What’s New for FEIE in 2026
The IRS has updated key thresholds and limits under the Foreign Earned Income Exclusion (FEIE) and Foreign Housing Exclusion/Deduction:
- FEIE maximum for 2026 is $132,900 (up from $130,000 in 2025). (irs.gov)
- Base housing amount (a deduction floor) is now 16% of the FEIE limit: $21,264 for the full year. (irs.gov)
- Maximum housing expense limit is 30% of the FEIE: $39,870 if qualifying the entire year. Some locations get higher adjustments based on geographic cost indices. (irs.gov)
Qualifying Requirements: Stay in the Game Right
To benefit from FEIE or the housing exclusions/deductions, you must meet several criteria:
- Be a U.S. citizen or resident alien. (irs.gov)
- Maintain a tax home in a foreign country. Summary: your primary place of business or employment must be abroad. (irs.gov)
- Meet either the Physical Presence Test (330 full days in a 12-month period outside the U.S.) or the Bona Fide Residence Test (an uninterrupted period that includes a full U.S. tax year). (irs.gov)
- File Form 2555 (attach it to Form 1040) to elect the exclusion and/or housing deduction. (irs.gov)
Interaction with Other Provisions: What Can’t You Do at the Same Time
- No Foreign Tax Credit or Deduction on income you exclude via FEIE or housing exclusion. Only credits/deductions apply to income that is not excluded. (irs.gov)
- Additional Child Tax Credit unavailable in years you claim FEIE or housing exclusion/deduction. (irs.gov)
- Earned Income Credit (EIC) is also not available when either exclusion or deduction is chosen. (irs.gov)
Planning Tips & Examples for 2026
| Scenario | How to Benefit in 2026 |
|---|---|
| Stay abroad in one country for entire 12-month year | Fully use FEIE ($132,900) plus housing limit ($39,870) after subtracting base housing component ($21,264) if housing costs high. |
| Two U.S. citizens married, both qualifying | Each can claim the FEIE separately – potential total exclusion up to $265,800 if both eligible. |
| Work intermittently abroad or partial year abroad | Prorate both FEIE and housing limits based on number of qualifying days. |
| Live in high-cost cities (Tokyo, London, etc.) | Use adjusted housing limits specific to those locations to exceed the general cap. |
Example: Jane, a U.S. citizen, lives in Paris for all of 2026, meets bona fide residence test. She has foreign earned income of $130,000 and housing expenses of $45,000. She can exclude $132,900 income, claim $39,870 housing expenses (subject to base housing amount). Excess expenses beyond caps are not excludable.
Action Steps
- Track days abroad & tax home status early in the year.
- Collect proof of residence and foreign tax home (lease, bills, contracts).
- Research location-specific housing limits early — some locations adjust upward.
- Account for income types properly — wages vs bonuses, tips, etc.—and how they’re reported.
- Use IRS Publication 54 and Form 2555 instructions for precise computation.
With these updates and insights, qualifying individuals can strategically reduce taxable income and housing-related burdens while staying compliant. If needed, consult a tax professional with expertise in expat tax law.