Foreign Earned Income Exclusion Calculator

How the 2026 Foreign Earned Income Exclusion Works

The foreign earned income exclusion lets a US citizen or resident alien working abroad keep a slice of foreign wages out of the US tax base. For tax year 2026 the ceiling is $132,900 per qualifying person (IRS Rev. Proc. 2025-32, the inflation adjustment under IRC Sec. 911). It applies only to earned income: salary, bonus, commissions, professional fees, and allowances paid for services you perform in a foreign country. Interest, dividends, capital gains, rent, pensions, and US government pay never qualify.

You reach the exclusion through one of two tests. The physical presence test asks for 330 full days in a foreign country during any period of 12 months in a row, counted midnight to midnight. The bona fide residence test asks for an uninterrupted period of residence abroad that includes an entire tax year, which in practice means a settled life abroad rather than a long assignment. Both tests lead to the same arithmetic, which is why the selector above changes only the reminder text.

If you qualified for only part of 2026, the limit prorates. Enter the number of days of the 2026 tax year that fall inside your qualifying period, which is what Form 2555 asks for. That figure is separate from the 330-day count used to pass the physical presence test, because the 12-month window behind the 330 days often straddles two tax years. Someone who moved to Lisbon in July and stayed put can pass the 330-day test using a window running into 2027 while having roughly 183 qualifying days in 2026.

One more point that trips people up: the exclusion is an election, not an automatic benefit. You claim it by attaching Form 2555 to your Form 1040, and your filing requirement is judged on gross income before the exclusion. No return means no election.

The Foreign Housing Exclusion, Step by Step

On top of the income exclusion, an employee can exclude qualifying foreign housing costs. Two numbers bound it, and both are percentages of the same $132,900 limit:

• The cap: housing expenses count only up to 30% of the exclusion limit, which is $39,870 for a full year (IRC Sec. 911(c)(2)(A)(i)).
• The base: the first 16% of the limit is treated as housing you would have paid for anyway, which is $21,264 for a full year (IRC Sec. 911(c)(1)(B)(i)).

The order matters. Expenses are capped first, then the base is subtracted from the capped figure. Spend $45,000 on housing and only $39,870 counts, leaving a housing exclusion of $18,606. Spend $15,000 and the base wipes it out entirely, so the housing exclusion is zero rather than a negative number. Both the cap and the base prorate by your qualifying days, exactly like the income limit.

Qualifying expenses include rent, utilities other than telephone, renter's insurance, residential parking, furniture rental, and repairs. They do not include mortgage principal, purchased furniture, domestic help, or anything lavish. Costs for a second foreign household generally do not count either.

The housing exclusion is figured first and comes off the foreign earned income available for the income exclusion, which is the order Form 2555 follows. Adding housing on top of a full $132,900 exclusion overstates the result for anyone near the limit. This tool leaves out two cases. Filers in IRS-listed high-cost localities get a cap well above the standard 30%, and self-employed filers take a housing deduction against self-employment income (IRC Sec. 911(c)(4)(A)) instead of the employee exclusion modeled here.

Why You Can Still Owe US Tax After the Exclusion (the Stacking Rule)

Excluding income does not move you back down into the low brackets. IRC Sec. 911(f)(1)(A) requires that the excluded amount fill the bottom of the rate schedule first, so whatever is left gets taxed at the rates that would have applied without the exclusion. The Foreign Earned Income Tax Worksheet in the Form 1040 instructions works it as a subtraction: figure the tax on taxable income plus the excluded amount, figure the tax on the excluded amount alone, and the difference is your tax.

Take a single filer with $180,000 of foreign salary and $30,000 of housing costs, qualifying for all of 2026. Housing gives $30,000 minus the $21,264 base, or $8,736. The income exclusion takes the full $132,900, so $141,636 comes out of the tax base. The remaining $38,364 drops to $22,264 of taxable income after the $16,100 standard deduction.

Run the stacking formula: tax on $163,900 is $31,934, tax on $141,636 alone is $26,590.64, and the difference is $5,343.36. That is exactly 24% of $22,264, because the excluded income already filled the 10%, 12%, and 22% brackets and reached into the 24% band. A calculator that taxes $22,264 on its own would report $2,423.68, understating the bill by nearly $3,000. That gap is why the tool above reports the marginal rate your residual income actually faces.

What the Exclusion Does Not Cover

The exclusion is narrower than its headline number suggests. Four limits catch people out:

• Self-employment tax survives it. SE tax is figured on net earnings from self-employment before any Sec. 911 exclusion, so a freelancer abroad can owe 15.3% on income that is fully excluded for income tax purposes. Only a totalization agreement with the country where you work can remove it.
• Self-employed filers get a deduction, not an exclusion. The foreign housing benefit for self-employment income runs through a deduction under IRC Sec. 911(c)(4)(A) with its own mechanics.
• No double-dipping with the foreign tax credit. Foreign taxes paid on income you exclude cannot also generate a credit (IRC Sec. 911(d)(6)). In a high-tax country, the credit alone can beat the exclusion, which is a comparison worth running before you make the election.
• State and information reporting are separate duties. Some states do not follow the federal exclusion, and FBAR (FinCEN Form 114) plus FATCA (Form 8938) reporting apply on their own thresholds regardless of how much income you exclude.

This tool also assumes one qualifying filer taking the standard deduction. A married couple where both spouses qualify files two Forms 2555 and gets two limits, and deductions allocable to excluded income are not modeled. Figures here are estimates only and are not tax or legal advice. Check your numbers against Form 2555 and its instructions, or work with a tax professional who handles expat returns.