What is Foreign Earned Income Exclusion?

The Foreign Earned Income Exclusion (FEIE) is a US tax provision that lets American citizens and resident aliens living abroad exclude a chunk of their foreign-earned income from US federal income tax. For 2024, that exclusion cap sits at $126,500. Earn under that while living outside the US, and you could owe nothing to the IRS on it. To qualify, you have to prove you actually live abroad: either the Bona Fide Residence Test (a full tax year spent as a genuine resident of another country) or the Physical Presence Test (330 days outside the US in any 12-month period). You claim it on Form 2555, filed with your regular US return. One catch people always miss: FEIE covers earned income only — your salary, freelance invoices, consulting fees. Dividends, capital gains, and rental income don't qualify. And if you're self-employed, you still pay self-employment tax (Social Security + Medicare) even on excluded income. The exclusion reduces your income tax bill, not your SE tax bill.

Why Foreign Earned Income Exclusion Matters for Digital Nomads

If you're American and you've gone nomad, the US still wants a tax return from you every year, thanks to citizenship-based taxation. Most countries don't work this way. That's the bad news. FEIE was invented for people living your life. Hit 330 days abroad in a 12-month window and a six-figure slice of your income disappears from your federal tax bill entirely. For freelancers and remote employees earning under the cap, this can mean paying close to zero income tax in the US. It stacks with the Foreign Housing Exclusion too, which can exclude additional costs like rent. The honest caveat: this isn't a DIY situation. Between the 330-day counting, the partial-year elections, and the self-employment tax wrinkle, most nomads work with a US expat tax specialist. Think of FEIE as the starting point for a conversation with an accountant, not a plug-and-play tax hack.

At Casa Basilico

Our Madeira chapter had four Americans one month — three of them comparing notes on FEIE eligibility over dinner like it was a competitive sport. Ryan, a product designer from Austin, had been tracking his 330-day window down to the hour on a spreadsheet he'd color-coded by country. He ate his pasta and announced, with genuine relief, that Funchal had pushed him over the threshold. The table erupted. Honestly, watching someone celebrate tax compliance with the same energy as a World Cup goal is peak digital nomad energy, and we are here for it.

Related Terms

• Digital Nomad Tax — the broader picture of how nomads handle tax obligations across borders
• NHR Portugal — Portugal's non-habitual resident regime, a favorite for nomads looking for a tax-friendly home base
• Golden Visa — residency-by-investment programs that can support Bona Fide Residence Test claims
• Geoarbitrage — earning in strong currencies while living somewhere with a lower cost of living
• Digital Nomad Visa — official visas designed for remote workers, which help establish foreign residency for FEIE purposes

If you want to run the numbers somewhere with good wifi, cheap espresso, and people who actually understand what you mean when you say "I need to hit 330 days" — come join us.