How to File Form 2555 for Foreign Earned Income

U.S. citizens and resident aliens living and working abroad may be eligible for the Foreign Earned Income Exclusion (FEIE). The purpose of the FEIE is to mitigate double taxation, where income is taxed by both the foreign country and the United States. This provision allows qualifying individuals to exclude a portion of their foreign-earned income from U.S. federal income tax, but the exclusion is not automatic. Filing Form 2555, Foreign Earned Income, is the method used to claim this tax benefit.

Determining Your Eligibility

To qualify for the Foreign Earned Income Exclusion, you must first satisfy the tax home test. Your tax home is your main place of business, employment, or post of duty, and it must be in a foreign country for an uninterrupted period. An assignment expected to last more than one year is considered indefinite, making that location your tax home. You cannot qualify if you have an “abode,” meaning a home, habitation, or residence, in the United States.

Once the tax home test is met, you must also meet either the Bona Fide Residence Test or the Physical Presence Test. The Bona Fide Residence Test requires that you are a resident of a foreign country for an uninterrupted period that includes an entire tax year (January 1 to December 31). This test is subjective and looks at your intentions and the nature of your stay abroad, considering factors like your visa status and the establishment of social and economic ties to the foreign country. Brief trips back to the U.S. for vacation or business do not disqualify you, as long as you intend to return to your foreign residence.

The Physical Presence Test requires you to be physically present in a foreign country or countries for at least 330 full days during any consecutive 12-month period. These 330 days do not need to be consecutive, and the 12-month period can begin on any day of the month. This test is often used by individuals who have not established permanent residency but work outside the U.S. for long periods. Maintain detailed travel records to substantiate the days spent in a foreign country.

In certain circumstances, the IRS can waive the time eligibility requirements for the bona fide residence or physical presence tests. This may apply if you were forced to leave a foreign country because of war, civil unrest, or similar adverse conditions.

Identifying Qualifying Foreign Earned Income

Qualifying foreign earned income includes payments you receive for personal services performed in a foreign country, such as wages, salaries, professional fees, bonuses, and commissions. For self-employed individuals, it includes income from their business activities conducted abroad. The income must be earned in a foreign country, defined as any territory under the sovereignty of a government other than the United States.

Certain types of income are excluded from the definition of foreign earned income. This includes passive income sources like interest, dividends, and capital gains. Payments from the U.S. government, pension or annuity distributions, and Social Security benefits also do not qualify.

The Internal Revenue Service (IRS) sets a maximum exclusion amount each year, which is adjusted for inflation. For the 2025 tax year, the maximum foreign earned income exclusion is $130,000. If you and your spouse both work abroad and meet the eligibility tests, you can each claim the exclusion. The exclusion cannot exceed your total foreign earned income for the year.

Required Information for Form 2555

To complete Form 2555, you will need to gather several pieces of information. This includes:

• Personal details, including your name, Social Security number, and foreign address.
• Your employer’s name and address, noting if it is a U.S. or foreign entity.
• A detailed calendar of your international travel, with dates of arrival and departure from foreign countries.
• A comprehensive breakdown of your foreign earned income, converted to U.S. dollars.
• A report of your qualifying housing expenses if you are also claiming the Foreign Housing Exclusion or Deduction, which can include rent and utilities but not the costs of purchasing property.

The Filing Process

Attach the completed Form 2555 to your U.S. individual income tax return, Form 1040. If you and your spouse both qualify, you must each file a separate Form 2555. The completed tax return can be mailed to the designated IRS address for taxpayers abroad or submitted through an e-filing service.

Taxpayers living outside the U.S. on the April 15 tax deadline receive an automatic two-month extension to file, making the deadline June 15. You can file Form 4868 for an extension to October 15. If you need an extension to meet the time requirements for the bona fide residence or physical presence tests, file Form 2350. Note that an extension to file is not an extension to pay, and any tax owed is still due by April 15 to avoid interest and penalties.

The “stacking rule” affects how your tax liability is calculated if your income exceeds the exclusion amount. Under this rule, your excluded foreign income is used to determine the tax rate for your non-excluded income. This means your remaining taxable income is taxed at the higher rate that would have applied if the excluded income had been included. This prevents you from being placed in an artificially low tax bracket.