Form 2555: the foreign earned income exclusion

1Qualifying: the two tests

Your tax home must be in a foreign country, and you must meet one of these:

• Bona fide residence test: you're a genuine resident of a foreign country for a full calendar year. Available to U.S. citizens (and some green card holders under treaties).
• Physical presence test: you're physically in foreign countries for at least 330 full days in any 12-month period.

330 full days. Travel days to the U.S. don't count.

2What it covers

3The housing exclusion

On top of the income exclusion, employees can exclude part of their foreign housing costs above a base amount, up to a limit that's higher in expensive cities like London, Sydney, Hong Kong or Tokyo. For a full year in 2026, the base amount is $21,264 and the usual limit is $39,870, so unless you live somewhere the IRS lists as higher-cost, you can exclude up to $18,606. Self-employed people can take a housing deduction instead.

4When not to use it

• You live in a higher-tax country and the foreign tax credit already wipes out your U.S. tax.
• You have children and could claim the refundable child tax credit using the credit instead.
• You want to contribute to an IRA.

Catching up on past years? The exclusion can usually still be claimed on late returns, including under the Streamlined Foreign Offshore Procedures. See IRS tax amnesty options for expats.

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