and in what order.
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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