FEIE tax benefits let you exclude up to $130,000 of your foreign earnings from U.S. income tax in 2025. That cap climbs from $126,500 in 2024 and $120,000 in 2023 (adjusted annually for inflation). Good news, this can reduce your U.S. tax liability without complex credit calculations. If you live and work in Hong Kong, you may qualify for this powerful exclusion.
Here’s the quick takeaway. If you meet the basic criteria, you can slash your U.S. tax bill by claiming the Foreign Earned Income Exclusion. Let’s break down what you need to know and how to file.
Understand your eligibility
To claim FEIE, you must meet three core requirements. See our feie requirements for full details.
- Foreign earned income, such as wages, salaries, and professional fees you received for services performed outside the U.S.
- A tax home in a foreign country (generally your main place of business or post of duty).
- A qualifying test: either the bona fide residence test or the physical presence test.
Foreign earned income excludes passive items like interest, dividends, and employer-provided lodging on their premises.
Estimate your tax savings
Once you confirm eligibility, see how much you can exclude. The IRS adjusts limits yearly:
| Tax year | Maximum exclusion | Housing expense cap |
|---|---|---|
| 2023 | $120,000 | $36,000 |
| 2024 | $126,500 | $37,950 |
| 2025 | $130,000 | To be published |
You can also claim a feie housing exclusion for qualifying housing costs. Deduct your housing amount first, then apply the income exclusion to the rest.
Keep in mind:
- You cannot claim a foreign tax credit on excluded income.
- Excluded earnings won’t count toward the earned income credit.
Pick the right test
Bona fide residence test
You must live in a foreign country for an uninterrupted period that includes a full tax year. Show clear intent to stay (for example, sign a local lease).
Physical presence test
You need at least 330 full days in one or more foreign countries during any 12-month window. Learn more about the FEIE physical presence test.
| Feature | Bona fide residence | Physical presence |
|---|---|---|
| Period required | Full tax year | 330 days in 12 months |
| Test basis | Intent and ties to country | Days physically abroad |
| U.S. abode | Must avoid U.S. abode | No abode requirement |
If you run a business in Hong Kong, see our FEIE for freelancers guide. It covers how self-employment income fits these tests.
File form 2555
To claim the exclusion, attach Form 2555 to your Form 1040. On 2555 you’ll report your foreign earnings, choose your test, and calculate any housing exclusion. File by your return due date (including extensions) to avoid delays.
See our FEIE form 2555 walkthrough for step-by-step instructions.
Recap and next steps
- Confirm you meet FEIE requirements.
- Estimate your exclusion and housing cap using the IRS limits.
- Pick the bona fide residence or physical presence test.
- Complete and file Form 2555.
Ready to see how much you can save? American Pacific Tax helps U.S. expats in Hong Kong maximize their FEIE savings. Contact us for a personalized assessment.
Frequently asked questions
What counts as foreign earned income?
Foreign earned income includes wages, salaries, commissions, professional fees, and other compensation for services you performed abroad. It doesn’t cover passive income like dividends or rental earnings.
Can self-employed professionals claim FEIE?
Yes, you can exclude business earnings under FEIE, but note it won’t reduce self-employment tax. Review our feie for freelancers guide for tips on handling self-employment deductions.
How do I choose between FEIE and the foreign tax credit?
The exclusion removes income from U.S. tax, while the credit offsets tax paid to Hong Kong. Compare your total U.S. and Hong Kong tax rates. The better deal depends on your income level and local tax rates. For many expats, FEIE offers a simpler, immediate exclusion.
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