FEIE: Foreign Earned Income Exclusion for US Expats
FEIE is the reason most Americans living abroad don't owe US income tax. We use it, and it's the main strategy that keeps our US tax bill at zero.
Here's how it works and whether it makes sense for your situation.
What FEIE Does
The Foreign Earned Income Exclusion lets you exclude up to $126,500 (2024) of foreign earned income from US taxes.
Example: You earn $80,000 working in Amsterdam. Exclude it with FEIE. Your US taxable income: $0.
This is why most Americans abroad don't pay double taxes—they exclude their foreign income from US taxation and pay Dutch taxes instead.
Who Qualifies
To use FEIE, you need to pass one of two tests:
Physical Presence Test:
- Be in a foreign country for 330 full days during any 12-month period
- Most common for expats
- What we use
Bona Fide Residence Test:
- Be a bona fide resident of a foreign country for an entire tax year
- More flexible for US visits
- Harder to prove
If you're living in the Netherlands with a DAFT permit, you probably qualify under either test.
What Income Qualifies
Earned income only:
- Employment wages
- Self-employment income (like DAFT business)
- Freelance income
Not earned income (doesn't qualify):
- Investment income (dividends, interest)
- Rental income
- Retirement distributions
- Passive income
Our DAFT business income qualifies. Our US stock dividends don't.
The Housing Exclusion
In addition to FEIE, you can exclude housing costs above a base amount.
What qualifies: Rent, utilities (except phone/internet), renter's insurance, parking
How it works: If your housing costs exceed the base amount (~$17,000 for 2024), you can exclude the excess, up to a maximum based on your location.
We claim this. Our rent is high (Amsterdam prices), so we exclude an additional chunk beyond the base FEIE.
FEIE vs Foreign Tax Credit
You can't use both on the same income. Choose one:
Use FEIE if:
- Income under $126,500
- Simpler tax situation
- Want to reduce AGI (Adjusted Gross Income)
Use Foreign Tax Credit if:
- Income over $126,500
- High Dutch taxes make credit more valuable
- Have passive income (FEIE doesn't cover it)
We use FEIE. Most DAFT business owners do. For more on DAFT requirements, see our complete DAFT guide.
What FEIE Doesn't Cover
Self-employment tax: Still owe 15.3% on business income, even if you exclude the income from income tax.
Income over the threshold: Excess above $126,500 is taxable.
Passive income: Investment income, rental income—these don't qualify for FEIE.
This is why we still pay some US taxes, even though our income tax is $0.
The Physical Presence Test
This is the test most people use.
The rule: 330 full days in a foreign country during any 12-month period.
Full days: Midnight to midnight. Flying over the US counts. Landing in the US breaks the day.
12-month period: Doesn't have to be the calendar year. Choose any consecutive 12 months.
The math: 365 - 330 = 35 days in the US max.
We track every day. Family visits are planned to stay under 35 days.
Claiming FEIE
File Form 2555 with your tax return.
The form asks about your:
- Tax home (where you work)
- Dates abroad
- Which test you're using
- Housing costs (if claiming housing exclusion)
Your accountant or tax software will walk you through it.
Common Mistakes
Not tracking days - One day over and you fail the Physical Presence Test.
Counting travel days wrong - The day you land in the US doesn't count as a full day abroad.
Using FEIE and FTC on same income - Can't do both. Pick one.
Forgetting self-employment tax - FEIE doesn't cover this. Budget for it.
Our guide includes a day-tracking template and step-by-step Form 2555 notes. Get the Guide →
For complete tax filing instructions, see filing US taxes from Amsterdam and learn about the US-Netherlands tax treaty.
Digital Guide — $199
We're not tax professionals—just Americans who use FEIE. Consult a CPA for your specific situation.