Foreign Earned Income Exclusion 2026: $132,900

The foreign earned income exclusion for the 2026 tax year is $132,900, set by Revenue Procedure 2025-32 under section 911. A married couple who both qualify can exclude $265,800 between them. Qualifying takes a foreign tax home plus either bona fide residence for a full tax year or 330 full days abroad in twelve consecutive months.

What is the foreign earned income exclusion amount for 2026?

For taxable years beginning in 2026 the maximum exclusion is $132,900 per qualifying person, set by Revenue Procedure 2025-32 at section 3.39 under section 911(b)(2)(D)(i). The 2025 figure was $130,000. The limit runs on a daily basis, which works out at $364.11 for each qualifying day in the year.

Nobody excludes more than they earned. The ceiling is the smaller of the annual maximum or foreign earned income for the year less any foreign housing exclusion claimed, so $132,900 is a cap rather than an allowance.

Each spouse has a cap of their own. Where both work abroad and each has a foreign tax home, each one elects separately and the pair can exclude $265,800 for 2026 — they need not qualify under the same test.

Bona fide residence or physical presence: which test applies?

Either one is enough, and they are not interchangeable. Bona fide residence is open to a US citizen who has been a bona fide resident of a foreign country for an uninterrupted period that includes an entire taxable year. The physical presence test is open to a citizen or a resident alien present in a foreign country for at least 330 full days during any period of twelve consecutive months.

A full day is the 24-hour period that starts at midnight. Separate periods of foreign presence inside the twelve-month window are added together, so a day spent travelling over international waters costs one day rather than breaking the count.

The twelve-month period is any twelve consecutive months, not the calendar year, and the choice of window decides how much lands in each tax year. Where only part of 2026 qualifies, the maximum is prorated: the annual figure multiplied by qualifying days and divided by 365.

What does the foreign tax home requirement mean?

A foreign tax home is a condition of both tests rather than an alternative to them. Section 911(d)(1) defines a qualified individual as someone whose tax home is in a foreign country and who also meets one of the two tests. Tax home carries its section 162(a)(2) meaning, the general area of the main place of work.

The abode rule is where this bites. Section 911(d)(3) states that nobody is treated as having a foreign tax home for any period in which their abode is within the United States. A rotation worker whose home, family and economic life stay in the United States can fail on abode alone, having cleared the day count comfortably.

The single carve-out is service in an area designated by the President as a combat zone in support of the Armed Forces, where a US abode does not disqualify.

What counts as foreign earned income, and what does not?

Foreign earned income is pay for services performed abroad: wages, salaries, professional fees and other compensation for personal services actually rendered. What matters is where the work was done, not where the payer sits or where the money is banked.

Four categories sit outside it under section 911(b)(1)(B):

• pensions and annuities;
• pay from the United States government or one of its agencies to its own employee;
• amounts brought into income by section 402(b) or section 403(c);
• amounts received after the close of the taxable year following the year the services were performed.

That last category is the one that surprises people. Income is attributed to the year the work was done, so a 2026 bonus paid in 2027 is tested against the 2026 cap, and a payment arriving in 2028 for 2026 work is outside foreign earned income altogether.

Where capital and personal services are both material income-producing factors in a business, the amount treated as earned income is capped at 30 percent of the taxpayer’s share of the net profits.

How much housing can be excluded in 2026?

The 2026 housing exclusion covers housing expenses above $21,264 and up to $39,870 in most locations, which leaves a maximum standard exclusion of $18,606. Both ends come from Notice 2026-25: the base is 16 percent of the $132,900 exclusion and the cap is 30 percent of it, each computed daily and multiplied by qualifying days.

The cap rises in expensive cities. Notice 2026-25 sets adjusted limits in place of the $39,870, among them $44,800 for Lisbon, $59,700 for Madrid, $40,600 for Barcelona and $116,900 for Geneva. A location absent from that table takes the standard figure.

The exclusion applies to employer-provided amounts; a self-employed person takes a housing deduction instead. Housing is figured first, because the income exclusion is then limited to foreign earned income less the housing exclusion claimed.

How Form 2555 and the section 911 election work

Form 2555 is the only route to either exclusion, and it runs to nine parts: Part II for bona fide residence, Part III for physical presence, Parts VI and VIII for housing, Part VII for the income exclusion and Part IX for the housing deduction. The shorter Form 2555-EZ was withdrawn after the 2018 tax year.

