2016 Foreign Earned Income Exclusion
The 2016 Foreign Earned Income Exclusion is $101,300.
Effective 2016-01-01Source: Rev. Proc. 2015-53 (IRS)Verified 2026-09-02
Who it applies to
U.S. citizens and resident aliens living abroad who qualify under the bona fide residence test or the physical presence test
What changed this year, and why
For taxable years beginning in 2016, the foreign earned income exclusion under IRC § 911(b)(2)(D)(i) is $101,300.
Common questions
- What is the Foreign Earned Income Exclusion for 2016?
- For taxable years beginning in 2016, the foreign earned income exclusion under IRC § 911 is $101,300. A qualifying U.S. citizen or resident alien living abroad may exclude up to this amount of foreign earned income from U.S. federal income tax.
- Who qualifies for the Foreign Earned Income Exclusion?
- U.S. citizens and resident aliens who meet either the bona fide residence test or the physical presence test in a foreign country may claim the exclusion by filing Form 2555 with their federal income tax return.
Your tax home has to be in a foreign country
Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, your tax home must be in a foreign country throughout your period of bona fide residence or physical presence abroad. You must also earn income from personal services performed in a foreign country. These are baseline requirements that apply no matter which qualifying test you use.
To qualify for the foreign earned income exclu- sion, the foreign housing exclusion, or the for- eign housing deduction, your tax home must be in a foreign country throughout your period of bona fide residence or physical presence abroad.
Publication 54 (2016), Tax Guide for U.S. Citizens and Resident Aliens Abroad (IRS)
The bona fide residence test
The bona fide residence test requires you to be a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. You do not automatically acquire bona fide resident status merely by living abroad for a year. This test is available only to U.S. citizens, or to U.S. resident aliens who are citizens or nationals of a country that has an income tax treaty in effect with the United States. You must also have your tax home in that foreign country and earn income from personal services performed there. If you meet the test, you may exclude up to $101,300 of foreign earned income for 2016.
You meet the bona fide residence test if you are a bona fide resident of a foreign country or countries for an uninterrupted period that in- cludes an entire tax year.
Publication 54 (2016), Tax Guide for U.S. Citizens and Resident Aliens Abroad (IRS)
330 full days in any 12 months
The physical presence test is met if you are physically present in a foreign country or countries for at least 330 full days during any 12-consecutive-month period. The 330 days do not have to be consecutive, and you may count days spent abroad for any reason, including vacation. The test depends only on how long you stay abroad, not on the kind of residence you establish or the purpose of your stay. Any U.S. citizen or resident alien may use the physical presence test. If you meet it, you may exclude up to $101,300 of foreign earned income for 2016.
You meet the physical presence test if you are physically present in a foreign country or coun- tries 330 full days during a period of 12 consec- utive months.
Publication 54 (2016), Tax Guide for U.S. Citizens and Resident Aliens Abroad (IRS)
The separate foreign housing exclusion
The foreign housing exclusion is a separate benefit that lets qualifying taxpayers treat a limited amount of income used for housing expenses as not taxable by the United States. It is distinct from the foreign earned income exclusion and from the foreign housing deduction, which applies only to self-employed individuals. To claim the foreign housing exclusion, you must meet the same tax-home and qualifying tests as for the earned income exclusion, and your housing expenses must exceed a base amount tied to the maximum exclusion. The amount of qualified housing expenses eligible for the exclusion has location-specific limits that may vary from year to year. For 2016, the foreign earned income exclusion itself is $101,300.
You also may be able to either deduct part of your housing expenses from your in- come or treat a limited amount of income used for housing expenses as not taxable by the Uni- ted States. These benefits are called the foreign earned income exclusion and the foreign hous- ing deduction and exclusion.
