What is FEIE?

The Foreign Earned Income Exclusion (FEIE) is a significant tax benefit provided For more info by the IRS to U.S. citizens and residents who meet certain criteria. The FEIE allows eligible taxpayers to exclude a portion of their foreign earned income from U.S. taxation, potentially resulting in a reduced or zero U.S. tax liability on that income.

U.S. citizens and residents are generally required to report their worldwide income to the IRS. However, the U.S. tax system recognizes that U.S. individuals living abroad may face unique challenges and expenses. The FEIE is in place to alleviate some of the tax burden on expatriates.

To claim the FEIE, you must have foreign earned income, your tax home must be in a foreign country, and you must be one of the following:

A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year,
A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year, or
A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.

So, if you earned less than the most recent IRS threshold in foreign income during a tax year, you could potentially exclude your entire foreign earned income from U.S. taxation. The IRS Interactive Tax Assistant can help you determine whether income earned in a foreign country is eligible to be excluded from income reported on your U.S. federal income tax return (Form 1040).