The election is durable. Section 911(e) makes it apply to the year it is made and to every later year until it is revoked, so there is no annual re-election.

Revocation is easy to trigger and expensive to undo. It is made by a statement filed with the return, separately for each of the two exclusions, and claiming the foreign tax credit, the additional child tax credit or the earned income credit in a later year counts as a revocation on its own. Section 911(e)(2) then bars a fresh election before the sixth taxable year after the year of revocation unless the IRS consents, which takes a private letter ruling.

What the exclusion does not do

The exclusion reaches federal income tax and stops there. Section 1402(a)(11) disapplies it when net earnings from self-employment are computed, so a self-employed American abroad faces the full 15.3 percent whatever the exclusion covers. Relief from that comes from a totalization agreement, not from Form 2555.

Rates are unaffected. Under the stacking rule in section 911(f), tax on the income left in the return is figured as though the excluded amount were still there, so the first dollar above the exclusion meets the rate it would have met without it.

There is no double benefit. Section 911(d)(6) denies any deduction, exclusion or credit allocable to excluded income, which rules out a foreign tax credit for tax paid on the excluded slice.

Excluded pay is also not compensation. Publication 590-A places foreign earned income and housing amounts outside the compensation that supports an IRA contribution, and adds both back when modified adjusted gross income is worked out.

Which deadlines apply to the 2026 return?

The 2026 return falls due on 15 April 2027, with an automatic two-month extension to 15 June 2027 for anyone living outside the United States and Puerto Rico whose tax home is also outside both. The extension is claimed by attaching a statement to the return, and interest still runs on tax unpaid at the April date.

Form 2350 answers the other timing problem. Someone who has not yet met either test by the extended due date can file Form 2350 for a special extension to a date after they expect to qualify, or file on time without the exclusion and amend afterwards on Form 1040-X.

Where war, civil unrest or similar adverse conditions force a departure, section 911(d)(4) allows the minimum time requirement to be waived for the period actually spent in the country.

Sources

1. Internal Revenue Service — Revenue Procedure 2025-32, section 3.39 (2026 inflation adjustments) — https://www.irs.gov/pub/irs-drop/rp-25-32.pdf — checked 10 October 2026
2. Internal Revenue Service — Notice 2026-25, Determination of Housing Cost Amounts Eligible for Exclusion or Deduction for 2026 — https://www.irs.gov/pub/irs-drop/n-26-25.pdf — checked 10 October 2026
3. US Government Publishing Office — 26 U.S.C. 911, Citizens or residents of the United States living abroad — https://www.govinfo.gov/content/pkg/USCODE-2023-title26/html/USCODE-2023-title26-subtitleA-chap1-subchapN-partIII-subpartB-sec911.htm — checked 10 October 2026
4. US Government Publishing Office — 26 U.S.C. 1402, Definitions (net earnings from self-employment) — https://www.govinfo.gov/content/pkg/USCODE-2023-title26/html/USCODE-2023-title26-subtitleA-chap2-sec1402.htm — checked 10 October 2026
5. Internal Revenue Service — Figuring the foreign earned income exclusion — https://www.irs.gov/individuals/international-taxpayers/figuring-the-foreign-earned-income-exclusion — checked 10 October 2026
6. Internal Revenue Service — Foreign housing exclusion or deduction — https://www.irs.gov/individuals/international-taxpayers/foreign-housing-exclusion-or-deduction — checked 10 October 2026
7. Internal Revenue Service — Foreign earned income exclusion — https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion — checked 10 October 2026
8. Internal Revenue Service — Instructions for Form 2555 (2025) — https://www.irs.gov/pub/irs-pdf/i2555.pdf — checked 10 October 2026
9. Internal Revenue Service — Form 2555, Foreign Earned Income — https://www.irs.gov/pub/irs-pdf/f2555.pdf — checked 10 October 2026
10. Internal Revenue Service — Publication 54, Tax Guide for US Citizens and Resident Aliens Abroad (Rev. December 2025) — https://www.irs.gov/pub/irs-pdf/p54.pdf — checked 10 October 2026
11. Internal Revenue Service — Publication 590-A, Contributions to Individual Retirement Arrangements — https://www.irs.gov/pub/irs-pdf/p590a.pdf — checked 10 October 2026
12. Internal Revenue Service — Revenue Procedure 2024-40, section 3.39 (2025 inflation adjustments) — https://www.irs.gov/pub/irs-drop/rp-24-40.pdf — checked 10 October 2026