Form 2555, Foreign Earned Income, is the form US citizens and certain resident aliens living abroad use to exclude foreign earned income from US tax and to claim the foreign housing exclusion or deduction. For 2025 the maximum foreign earned income exclusion is $130,000. To qualify, your tax home must be in a foreign country and you must meet either the bona fide residence test or the physical presence test of 330 full days in 12 months.
It's a valuable form, but it's also sticky: once you choose the exclusion, it stays in place until you revoke it, and revoking has a long tail. Everything below comes from the IRS Instructions for Form 2555 (2025), and the figures are as of October 2026.
Who qualifies
You may qualify for the foreign earned income exclusion and the housing exclusion or deduction if both of these apply.
- You meet the tax home test: your tax home, your regular or principal place of business, is in a foreign country throughout your period of bona fide residence or physical presence.
- You meet either the bona fide residence test or the physical presence test.
For this form, foreign country doesn't include US territories or the Antarctic region. And there's a quirk worth knowing: income earned in Cuba isn't treated as foreign earned income, and housing expenses there don't count.
Bona fide residence vs physical presence
| Test | Who it suits | What it takes |
|---|---|---|
| Bona fide residence | People who've moved abroad with no fixed end date | A US citizen, or a resident alien from a treaty country, who is a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year |
| Physical presence | People on assignments, digital nomads, anyone who moves around | Present in a foreign country or countries for at least 330 full days during any period of 12 months in a row |
Bona fide residence turns on your intentions about the length and nature of your stay, and the instructions are clear that where your words and acts conflict, your acts carry more weight. Go abroad for a definite, temporary purpose and come back when it's done, and you generally aren't a bona fide resident. Physical presence is pure counting: a full day starts at midnight, and you add separate periods together within the 12-month window.
What counts as foreign earned income
Foreign earned income is pay for personal services you perform while your tax home is abroad and you meet one of the two tests: wages, salaries, professional fees and other pay for work you do in a foreign country. Where you do the work decides it, not where the payer is based or where the pay lands.
- Pay for work done in the United States isn't foreign earned income, even during a year you live abroad.
- Income earned in Cuba doesn't count, as noted above.
- Investment income, pensions and other unearned income aren't covered by the exclusion at all; they stay taxable in the normal way.
What you give up by claiming the exclusion
- No earned income credit if you claim either exclusion or the housing deduction.
- No additional child tax credit on the same basis.
- No foreign tax credit or deduction for foreign taxes on income you've excluded. If only part of your income is excluded, you lose the credit for the part of the foreign tax allocable to it.
- Special rules apply to your IRA deduction.
That's why some expats get a better result from the Form 1116 foreign tax credit instead, especially in countries whose tax rates are higher than US rates. Run both before you choose.
Choosing, keeping and revoking the exclusion
The first year you claim the exclusion, the choice usually has to be made on a timely filed return, including extensions, or on an amended return that amends a timely filed one. Pub. 54 lists exceptions. Once made, the choice applies for that year and every later year until you revoke it.
To revoke, you attach a statement to your return for the first year you don't want the exclusion. The catch is serious: if you revoke, you can't claim the exclusion again for your next 5 tax years without IRS approval. You don't need to revoke just because you had no foreign earned income or housing costs in a year.
How to complete Form 2555
- Part I: your address, employer and the tax home you had and when it was established (line 9).
- Part II or Part III: the dates and facts for the bona fide residence test, or the 12-month period and travel days for the physical presence test (line 16).
- Part IV: list all foreign earned income for the year, including wages, self-employment income and allowances.
- Parts VI to IX: work out the housing amount and the income you can exclude, up to the $130,000 limit for 2025.
- Attach the form to Form 1040 or 1040-SR, and keep your travel records and residence evidence with your copy.
Living abroad usually brings other filings too. If you hold foreign accounts above the reporting thresholds, check whether you also need an FBAR, which Form 2555 doesn't replace.
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The verdict
If you work abroad and your foreign tax bill is low, Form 2555 can wipe most or all of your US tax on earnings up to $130,000 for 2025. If you live somewhere with higher taxes, compare it with the foreign tax credit before you commit, because a revocation locks you out for 5 years. Keep a day-by-day travel log either way; the 330-day test is unforgiving.
Frequently asked questions
What is Form 2555 used for?
It claims the foreign earned income exclusion and the foreign housing exclusion or deduction for US citizens and certain resident aliens living abroad.
What is the foreign earned income exclusion for 2025?
The maximum exclusion is $130,000 for 2025.
What is the 330-day rule?
Under the physical presence test you must be in a foreign country or countries for at least 330 full days during any period of 12 months in a row.
Can I claim the foreign tax credit and Form 2555 together?
Not on the same income. You can't take a credit or deduction for foreign taxes on income you've excluded.
What happens if I revoke the foreign earned income exclusion?
You can't claim the exclusion again for your next 5 tax years without IRS approval.
Do US territories count as foreign countries for Form 2555?
No. US territories and the Antarctic region aren't foreign countries for this purpose.
