Accelerate your FIRE Date with the Foreign Earned Income Exclusion (FEIE)

January 29, 2025

Accelerate your FIRE Date with the Foreign Earned Income Exclusion (FEIE)

Disclaimer: I’m just a dude who writes about expat living online. I’m not a tax professional. This is not tax or legal advice.

Most are aware of the benefits of relocating to a lower-cost-of-living country. Cheaper rent, more affordable services, overall lower expenses. However, there is a significant tax advantage for those earning income that can stay outside of the United States for 330 days a year.

What Is the Foreign Earned Income Exclusion?

The Foreign Earned Income Exclusion (or FEIE for short) is a U.S. tax provision allowing individuals to exclude a certain amount of foreign-earned income from their taxable income.

For the 2025 tax year, you can exclude $130,000 of foreign-earned income. This number is adjusted (increased) annually for inflation. You can exclude or deduct certain foreign housing amounts.

According to the IRS, you must fall into one of the categories below to qualify:

A U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year

A U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect and who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year

A U.S. citizen or a U.S. resident alien who is physically present in a foreign country or country for at least 330 full days during any period of 12 consecutive months.

Your CPA will help determine which of these categories is best for you. There are some complexities with bona fide residence so most expats I know elect for the third option of being physically present in a foreign country for 330 days in a 12-month period.

Understanding the 330

Expats refer to the physical presence test as “the 330.” It is critical to meticulously track your days inside and out of the U.S. to ensure compliance.

To comply, you must be physically present in a foreign country for 330 full days. You can be abroad for any reason, it doesn’t matter if you’re working, on vacation, etc. The IRS defines a full date as “a period of 24 consecutive hours, beginning and ending at midnight.” The important clarification here is that the time you spend on or over international waters does not count as time in a foreign country.

The 12-month time frame is not tied to a calendar year, it can start any day of the month. The 12 months must be consecutive so please consider this when planning any visits back to the U.S. during this time.

There are some interesting exceptions to this such as being in the U.S. for less than 24 hours while transiting between two points outside the United States. Ex: Flying from Mexico to Germany with a layover in Atlanta. Your CPA can help see if any of these exceptions apply on a case-by-case basis.

Important Clarifications

The Foreign Earned Income Exclusion is only for earned income to include wages, salaries, tips, and net earnings from self-employment. This does not include investment income, interest, dividends, rents, royalties, etc.

U.S. citizens and residents must report worldwide income yearly to the IRS as this is subject to U.S. tax regardless of where you live.