2020 Foreign Earned Income Exclusion
The 2020 Foreign Earned Income Exclusion is $107,600.
Effective 2020-01-01Source: Rev. Proc. 2019-44 (IRS)Verified 2026-09-02
Compared with 2019
| Item | 2019 | 2020 | Change |
|---|---|---|---|
| Exclusion amount | $105,900 | $107,600 | +$1,700 (+1.6%) |
Who it applies to
U.S. citizens and resident aliens who live and work abroad and meet either the bona fide residence test or the physical presence test.
What changed this year, and why
For taxable years beginning in 2020, the foreign earned income exclusion under IRC § 911(b)(2)(D)(i) is $107,600.
Common questions
- How much foreign earned income can a qualifying taxpayer exclude from gross income for 2020?
- The exclusion is $107,600 per qualifying taxpayer for taxable years beginning in 2020.
- Who can claim the Foreign Earned Income Exclusion?
- Form 2555 (Foreign Earned Income) is generally used to claim the exclusion. A taxpayer must have foreign earned income and must have a tax home in a foreign country, and must meet either the bona fide residence test or the physical presence test.
Your tax home has to be in a foreign country
To claim any of the foreign tax benefits - the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction - you must maintain a tax home in a foreign country for the entire period you rely on to qualify. Your tax home is generally the main area of your work or post of duty, not where your family lives. If your abode (your family, economic, and personal ties) remains in the United States, you are not considered to have a foreign tax home and cannot claim the exclusion, even while living abroad. This requirement applies whether you qualify under the bona fide residence test or the physical presence test. The tax home must be in a foreign country throughout that entire qualifying period.
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 (2020), Tax Guide for U.S. Citizens and Resident Aliens Abroad (IRS)
The bona fide residence test
The bona fide residence test requires that you be a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. A tax year is generally the calendar year, but it can be a different period if you use a fiscal year. Simply living abroad for a year is not enough; the IRS looks at the length of your stay, the nature of your job, and whether you have established permanent quarters for yourself and your family in the foreign country. This test is available only to U.S. citizens and to U.S. resident aliens who are citizens or nationals of a country that has an income tax treaty with the United States. If you meet this test, along with having a foreign tax home and foreign earned income, you can exclude up to $107,600 of foreign earned income for 2020.
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 (2020), Tax Guide for U.S. Citizens and Resident Aliens Abroad (IRS)
330 full days in any 12 months
The physical presence test requires that you be physically present in a foreign country or countries for 330 full days during a period of 12 consecutive months. The 12-month period can begin with any day and ends the day before the same date 12 months later. The 330 days do not have to be consecutive, and you can count days spent abroad for any reason - work, vacation, or family. Time spent on or over international waters while traveling to or from a foreign country does not count toward the total. Unlike the bona fide residence test, the physical presence test is available to any U.S. citizen or resident alien and does not depend on the kind of residence you establish or your intentions about returning. If you meet this test, you can exclude up to $107,600 of foreign earned income for 2020.
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 (2020), Tax Guide for U.S. Citizens and Resident Aliens Abroad (IRS)
The separate foreign housing exclusion
In addition to the foreign earned income exclusion, qualifying taxpayers may also exclude or deduct certain housing expenses. The foreign housing exclusion applies to employees and allows them to treat a limited amount of income used for housing expenses as not taxable by the United States. The foreign housing deduction applies to self-employed individuals and allows them to deduct part of their housing expenses from income. The amount of qualified housing expenses eligible for the housing exclusion or deduction is subject to a limit that varies by location. The base housing amount is calculated as a percentage of the exclusion amount, figured on a daily basis, multiplied by the number of qualifying days in the year. This base amount is subtracted from your actual housing expenses to determine the excludable or deductible portion.
You may also 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.
Publication 54 (2020), Tax Guide for U.S. Citizens and Resident Aliens Abroad (IRS)
The election sticks until you revoke it
The election to claim the foreign earned income exclusion is voluntary and is made by completing the appropriate parts of Form 2555. This means the election is not a one-time decision that expires; it carries forward automatically. If you revoke the election, you generally cannot claim the exclusion again for several tax years without IRS approval. Additionally, once you choose to exclude foreign earned income, you cannot take a foreign tax credit or deduction for taxes on the income you exclude. If you do take a credit or deduction for those taxes in a later year, your election for the foreign earned income exclusion is automatically revoked beginning with that year.
