The Foreign Earned Income Exclusion allows US citizens who qualify as residents abroad to exclude a portion of their foreign earned income from US income tax. For 2025, the maximum exclusion is $130,000. For a US citizen living and working in France, the exclusion can reduce or eliminate US income tax on French employment or self-employment income.
The FEIE is not automatic. It requires an affirmative election filed on Form 2555, attached to the annual Form 1040. It applies only to earned income: wages, salaries, professional fees, and compensation for personal services rendered abroad. Investment income, capital gains, rental income, and Social Security benefits are not foreign earned income and are not covered by the exclusion.
For US residents in France, the more consequential planning question is often whether to use the FEIE at all. France’s income tax rates are comparable to or higher than US rates at most income levels. The Foreign Tax Credit (Form 1116) may eliminate US tax entirely on income taxed in France, while generating carryforward credits that can offset US tax in future years. Using the FEIE forecloses that strategy. Both approaches warrant analysis before the first return is filed.
Eligibility Requirements
FEIE eligibility requires satisfying two independent conditions.
Condition 1 — Foreign tax home: The taxpayer’s regular or principal place of business, employment, or post of duty must be in France. Maintaining a home in the US does not automatically disqualify, but frequent returns to a US home during off-periods, a family remaining in the US, and other ties suggesting the US is the primary base may indicate a US tax home.
Condition 2 — Qualifying test: The taxpayer must meet either the bona fide residence test or the physical presence test.
Bona Fide Residence Test
| Requirement | Detail |
|---|---|
| Eligible filers | US citizens; resident aliens who are citizens of a treaty country |
| Duration | Uninterrupted bona fide residence in a foreign country for an entire tax year |
| Basis for qualification | Intent and facts, not merely physical presence |
| Disqualifying factors | Declared intent to return, fixed-term assignment with planned departure, maintaining primary home in the US |
Bona fide residence is a facts-and-circumstances determination. A statement of intent to remain indefinitely in France supports the test. A fixed-term secondment with a pre-arranged return strengthens the IRS’s position that bona fide residence was not established.
Physical Presence Test
| Requirement | Detail |
|---|---|
| Eligible filers | US citizens and resident aliens |
| Days required | 330 full days in foreign countries during any consecutive 12-month period |
| Period flexibility | The 12-month period can begin on any day; it need not match the calendar year |
| Country requirement | The 330 days may be split across multiple countries |
A full day is a 24-hour period when the taxpayer is physically present outside the US. Transit days through US territory do not count. A taxpayer who flies from Paris to New York and returns the same day has a zero-day US presence for the transit but must not be physically in the US at midnight.
Exclusion Amount and Proration
| Tax Year | Maximum FEIE Exclusion |
|---|---|
| 2025 | $130,000 |
| 2024 | $126,500 |
The exclusion is prorated if the qualifying period is less than a full year. A taxpayer who qualifies for 183 days in 2025 may exclude a maximum of $130,000 × (183 ÷ 365) = $65,137. The exclusion also cannot exceed actual foreign earned income for the year. A taxpayer with $60,000 in foreign earned income excludes at most $60,000, regardless of the maximum limit.
Housing Exclusion
Employees may claim a housing exclusion for qualifying housing expenses above a base amount. Self-employed individuals claim a housing deduction instead.
| Component | 2025 Amount |
|---|---|
| Annual base amount | $39,000 (30% of the FEIE maximum) |
| Qualifying expenses above the base | Excludable, up to the location-specific cap |
The location-specific cap for Paris is higher than the national default and is published annually in an IRS Notice. Qualifying expenses include rent, utilities excluding telephone, property insurance, lease fees, furniture rental, and residential parking. Home purchase costs, mortgage interest, real property taxes, and domestic labor are excluded.
FEIE vs. Foreign Tax Credit: Strategic Framework
The FEIE and the FTC are mutually exclusive on the same income. Foreign taxes paid on excluded income cannot be credited. This constraint has planning implications specific to US residents in France.
| Factor | FEIE Favored | FTC Favored |
|---|---|---|
| Marginal French tax rate | Below US effective rate | At or above US effective rate |
| Income type | Earned income only; significant housing expenses | Combination of earned and investment income |
| Long-term US income outlook | Limited future US income | Significant anticipated US income; carryforwards valuable |
| SE tax exposure | Does not change; FEIE does not reduce SE tax | Does not change |
For most US residents in France, the FTC alone is sufficient to eliminate US income tax on French-source income and generates excess credits that carry forward ten years. The FEIE may be more advantageous when French taxes are lower than US taxes or when the housing exclusion produces a meaningful additional benefit.
Self-Employment Tax
The FEIE reduces income tax on foreign earned income. It does not reduce self-employment tax. Self-employed Americans in France must compute SE tax on the full net self-employment income, including any amount excluded under Form 2555. This means a self-employed US citizen who fully excludes $80,000 of freelance income still owes SE tax on that $80,000.
The US–France totalization agreement provides relief for those who establish coverage under the French social security system. A covered self-employed individual pays French cotisations and is exempt from US SE tax. The two systems do not apply simultaneously.
