Form 2555 Foreign Earned Income Exclusion

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It does not matter if the income was paid by a US or a non-US employer, or was already taxed by a foreign country. It all needs to be reported to the IRS. There are two primary tax benefits that Americans abroad use: the Foreign Earned Income Exclusion (reported on form 2555) and the Foreign Tax Credit (reported on form 1116).

Under the Foreign Earned Income Exclusion, if you are being compensated for services you provided outside the US, you may be able to exclude US$130,000 (for 2025) of wages. Form 2555 (the Foreign Earned Income Exclusion) is used to exclude your foreign wages from income tax. Usually a large local firm does not prepare more than 5 of these forms over a 10 year period. Tax911.com, Inc. prepares over four hundred 2555 forms every year, for Americans living in over 100 countries.

2555 Tests: In order to take the Form 2555 exclusion, you must meet one of two tests: the Physical Presence Test or the Bona Fide Residence Test.

The Physical Presence Test requires that you spend 330 full 24-hour days in a foreign country. Under the Physical Presence Test, you can spend about a month in the US. You can use any 365-day period that is to your advantage. The Physical Presence Test is normally used the first year someone goes overseas.

The Bona Fide Residence Test requires that you be a “True Blue” resident for a period that includes one whole calendar year. The advantage of the Bona Fide Resident is that you can be in the US for longer than a month. If you went overseas last year and are taking the Foreign Earned Income Exclusion, you cannot file your return until January of next year because you must be a full year resident for one calendar year. We can file form 2350 for you which extends your return until January 30th of the following year, at which time you will qualify for the Foreign Earned Income Exclusion by the Bona Fide Residence Test. The rules are complex and the amount of time that can be spent in the US can vary greatly. When we prepare your return, we will look at your actual dates in the US and choose the test that will be best for you.

Taxpayers wanting to learn more can sign up for the Interactive Advisory Package for overseas Americans.

2555 Foreign Earned Income Exclusion

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