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 (2020), Tax Guide for U.S. Citizens and Resident Aliens Abroad (IRS)
What kind of income the exclusion actually covers
The foreign earned income exclusion covers compensation you receive for personal services you perform while your tax home is in a foreign country. Earned income includes wages, salaries, commissions, bonuses, professional fees, and tips. It also includes noncash income from your employer, such as lodging, meals, or the use of a car, plus allowances and reimbursements like cost-of-living allowances, overseas differentials, family allowances, quarters allowances, and moving allowances. Income that does not qualify includes dividends, interest, capital gains, pensions, annuities, gambling winnings, social security benefits, and alimony. The exclusion is limited to the smaller of $107,600 or your foreign earned income for the year reduced by any foreign housing exclusion you claim.
Earned income. This is pay for personal serv- ices performed, such as wages, salaries, or professional fees. The list that follows classifies many types of income into three categories. The column headed Variable Income lists in- come that may fall into either the earned in- come category, the unearned income category, or partly into both. For more information on earned and unearned income, see Earned and Unearned Income, later.
Publication 54 (2020), Tax Guide for U.S. Citizens and Resident Aliens Abroad (IRS)
Not meeting a test for the whole year shrinks the exclusion
If a qualifying taxpayer does not meet either the bona fide residence test or the physical presence test for every day of the 2020 tax year, the maximum exclusion is reduced on a daily basis. The full-year exclusion of $107,600 must be prorated based on the number of days during the year the taxpayer actually qualified under one of the tests. In practice, the taxpayer counts the qualifying days in 2020, divides by the total number of days in the year, and multiplies that fraction by $107,600 to arrive at the reduced maximum exclusion for that year. This means a taxpayer who, for example, arrives in a foreign country partway through the year, or who leaves a foreign tax home before the year ends, can exclude only a portion of the full $107,600 limit. The proration applies regardless of which test is used and regardless of whether the shortfall results from starting the assignment late, ending it early, or failing one of the tests for part of the year.
Am I entitled to the maximum $107,600 exclusion? Not necessarily. Although you qual- ify for the foreign earned income ex- clusion, you may not have met ei- ther the bona fide residence test or the physical presence test for your entire tax year. 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 (2020), Tax Guide for U.S. Citizens and Resident Aliens Abroad (IRS)
Room you do not use does not carry to another year
For 2020, a qualifying taxpayer may exclude up to $107,600 of foreign earned income. The exclusion is capped at the smaller of $107,600 or the taxpayer's foreign earned income for the year reduced by any foreign housing exclusion claimed. If both spouses work abroad and each meets either the bona fide residence test or the physical presence test (they do not need to meet the same test), each spouse may claim his or her own exclusion, so a married couple can exclude more than $107,600 in total. The limitation is applied per person per year; any portion of the exclusion that is not used in 2020 because the taxpayer's foreign earned income is below $107,600, or because the taxpayer also claims a housing exclusion, cannot be carried back to a prior year or carried forward to a later year. In other words, unused exclusion room simply expires at the end of the tax year and does not create a credit or reserve for future returns.
Limit on Excludable Amount You may be able to exclude up to $107,600 of your foreign earned income in 2020. You cannot exclude more than the smaller of: • $107,600, or • Your foreign earned income (discussed earlier) for the tax year minus your foreign housing exclusion (discussed later). If both you and your spouse work abroad and each of you meets either the bona fide resi- dence test or the physical presence test, you can each choose the foreign earned income ex- clusion. You don’t both need to meet the same test. Together, you
Publication 54 (2020), 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
Once a taxpayer decides to revoke the election to claim the foreign earned income exclusion or the foreign housing exclusion, the revocation takes effect immediately for the tax year specified. If, after revoking, the taxpayer decides within 5 years that they again wish to choose the same exclusion, they cannot simply re-elect it on their return. Instead, they must apply for and receive advance approval from the IRS. This is done by requesting a private ruling from the Associate Chief Counsel (International) at the Internal Revenue Service. The 5-year lockout period means that taxpayers should carefully consider whether to revoke the exclusion, as reversing that decision within 5 years requires going through an IRS approval process rather than making a new election on the tax return. This rule prevents taxpayers from switching back and forth between claiming and not claiming the exclusion year to year without IRS oversight.
You must revoke separately a choice to exclude foreign earned income and a choice to exclude foreign housing amounts. If you revoked a choice and within 5 years again wish to choose the same exclusion, you must apply for IRS approval.
Publication 54 (2020), 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. 2019-44 (IRS)
- Exclusion amount
.39 Foreign Earned Income Exclusion. For taxable years beginning in 2020, the foreign earned income exclusion amount under § 911(b)(2)(D)(i) is $107,600.