2021 Foreign Earned Income Exclusion
The 2021 Foreign Earned Income Exclusion is $108,700.
Effective 2021-01-01Source: Rev. Proc. 2020-45 (IRS)Verified 2026-08-29
Compared with 2020
| Item | 2020 | 2021 | Change |
|---|---|---|---|
| Exclusion amount | $107,600 | $108,700 | +$1,100 (+1.0%) |
Who it applies to
U.S. citizens and resident aliens who qualify for the foreign earned income exclusion under IRC § 911 by having foreign earned income and meeting either the bona fide residence test or the physical presence test.
What changed this year, and why
The foreign earned income exclusion under IRC § 911(b)(2)(D)(i) was adjusted for inflation to $108,700 for taxable years beginning in 2021, up from $107,600 in 2020.
Common questions
- What is the Foreign Earned Income Exclusion?
- The foreign earned income exclusion under Internal Revenue Code section 911 lets qualifying U.S. citizens and residents living abroad exclude a set amount of foreign earnings from U.S. income tax. For taxable years beginning in 2021, that amount is $108,700, up from $107,600 for 2020.
Your tax home has to be in a foreign country
To claim the foreign earned income exclusion of $108,700 for 2021, you must have your tax home in a foreign country throughout your entire period of bona fide residence or physical presence abroad. Your tax home is generally the area of your main place of business, employment, or post of duty, regardless of where your family lives. If you have no regular place of business, it may be where you regularly live. You are not considered to have a tax home in a foreign country during any period when your abode is in the United States (unless you are serving in a combat zone). Your abode is determined by your family, economic, and personal ties. If your abode remains in the United States, you fail the tax home test and cannot claim the exclusion, even if you meet one of the time tests abroad.
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 (2021), Tax Guide for U.S. Citizens and Resident Aliens Abroad (IRS)
The bona fide residence test
The bona fide residence test is one way to qualify for the foreign earned income exclusion of $108,700 and the foreign housing exclusion. To meet this test, you must be a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. 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. Living abroad for one year does not automatically make you a bona fide resident; your intention, the nature of your work, and the type of residence you establish are all considered. Your bona fide residence is the place where you genuinely live, which may differ from your domicile (your permanent home). You must maintain this residence throughout the tax year without interruption.
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 (2021), Tax Guide for U.S. Citizens and Resident Aliens Abroad (IRS)
330 full days in any 12 months
The physical presence test requires you to be physically present in a foreign country or countries for 330 full days during any period of 12 consecutive months. The 330 days do not have to be consecutive. This test is available to any U.S. citizen or resident alien and does not depend on the type of residence you establish, your intentions about returning, or the purpose of your stay abroad. A full day means a complete period of consecutive hours beginning at midnight. Days spent traveling over international waters between the United States and a foreign country do not count toward the 330-day total. You can count days spent abroad for any reason, including vacation. If illness, family problems, or your employer's orders cause you to be present for less than 330 full days, you do not meet the test unless you qualify for a waiver due to war or civil unrest.
You meet the physical presence test if you are physically present in a foreign country or coun- tries for 330 full days during a period of 12 con- secutive months.
Publication 54 (2021), Tax Guide for U.S. Citizens and Resident Aliens Abroad (IRS)
The separate foreign housing exclusion
In addition to the foreign earned income exclusion, a qualifying taxpayer may be able to exclude or deduct a portion of housing expenses incurred while living abroad. The housing exclusion applies only to amounts considered paid for with employer-provided amounts. The housing deduction applies only to amounts paid for with self-employment earnings. Your housing amount is the total of your housing expenses for the year minus a base housing amount. The base housing amount is tied to the maximum foreign earned income exclusion. You must file Form 2555 to claim either the housing exclusion or the housing deduction. Like the earned income exclusion, the housing benefit requires you to have a tax home in a foreign country and to meet either the bona fide residence test or the physical presence test.
The housing exclusion applies only to amounts considered paid for with em- ployer-provided amounts. The housing deduc- tion applies only to amounts paid for with self-employment earnings.
Publication 54 (2021), Tax Guide for U.S. Citizens and Resident Aliens Abroad (IRS)
The election sticks until you revoke it
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. This means the election is ongoing and continues to apply to future tax returns automatically. You cannot simply decide each year whether to claim the exclusion; once you make the choice, it stays in place until you formally revoke it. If you later take a foreign tax credit or deduction for taxes on income you could have excluded, your election for the foreign earned income exclusion will be revoked beginning with that year. Additionally, you cannot claim the additional child tax credit or the earned income credit if you claim the foreign earned income exclusion.
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 (2021), 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. 2020-45 (IRS)
- Exclusion amount
the foreign earned income exclusion amount under § 911(b)(2)(D)(i) is $108,700.