2018 Foreign Earned Income Exclusion
The 2018 Foreign Earned Income Exclusion is $103,900.
Effective 2018-01-01Source: Rev. Proc. 2018-18 (Internal Revenue Bulletin 2018-10) (IRS)Verified 2026-09-02
Compared with 2017
| Item | 2017 | 2018 | Change |
|---|---|---|---|
| Exclusion amount | $102,100 | $103,900 | +$1,800 (+1.8%) |
Who it applies to
U.S. citizens and resident aliens who live and work abroad and qualify for the Foreign Earned Income Exclusion under IRC § 911
What changed this year, and why
For taxable years beginning in 2018, the Foreign Earned Income Exclusion under IRC § 911(b)(2)(D)(i) is $103,900.
Common questions
- What is the Foreign Earned Income Exclusion?
- It is a provision of the Internal Revenue Code (Section 911) that allows qualifying U.S. citizens and resident aliens living abroad to exclude a set amount of foreign earned income from their U.S. gross income.
- How much can be excluded for 2018?
- For taxable years beginning in 2018, the maximum exclusion is $103,900.
Your tax home has to be in a foreign country
The tax home is the general area of your main place of business, employment, or post of duty, regardless of where your family home is located. To claim either the foreign earned income exclusion or the foreign housing exclusion or deduction, your tax home must be in a foreign country throughout the entire period you are trying to qualify under. Your tax home is the place where you are permanently or indefinitely engaged to work. The existence of one or more foreign countries as your tax home is a basic requirement for the tax benefits discussed in this publication. Without a tax home in a foreign country, you cannot meet the requirements for the exclusion or deduction, even if you otherwise satisfy the bona fide residence test or physical presence test.
To qualify for either of the exclusions or the deduction, you must have a tax home in a for- eign country and earn income from personal services performed in a foreign country.
Publication 54 (2018), 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. An entire tax year means January 1 through December 31 for a calendar-year taxpayer. You can use this test to qualify for the exclusions and the deduction only if you are either a U.S. citizen, or a U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty in effect. You do not automatically acquire bona fide resident status merely by living in a foreign country for a year. Your status depends on the type of abode you establish and your intentions about remaining there. The IRS considers factors such as your purpose for being abroad, the nature and length of your stay, and whether you maintain a home in the United States.
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 (2018), Tax Guide for U.S. Citizens and Resident Aliens Abroad (IRS)
330 full days in any 12 months
You meet the physical presence test if you are physically present in a foreign country or countries 330 full days during a period of 12 consecutive months. The 330 days do not have to be consecutive, and any U.S. citizen or resident alien can use this test regardless of the type of residence established abroad or the purpose of the stay. A full day means a full period of time from midnight to midnight. Days spent abroad for any reason, including vacation, count toward the total. The 12-month period can begin with any day, and it need not align with the calendar year or your tax year. Meeting this test allows you to claim the foreign earned income exclusion of up to $103,900 for 2018, as well as the foreign housing exclusion or deduction, provided your tax home is in a foreign country throughout the period.
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 (2018), Tax Guide for U.S. Citizens and Resident Aliens Abroad (IRS)
The separate foreign housing exclusion
The foreign housing exclusion provides an additional tax benefit beyond the foreign earned income exclusion. If you meet the requirements for the foreign earned income exclusion, you may be able to exclude from income a limited amount of income used for housing expenses in a foreign country. The housing exclusion applies only to employees; self-employed individuals may claim the foreign housing deduction instead. To qualify, you must have a tax home in a foreign country, have foreign earned income, and meet either the bona fide residence test or the physical presence test. The amount you can exclude is based on your qualified housing expenses, which include rent, utilities, and certain other costs related to housing, but not the cost of buying a home or home improvements. The maximum foreign earned income exclusion for 2018 is $103,900, and the housing exclusion provides a separate benefit calculated on top of that amount.
To claim the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction, you must meet all three of the following requirements.
