Why most expats owe the IRS little or nothing.
The U.S. taxes your worldwide income, but it gives you two big tools so you aren't taxed twice: the foreign earned income exclusion and the foreign tax credit. Choosing the right one, year by year, is where catching up gets a lot cheaper.
The two tools, side by side
| Foreign earned income exclusion | Foreign tax credit | |
|---|---|---|
| Form | Form 2555 | Form 1116 |
| How it works | Leaves foreign wages and self-employment income off your U.S. taxable income, up to a limit | Takes foreign income tax you paid off your U.S. tax, dollar for dollar (within limits) |
| Limit | $130,000 for 2025, $132,900 for 2026 | Based on the U.S. tax on your foreign income; unused credit can carry forward 10 years |
| Covers | Earned income only | Earned and investment income |
| Often best in | Low-tax countries, like Thailand or the Gulf | Higher-tax countries, like Canada, the UK and Australia |
Things the right choice can unlock
How we choose
- 1
Run both ways
For each year, we calculate your U.S. tax with the exclusion, with the credit, and with a mix.
You: share your local tax returns.
- 2
Look ahead
Revoking the exclusion has a 5-year waiting period before you can choose it again, so we think beyond this year.
You: tell us your plans.
- 3
File the best one
The method that gives you the lowest total cost, explained in plain language.
You: review, then print, sign and mail.
Common questions
Can I claim the exclusion on late returns?
Generally yes, including on returns filed through the Streamlined procedures, as long as you meet the requirements. It's one reason catching up is often inexpensive.
Does the exclusion cover my pension or investment income?
No. The exclusion covers only earned income, like wages and self-employment income. Pensions, interest and dividends need the foreign tax credit or a tax treaty.
Do I still have to file if all my income is excluded?
Yes. The exclusion only works if you file a return and claim it, and the filing threshold counts your income before the exclusion.
Curious what you'd actually owe? Often it's zero.
Answer 3 quick questions and our tax team will give you a realistic estimate, for free.
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