Living and working in Hong Kong can feel like a dream for U.S. expats, until tax season arrives. Good news, you can exclude up to $126,500 of your foreign earnings in 2024 using FEIE Form 2555. This foreign earned income exclusion can trim your U.S. tax bill and free up cash for the things you love.
In this ultimate guide from American Pacific Tax, you’ll learn how to meet the key tests, crunch the numbers, and file Form 2555 to maximize your FEIE tax savings.
How Form 2555 works
Form 2555 lets you claim two main benefits on your U.S. return:
- Foreign earned income exclusion: remove up to $126,500 of income earned abroad in 2024.
- Foreign housing exclusion or deduction: set aside eligible housing costs above a base amount (limit varies, generally $37,950 for 2024) via FEIE housing exclusion.
A 2024 IRS update raised the maximum exclusion by 5.5% over 2023, keeping pace with inflation. When you factor in housing deductions, your overall taxable income can drop significantly, especially in high-rent markets like Hong Kong.
Meet eligibility criteria
To use Form 2555, you must have a tax home outside the United States and pass one of two tests. Here’s what that entails:
- Tax home test
Your tax home is your regular place of business or post of duty. If you live and work in Hong Kong, that counts—even if you keep a U.S. address. - Bona fide residence test
You must reside in Hong Kong (or another foreign country) for an uninterrupted tax year (January 1 to December 31). - Physical presence test
You need at least 330 full days abroad in any 12-month stretch.
Good news, if you had to evacuate due to war or civil unrest, you can apply for a time-requirement waiver and still meet the test. For full details on each requirement, see our FEIE eligibility criteria page.
Calculate your exclusion
Your exclusion is the lesser of your foreign earned income or the annual limit. If you qualify all 365 days for tax year 2024, you get the full $126,500. If not, prorate it by the number of qualifying days.
| Qualifying days abroad | Adjusted exclusion (2024) |
|---|---|
| 365 | $126,500 |
| 200 | $69,300 ($126,500×200/365) |
Prorate for partial year
If you start or end your Hong Kong assignment midyear, multiply $126,500 by your days abroad, then divide by 365 (or 366 in a leap year).
Married couple calculation
Each spouse can claim their own exclusion, so a married pair could exclude up to $253,000 in 2024 if both meet the tests.
Claim housing deduction
Beyond the basic exclusion, you can set aside certain housing costs that exceed 16% of the maximum exclusion (called the base amount).
- Eligible expenses
- Rent or lease payments
- Utilities (cold water, heat, electricity)
- Nonrefundable fees (furnishing, security deposits)*
- Ineligible expenses
- Meals and groceries
- School tuition
- Personal travel
*Check limits by location—most spots in 2024 cap the housing exclusion at $37,950 or $103.69 per day.
Learning the details on FEIE housing exclusion can unlock even bigger tax savings in a pricey city like Hong Kong.
File Form 2555
Follow these steps to complete and attach Form 2555 to your Form 1040:
- Gather documentation: passport, Hong Kong visa stamps, lease agreements.
- Part I: enter personal info, tax home address, and employment details.
- Part II: indicate which test you passed—bona fide residence or physical presence.
- Part III: report your foreign earned income and claim the exclusion.
- Part IV: itemize housing expenses to claim the housing exclusion or deduction.
- Attach Form 2555 to your 1040, sign, and file by April 15 (or your extension date).
Tip: keep copies of receipts and visa stamps for at least three years in case of an IRS review.
Recap and next steps
- Verify your Hong Kong tax home and choose the right test.
- Compute your exclusion (full or proration) and plan married filings.
- Track housing costs, stay within location limits, then deduct wisely.
- Fill out Parts I–IV on Form 2555 and attach to your 1040.
- Consider professional help—American Pacific Tax specializes in U.S. expat filings and can streamline the process.
Choose one action today—maybe gathering documentation or mapping out your qualifying days—and set yourself up for smoother, more confident tax savings.
Frequently asked questions
How much can I exclude on Form 2555?
For tax year 2024, you can exclude up to $126,500 of foreign earned income, adjusted by your days abroad. Married couples filing jointly can each claim that amount if both meet the tests, for a combined maximum of $253,000.
Can federal employees use Form 2555?
No, income earned as a U.S. government employee generally does not qualify for the foreign earned income exclusion or housing deduction on Form 2555.
Can self-employed individuals claim the exclusion?
Yes, you can exclude net self-employment income, but you still owe self-employment tax on that income. First calculate your gross receipts for services, then net it before applying the exclusion.
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