Foreign Earned Income Exclusion

Foreign Earned Income Exclusion

The Foreign Earned Income Exclusion (FEIE) is a provision in the U.S. tax code that allows American citizens and resident aliens to exclude a certain amount of their foreign-earned income from U.S. taxation, provided they meet specific criteria.

To qualify for the exclusion, individuals must either pass the Bona Fide Residence Test—demonstrating that they have established a residence in a foreign country for an uninterrupted period that includes an entire tax year—or the Physical Presence Test, which requires being physically present in a foreign country for at least 330 full days during a 12-month period.

For the tax year 2023, the maximum exclusion amount is $120,000, although this amount is subject to annual adjustments for inflation. It is important to note that the exclusion applies only to earned income, such as wages, salaries, and professional fees, and does not cover unearned income like dividends or interest.