Guide
The foreign earned income exclusion
Form 2555 lets qualifying expats exclude a capped amount of earned income — useful in low-tax countries, often not the best answer in the UK.
Popular, capped, and frequently the wrong choice at UK rates.
The exclusion removes a capped amount of foreign earned income from US tax, provided you meet either the bona fide residence test or the physical presence test.
It is the relief most expats have heard of, and in a country taxing more heavily than the US it is often worse than simply claiming credit for the tax you already paid.
At a glance
- Form
- Form 2555, filed with your 1040
- Qualifying
- Bona fide residence for a full tax year, or 330 full days abroad in any 12 months
- Covers
- Earned income only — salary and self-employment, not dividends, rent, pensions or gains
- Cap
- Indexed annually; income above it remains taxable
- Revocation
- Once revoked, you generally cannot claim it again for five years without consent
In detail
01
What it does not cover
Investment income, rent, pensions and capital gains fall outside it entirely. So does self-employment tax, which surprises freelancers who assumed the exclusion handled everything.
02
Why the UK changes the answer
Where UK tax on the same income exceeds the US liability, the foreign tax credit can wipe out the US tax and leave carryover for future years. The exclusion leaves nothing behind.
03
Interaction with the child tax credit
Excluding income can reduce or eliminate refundable credits that depend on earned income, which sometimes costs more than the exclusion saves.
04
The five-year lock
Revoking the election has lasting consequences. Switching between the exclusion and the credit is a decision to model, not to alternate between year to year.
Form 2555 lets qualifying expats exclude a capped amount of earned income — useful in low-tax countries, often not the best answer in the UK.
Frequently asked
Can I claim both the exclusion and the credit?
Not on the same income. You can exclude some income and claim credit on the rest, but the credit cannot apply to income you have already excluded.
Does it cover my UK pension contributions?
No. Pension treatment runs on separate rules and the treaty, not on the exclusion.
How do the 330 days work?
Full days physically outside the US across any rolling 12-month period. Travel days and time in US airspace can break it, so the count needs care.
This guide is general information, not advice for your circumstances. Cross-border tax turns on detail, and the right answer for someone with a similar situation may not be the right answer for you. Talk to us before acting on anything here.
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