Foreign Earned Income Exclusion Calculator

The foreign earned income exclusion lets an American working abroad exclude up to $132,900 of earned income from US income tax in 2026, plus a housing amount on top. It is the reason most expats owe little or nothing to the US, and it is generous.

It is also narrower than its reputation. It reaches earned income only — wages and self-employment profit for work physically performed abroad. Investment income, dividends, capital gains, rent, pensions and anything US-sourced are entirely outside it. An expat living on a portfolio excludes nothing at all.

And it never touches self-employment tax. This is the single most expensive misunderstanding in expat tax. An American freelancer abroad earning $150,000 can exclude every dollar from income tax and still owe self-employment tax on the whole amount, because section 1401 is not part of the deal. The only route out is a totalisation agreement between the US and the country they live in, which the US has with roughly thirty countries and not with most of the world.

The housing exclusion is not your rent. It is the excess of qualified housing expenses over a base amount, and the base is substantial: 16% of the maximum exclusion, or $21,264 for a full year in 2026. The logic is that you would have paid for housing in the US too, so only the excess is attributable to being abroad.

Qualified expenses are capped as well, at 30% of the exclusion in general. That ceiling is adjustable, and the Form 2555 instructions publish much higher limits for expensive cities — Hong Kong, Singapore, Geneva, London and many others. Anyone in a genuinely expensive city should check the table rather than accept the general figure, because the difference can run to tens of thousands.

Both figures prorate by qualifying days, so a partial year shrinks the base and the ceiling together. Only rent, utilities other than telephone, and insurance count. Mortgage interest, purchase costs, domestic help and anything lavish do not.

The exclusion is not the only way to avoid double taxation. The foreign tax credit gives a dollar-for-dollar credit against US tax for income tax paid abroad, and in a country with rates near or above US rates it is usually worth more, because it can shelter income the exclusion cannot reach and generates carryforwards.

You cannot claim both on the same income. Someone in a high-tax country who takes the exclusion may be discarding foreign tax credits they could have used against their investment income, and the calculation is worth running both ways before filing.

There is a further trap in switching. Revoking the exclusion once claimed generally bars you from electing it again for five tax years without IRS consent. That makes the choice stickier than it looks, and a decision taken casually in a first year abroad can constrain the next five.

Finally, section 911(f) means the exclusion does not lower your bracket. Income that remains taxable is taxed at the rates that would have applied had the excluded income been counted, so the exclusion removes income from the top of the stack rather than the bottom. Someone with substantial investment income alongside excluded wages pays on that investment income at high-bracket rates.