Publication 54 (2018), Tax Guide for U.S. Citizens and Resident Aliens Abroad (IRS)
The election sticks until you revoke it
The election is ongoing and continues until you actively revoke it. You make the initial choice by completing the appropriate parts of Form 2555 or Form 2555-EZ with your timely filed return. If you revoke the election, there are restrictions on when you can claim the exclusion again. Additionally, once you choose to exclude foreign earned income, you cannot take a foreign tax credit or deduction for taxes on income you can exclude. If you do take a credit or deduction for any of those taxes in a later year, your election for the foreign earned income exclusion will be revoked beginning with that year. The foreign earned income exclusion amount for 2018 is $103,900.
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 (2018), Tax Guide for U.S. Citizens and Resident Aliens Abroad (IRS)
What kind of income the exclusion actually covers
The Foreign Earned Income Exclusion applies only to income earned from the performance of personal services while the taxpayer's tax home is abroad. It covers wages, salaries, tips, bonuses, and self-employment earnings received for work physically performed outside the United States. The exclusion does not apply to investment or portfolio income - dividends, interest, capital gains, rental income, alimony, or pensions - even if those amounts are received while living overseas. Similarly, amounts paid by the United States government or its agencies to their own employees stationed abroad are treated as U.S. pay, not foreign earned income, and cannot be excluded. The distinction matters because only income tied to active work abroad qualifies; passive income remains fully taxable on the U.S. return regardless of where the taxpayer resides. A taxpayer claiming the exclusion must have wages, salaries, or self-employment income from foreign sources to benefit from the $103,900 cap in 2018.
The only income that is foreign earned income is income from the performance of personal services abroad. Investment income isn’t earned income.
Publication 54 (2018), Tax Guide for U.S. Citizens and Resident Aliens Abroad (IRS)
Not meeting a test for the whole year shrinks the exclusion
When a taxpayer qualifies for the exclusion under either the bona fide residence test or the physical presence test but does not meet that test for the entire tax year, the maximum exclusion must be prorated based on the number of days during the year the test was actually satisfied. For 2018, the full-year ceiling is $103,900, but a taxpayer who qualifies for only part of the year receives a proportionally smaller amount. The fraction is computed by dividing the number of qualifying days by the total number of days in the tax year and then multiplying that fraction by $103,900. As a result, a taxpayer who moves abroad mid-year and meets the physical presence test starting on that date will see the exclusion reduced to reflect only the days of qualified presence. The prorate rule prevents a taxpayer from claiming the full annual exclusion when the qualifying period covered only a portion of the year, and it applies separately to each year in which the short-period situation arises.
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 (2018), Tax Guide for U.S. Citizens and Resident Aliens Abroad (IRS)
Room you do not use does not carry to another year
Under the 2018 Foreign Earned Income Exclusion, the amount you may exclude is capped at the smaller of two figures: the statutory maximum of $103,900, or your actual foreign earned income for the tax year reduced by any foreign housing exclusion you claim. In other words, the exclusion cannot shelter income you do not have, and it cannot be larger than the foreign wages or self-employment earnings you earned after subtracting the housing amount you are also excluding. For a married couple in which both spouses work abroad and each meets either the bona fide residence test or the physical presence test, each spouse may make a separate election and each is subject to this same $103,900 ceiling applied to that spouse's own earned income and housing exclusion. The rule operates as a hard ceiling on the benefit for the year; it is not a credit or refund, simply a limit on what can be excluded from gross income.
You cannot exclude more than the smaller of: • $103,900, or • Your foreign earned income (discussed earlier) for the tax year minus your foreign housing exclusion (discussed later).
Publication 54 (2018), 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
A taxpayer who previously elected the Foreign Earned Income Exclusion and later revoked that election faces a waiting period before re-electing the benefit. If you revoked a choice and, within five years, again wish to choose the same exclusion, you cannot simply check the box on the next return. Instead, you must apply for IRS approval by requesting a ruling from the IRS before the exclusion may be claimed again. This lockout rule prevents taxpayers from toggling the election on and off year to year in order to time it against other tax attributes. Without IRS consent, a taxpayer who has revoked cannot resume the exclusion until the five-year period has elapsed.
If you revoked a choice and within 5 years again wish to choose the same exclusion, you must apply for IRS approval. You do this by re- questing a ruling from the IRS.
Publication 54 (2018), 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. 2018-18 (Internal Revenue Bulletin 2018-10) (IRS)
- Exclusion amount
For taxable years beginning in 2018, the foreign earned income exclusion amount under § 911(b)(2)(D)(i) is $103,900.