Foreign Earned Income Exclusion (FEIE) for 2024: What You Need to Know

Are you a U.S. citizen or resident working abroad? The Foreign Earned Income Exclusion (FEIE) could significantly reduce your tax burden. For 2024, the FEIE limit has increased to $126,500, offering more tax relief for expatriates. This guide covers the essentials: what FEIE is, how to qualify, and strategies to maximize your benefits.

What is the Foreign Earned Income Exclusion?

The FEIE allows U.S. taxpayers working overseas to exclude a portion of their foreign-earned income from federal taxes. Additional deductions may also apply for foreign housing costs, reducing the risk of double taxation and lowering overall taxable income.

Key Benefits:

• Reduces taxable income from foreign earnings
• Mitigates double taxation
• Offers foreign housing exclusions for high-cost areas

FEIE Limit for 2024

In 2024, the maximum exclusion is $126,500 per qualifying individual. Couples filing jointly, with both partners working abroad, can potentially exclude up to $253,000.

Who Qualifies for the FEIE?

To claim FEIE, you need to meet these criteria:

1. Foreign Tax Home:
   Your main place of business or residence must be outside the U.S.
2. Residency Requirements:
   Choose either:
   • Bona Fide Residence Test:
     Reside in a foreign country for at least one full tax year.
   • Physical Presence Test:
     Be present in a foreign country for at least 330 full days in a 12-month period.
3. Earned Income Requirement:
   Only foreign-earned income, such as wages, self-employment income, or professional fees, qualifies. Unearned income (e.g., interest or dividends) is not eligible.

How the FEIE Works:

1. Calculate Foreign Earned Income:
   Determine the total earnings from foreign work.
2. Apply the Exclusion:
   Exclude up to $126,500 from your taxable income. Partial-year exclusions are prorated based on days abroad.
3. Foreign Housing Deduction:
   Additional exclusions may apply if foreign housing costs exceed $20,240 (16% of the FEIE limit).

Filing Requirements:

• Form 2555: Attach this form to your U.S. tax return.
• Provide documentation to verify your residency and income.

Tips to Maximize Your FEIE:

• Plan Your Travel: Ensure at least 330 days abroad for the Physical Presence Test.
• Track All Income: Maintain detailed records of earnings, expenses, and travel dates.
• Know Local Tax Laws: Some countries have tax treaties with the U.S., offering additional benefits.
• Utilize Housing Deductions: Combine the Foreign Housing Exclusion with FEIE for maximum savings.

Avoid Common Mistakes:

• Residency Errors: Ensure you meet the Bona Fide or Physical Presence requirements.
• Report All Income: Unearned income still needs to be declared.
• State Tax Considerations: States like California may not honor the FEIE, leading to potential state tax liability.

Why the FEIE Matters:

The FEIE helps U.S. expatriates reduce taxable income and avoid double taxation. In 2024, with a limit of $126,500, it’s a powerful tool to keep more of your earnings.

Need Assistance?

Navigating FEIE regulations can be complex, especially with multiple income streams or international tax implications. Our expert tax advisors are here to help you optimize your savings and stay compliant.

Contact us today for a consultation and discover how the FEIE can benefit you in 2024!

Sources:
This information is based on official IRS updates for the 2024 tax year. For more details, visit the IRS website.