Overview

Reporting foreign earned income means including wages, salaries, and self‑employment earnings from work performed abroad on your U.S. tax return. The U.S. taxes worldwide income, but eligible taxpayers can use the Foreign Earned Income Exclusion (FEIE) to reduce or eliminate U.S. tax on that foreign earned income. The FEIE amount is adjusted each year by the IRS—always check the IRS FEIE page for the current limit (IRS: Foreign Earned Income Exclusion).

Who typically needs to report

  • U.S. citizens and resident aliens living or working abroad.
  • U.S. taxpayers who travel frequently but earn income for services performed outside the U.S.
  • Self‑employed individuals earning income from foreign services.

Key qualification tests

  1. Physical presence test — You must be physically present in one or more foreign countries for at least 330 full days during any consecutive 12‑month period.
  2. Bona fide residence test — You must be a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year.

See a deeper explanation of qualifications in our guide: How to Qualify for the Foreign Earned Income Exclusion.

How to report and claim the FEIE

  1. Report worldwide income on Form 1040 as usual.
  2. Complete and attach Form 2555 to claim the FEIE and housing exclusion/deduction, if eligible (see IRS: About Form 2555).
  3. If you qualify but miss filing Form 2555, you may lose the exclusion for that tax year—consider amending if eligible.

Steps I follow with clients (practical checklist)

  • Identify the tax year and the applicable 12‑month period for the physical presence test.
  • Reconcile foreign pay records, employer statements, and bank deposits to confirm “earned” income.
  • Calculate the exclusion and any housing exclusion or deduction on Form 2555.
  • Determine whether claiming the FEIE or taking a foreign tax credit (Form 1116) produces the lower U.S. tax—see our comparison: When to Use Form 2555 vs Form 1116 for Foreign Income.
  • File timely or prepare an amended return with Form 1040X if needed.

Interaction with the foreign tax credit and treaties

You can’t double‑dip: the same income generally can’t be fully excluded and claimed for a foreign tax credit. If you pay foreign income tax, compare the FEIE outcome to claiming the Foreign Tax Credit (Form 1116). Tax treaties may modify withholding or residency rules—always check treaty language (IRS Publication 54 for taxpayers abroad).

Self‑employment and Social Security

The FEIE reduces income for income tax but does not exclude net earnings from self‑employment for Social Security (SE) tax unless a totalization agreement applies. Confirm whether your host country has a Social Security agreement with the U.S.

Common mistakes and how to avoid them

  • Forgetting to attach Form 2555 or filing it late.
  • Treating foreign passive income (interest, dividends) as earned income—FEIE covers income for services only.
  • Poor day‑count records for the physical presence test—track passport stamps, flight itineraries, and employer records.

Documentation checklist

  • Copies of Form 2555 and completed Form 1040.
  • Employer statements, pay stubs, and year‑end payslips.
  • Foreign bank statements showing salary deposits.
  • Travel records (passports, tickets) that support physical presence.

When to get professional help

In my 15+ years advising expats, I recommend a tax professional if you have any of the following: multi‑country work periods, self‑employment, overlapping exclusions/credits, or complex treaty issues. Professional help reduces the risk of mistakes that trigger IRS notices.

Where to confirm rules and limits

Related FinHelp articles

Professional disclaimer

This article is educational and does not replace personalized tax advice. For specific guidance tailored to your facts, consult a CPA or tax attorney experienced in international taxation.

Sources

IRS — Foreign Earned Income Exclusion; IRS — About Form 2555; IRS Publication 54.