As a U.S. citizen working and living in Hong Kong, you’re on the hook for U.S. tax on your worldwide earnings. Good news, the foreign earned income exclusion can cut up to $126,500 of your overseas pay from taxable income in 2024 (and $130,000 in 2025). It applies to wages, salaries, professional fees, and even self-employment earnings. By mastering the rules, you can unlock significant tax savings.
Key idea: Meet the qualification tests, calculate your excluded income, and file the right forms to reduce your U.S. tax liability.
Understand FEIE basics
The foreign earned income exclusion (FEIE) lets you exclude part of your income for services performed abroad when your tax home is overseas. You exclude only earned income, so dividends, interest, and passive investment returns don’t count. The IRS adjusts the maximum each year for inflation.
| Tax year | Maximum exclusion |
|---|---|
| 2023 | $120,000 |
| 2024 | $126,500 |
| 2025 | $130,000 |
If your foreign earnings exceed the limit, only the excess becomes taxable. To track annual updates in detail, see FEIE maximum exclusion.
Check your eligibility
You qualify only if your tax home is in Hong Kong and you meet one of two tests:
Bona fide residence test
You must establish residence in Hong Kong for an uninterrupted period that includes a full tax year. The IRS considers your intent, local ties, and how long you stay.
Physical presence test
You need at least 330 full days in a qualifying foreign country during any 12-month period. (A full day runs midnight to midnight.) Learn more about the physical presence test.
For a complete list of rules, review our eligibility criteria.
Calculate your exclusion
Most filers use a time-based method to figure foreign source income. Multiply your total foreign pay by this fraction:
Days worked abroad
––––––––––––––––
Total days paid
For example, if you earned $100,000 and spent 300 of 365 days in Hong Kong, your excludable income is
$100,000 × (300/365) ≈ $82,192
Self-employed expats follow the same approach for business income. If you operate as a contractor or freelancer, see our guide to FEIE for freelancers.
Claim housing benefits
On top of the FEIE, you may exclude or deduct certain housing costs. The exclusion limit is generally 30 percent of the FEIE maximum:
• 2024 cap: 30% × $126,500 = $37,950
Typical eligible expenses include:
- Rent or lease payments
- Utilities (electric, gas, water)
- Fees for community services (parking, security)
To weigh the pros and cons, check our detailed notes on the housing exclusion.
File your 2555 form
You claim both exclusions on IRS Form 2555, which you attach to your Form 1040 or 1040-X. Key parts include:
- Part VI for housing exclusion or deduction
- Part VII for foreign earned income exclusion
- Part IX for calculations and summaries
If you expect to file late while meeting the physical presence test, Form 2350 can extend your deadline. For step-by-step details, visit our Form 2555 guide.
Manage records and deadlines
Good recordkeeping keeps surprises at bay. Keep:
- Copies of passports (entry/exit stamps)
- Proof of Hong Kong residence (lease, utility bills)
- Payroll statements or invoices
- Form 673 if you ask your employer not to withhold tax
The filing deadline is April 15, with an automatic extension to June 15 for expats. You can request a further extension to October 15.
Recap and next steps
- Verify you meet the bona fide residence or physical presence test.
- Calculate your excludable income and housing costs.
- Complete and attach Form 2555 to your return.
- Keep clear records of days abroad and expenses.
At American Pacific Tax, we help Hong Kong expats navigate each step. Choose one action—like checking your eligibility—and you’re already on your way to lower taxes. You’ve got this.
Frequently asked questions
1. Can I exclude my bonuses and commissions?
Yes, if they’re paid for services you perform abroad and you meet the FEIE tests, those amounts count as earned income.
2. Does the exclusion reduce self-employment tax?
No, the FEIE cuts only income tax. You still owe self-employment tax on net earnings over $400.
3. What if I switch between exclusion and foreign tax credit?
Once you claim the FEIE, you must stick with it for five years before switching back to the foreign tax credit. Plan carefully to maximize benefits.
Leave A Comment