FEIE Explained: How Expats Can Save on U.S. Taxes
For U.S. taxpayers living and working abroad, the Foreign Earned Income Exclusion (FEIE) is a powerful tool to reduce taxable income. Starting in tax year 2025, the FEIE limit will increase to $130,000, up from $126,500 in 2024. This increase reflects adjustments for inflation and provides expats, digital nomads, and overseas workers an opportunity to shield more of their income from U.S. taxation.
Who Benefits from the 2025 FEIE Increase?
The new FEIE limit is especially beneficial for:
🔹 Digital Nomads & Remote Workers – If you're earning abroad but maintaining U.S. tax obligations, FEIE helps reduce taxable income.
🔹 Expats on Foreign Payroll – Salaried employees working for non-U.S. companies can exclude a larger portion of their earnings.
🔹 Freelancers & Entrepreneurs – Self-employed professionals with foreign clients can use the exclusion to lower their taxable income.
🔹 Contractors & NGO Workers – Those working on international assignments or for foreign entities can benefit significantly.
How to Qualify for FEIE in 2025
To claim the Foreign Earned Income Exclusion, you must meet one of the following tests:
Physical Presence Test: Spend at least 330 full days outside the U.S. in a 12-month period.
Bona Fide Residence Test: Establish a tax home in a foreign country and reside there for an entire tax year with no intent to return to the U.S. permanently.
Maximizing Tax Savings with FEIE
Housing Exclusion/Deduction: In addition to the FEIE, some expats can claim the Foreign Housing Exclusion for additional savings on housing expenses.
Self-Employment Tax Considerations: Self-employed expats still owe U.S. Social Security & Medicare taxes, even if their income is excluded under FEIE.
State Tax Implications: Some U.S. states still tax residents even if they qualify for FEIE federally. Proper planning is key!
Next Steps for Expats & Nomads
Check Your Eligibility – Ensure you meet either the Physical Presence or Bona Fide Residence test.
Track Your Foreign Earned Income – Only active earned income (not passive income) qualifies.
File Form 2555 – To claim FEIE, you must attach IRS Form 2555 to your tax return.
Final Thoughts
The 2025 FEIE increase to $130,000 is great news for U.S. expats and remote workers, allowing them to exclude more income from taxation. However, tax planning is essential to maximize savings and ensure compliance with IRS rules.
Are you taking advantage of the FEIE? Need help navigating expat taxes? Reach out for expert guidance!