Publication 54 (2016), Tax Guide for U.S. Citizens and Resident Aliens Abroad (IRS)
The election sticks until you revoke it
The initial choice is made by completing the appropriate parts of Form 2555 or Form 2555-EZ with a timely filed return. If you revoke the choice, you cannot claim the exclusion again for several tax years without IRS approval. In addition, once you choose the exclusion, you cannot take a foreign tax credit or deduction for taxes on income you can exclude; doing so in a subsequent year will automatically revoke your election beginning with that year. For 2016, the exclusion amount is $101,300.
Once you choose to exclude your foreign earned income, that choice remains in effect for that year and all later years unless you revoke it.
Publication 54 (2016), Tax Guide for U.S. Citizens and Resident Aliens Abroad (IRS)
Not meeting a test for the whole year shrinks the exclusion
If you do not meet either the bona fide residence test or the physical presence test for every day of your 2016 tax year, the $101,300 exclusion is not available to you in full. Instead, you must prorate the maximum exclusion based on the number of days during the year that you did meet one of the qualifying tests. For example, if you were a qualified resident or physically present in a foreign country for only half of the year, your exclusion would be limited to roughly half of the $101,300 maximum. This rule prevents taxpayers who move abroad partway through the year, or who leave a foreign tax home before the year ends, from claiming the full exclusion when they have not been subject to foreign living conditions for the entire period. The proration is calculated on a daily basis, so each qualifying day counts toward the limit, and only the income earned during the qualifying period can be sheltered by the prorated exclusion amount.
If you didn’t meet ei- ther of these tests for your entire tax year, you must prorate the maxi- mum exclusion based on the num- ber of days that you did meet either test during the year.
Publication 54 (2016), Tax Guide for U.S. Citizens and Resident Aliens Abroad (IRS)
Room you do not use does not carry to another year
The exclusion is capped at the lesser of two figures: the annual maximum of $101,300, or your foreign earned income for the tax year reduced by any foreign housing exclusion you claim. If you earned less than $101,300 abroad in 2016, you can only exclude what you actually earned; you cannot use the exclusion to shelter income from other sources, such as investment returns or U.S.-source wages. Additionally, any portion of the $101,300 limit that you do not use in 2016 - whether because your foreign earnings fell short or because you chose not to claim the full amount - does not carry forward to future years. The exclusion is an annual benefit tied to that specific tax year's income and residency status. Once the year closes, any unused exclusion room is lost permanently. This prevents taxpayers from banking unused exclusion capacity in low-income years to offset higher foreign earnings in later years.
You cannot exclude more than the smaller of: $101,300, or Your foreign earned income (discussed earlier) for the tax year minus your foreign housing exclusion (discussed later).
Publication 54 (2016), Tax Guide for U.S. Citizens and Resident Aliens Abroad (IRS)
Revoking the choice bars you from re-electing for 5 years without IRS approval
If you decide to revoke your choice to claim the foreign earned income exclusion - whether because your income is low enough that you owe no U.S. tax and want to preserve foreign tax credits, or for any other reason - you face a significant restriction on re-electing the benefit. Once you revoke the exclusion, you cannot simply choose it again on a later return. Instead, if you revoked a choice and within 5 years again wish to choose the same exclusion, you must apply for IRS approval. The five-year lockout period is designed to prevent taxpayers from toggling the exclusion on and off to manipulate their tax liability from year to year. Before revoking, you should carefully consider whether you will want the exclusion again in the near future, because regaining it is not automatic and can be costly and time-consuming.
If you revoked a choice and within 5 years again wish to choose the same exclusion, you must apply for IRS approval.
Publication 54 (2016), Tax Guide for U.S. Citizens and Resident Aliens Abroad (IRS)
How each figure was verified
Each number below was read from a stored copy of the document named beside it, and checked to occur word for word in the quoted sentence. The digest is of that stored text.
Rev. Proc. 2015-53 (IRS)
- Exclusion amount
For taxable years beginning in 2016, the foreign earned income exclusion amount under § 911(b)(2)(D)(i) is $101,300.