The foreign earned income exclusion lets qualifying U.S. taxpayers living abroad exclude an inflation-adjusted amount of earned income (over 130,000 dollars for 2025) from U.S. tax, using either the bona fide residence test or the physical presence test.
It applies only to earned income, not investment or crypto gains, and must be claimed on a filed return using Form 2555. A housing exclusion may also apply.
Why it matters: many expats owe little or no U.S. tax because of the exclusion, but only if they file. See Form 2555.
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