Election, Revocation, and the Five-Year Lockout
The FEIE election is made by filing Form 2555 with a timely filed return. Once made, the election remains in effect for all subsequent years unless formally revoked.
| Action | Rule |
|---|---|
| Initial election | File Form 2555 with the tax return; can be filed with an amended return within the statute of limitations |
| Continuity | Remains in effect each subsequent year without re-election |
| Revocation | Attach a statement to the return for the first year the exclusion is not claimed |
| Effect of revocation | Cannot re-elect for five years without written IRS approval |
| No-income year | Election remains in effect even if there is no qualifying foreign income that year |
The five-year lockout makes revocation a consequential decision. Taxpayers switching from FEIE to a pure FTC strategy should model the full tax impact over multiple years, including the effect on carryforward credits and future US income, before revoking.
Technical References
Statutory authority: IRC §911 provides the legal basis for the Foreign Earned Income Exclusion. The exclusion is available to US citizens and resident aliens who have a tax home in a foreign country and meet either the bona fide residence test (§911(d)(1)(A)) or the physical presence test (§911(d)(1)(B)).
Exclusion amount and inflation adjustment: The maximum exclusion is adjusted for inflation annually under IRC §911(b)(2)(D). For 2025, the amount is $130,000. This figure appears on line 36 of Form 2555. Location-specific housing limits are published each year in an IRS Notice; the 2025 limits are in Notice 2025-16.
Anti-double-benefit rule: IRC §911(a) states that gross income shall not include foreign earned income or housing amounts. IRC §911(d)(6) prohibits a foreign tax credit for taxes paid on excluded amounts. The prohibition extends to both direct taxes and taxes allocable to excluded income under the allocation rules in Publication 514.
Self-employment tax: The FEIE exclusion is taken on Schedule 1 (Form 1040) and reduces adjusted gross income for income tax purposes. It does not affect the Schedule SE computation. Net self-employment income, including any excluded amount, remains subject to SE tax under IRC §1401. Totalization agreement coverage is established through a certificate of coverage issued by the applicable authority (URSSAF for France).
Revocation mechanism: Rev. Proc. 2020-17 and the Form 2555 instructions describe the revocation procedure. The revocation statement must be attached to the return for the first year the exclusion is not claimed. The IRS may grant approval to re-elect within the five-year lockout period under limited circumstances.
Form 2555 instructions: https://www.irs.gov/instructions/i2555
Frequently Asked Questions
Does the Foreign Earned Income Exclusion eliminate all US tax for Americans in France?
No. The FEIE excludes qualifying foreign earned income from US income tax, up to $130,000 for 2025. It does not eliminate self-employment tax, which applies to foreign self-employment income even when excluded under Form 2555. Investment income, capital gains, rental income from French property, and US-source income remain fully taxable. Many US residents in France owe zero income tax after combining the FEIE with the Foreign Tax Credit on non-excluded income, but the self-employment tax obligation persists for the self-employed.
Can I claim both the Foreign Earned Income Exclusion and the Foreign Tax Credit on the same income?
No. The anti-double-benefit rule prohibits claiming a foreign tax credit for taxes paid on income excluded under the FEIE. The FTC and the FEIE are mutually exclusive on the same income. A taxpayer who partially excludes income may claim the FTC only on the non-excluded portion, using the allocation rules in Publication 514.
Does living in France qualify me for the FEIE automatically?
No. Physical presence in France is not sufficient on its own. FEIE eligibility requires a foreign tax home and qualification under either the bona fide residence test or the physical presence test. A US citizen working temporarily in France while maintaining a primary home and family in the US may fail the tax home requirement regardless of how many days they spend in France.
What is the bona fide residence test?
Yes, a US citizen qualifies through bona fide residence by demonstrating uninterrupted residence in France for an entire tax year, based on intent and facts. The IRS examines the nature of the stay, whether the taxpayer intended to remain indefinitely, and whether a US abode was maintained as the primary home. A fixed-term assignment with a predetermined end date tends to undermine bona fide residence status.
What is the physical presence test?
Yes, a US citizen qualifies under the physical presence test by being physically present in a foreign country or countries for at least 330 full days during any consecutive 12-month period. The 330 days need not be in one country, and the period need not correspond to the calendar year. A qualifying 12-month period can begin on any day of the year.
If I revoke the FEIE election, can I reclaim it the following year?
No. Once revoked, the FEIE cannot be re-elected for five years without written IRS approval. The lockout runs from the first year the revocation is effective. This makes revocation a difficult-to-reverse decision with long-term consequences. Taxpayers considering a switch to the Foreign Tax Credit strategy should model the effect over multiple years before revoking.
Does the FEIE cover housing costs in France?
Yes, through the housing exclusion (for employees) or housing deduction (for the self-employed). Qualifying housing expenses above the annual base amount of $39,000 (2025) can be excluded from income, up to a location-specific cap. Paris is a designated high-cost location with a cap above the national default. Qualifying expenses include rent, utilities excluding telephone, property insurance, and furniture rental.
Should I use the FEIE or the Foreign Tax Credit in France?
For many US residents in France, the Foreign Tax Credit alone eliminates US income tax on French-source income, because French rates are at or above US rates at most income levels. The FTC additionally generates carryforward credits usable against future US income. Using the FEIE forecloses that carryforward strategy. There is no universal answer; both strategies should be modeled against the taxpayer’s specific income profile, future plans, and whether the housing exclusion produces additional benefit.