FEIE Physical Presence Test: 330 Days and Your First Year Abroad

Physical presence or bona fide residence: which FEIE test fits you?

To claim the foreign earned income exclusion (FEIE), you need two things: a tax home in a foreign country and one of two time tests. In a first year abroad, the physical presence test is usually met sooner, because the bona fide residence test cannot be met until an entire calendar year abroad has passed (IRS: Instructions for Form 2555).

Each spouse qualifies separately and completes a separate Form 2555. Up to $132,900 per qualifying person can be excluded for a full year (IRS: figuring the exclusion). It covers only pay for work done abroad, such as wages and self-employment income, not pensions, Social Security, interest, dividends or capital gains, and never pay from the US government to its own employees (Form 2555 instructions).

A case is not simple when you travel to the US often, keep a home or family in the US, work on an assignment expected to last a year or less, earn pay for both US and foreign workdays, or file late. Gather passport stamps or entry and exit records, a dated travel log with flight times, your lease, any local registration or residence permit, your work contract, and any foreign tax return.

How do you count 330 full days, and does a US layover break them?

A full day runs midnight to midnight, and only full days spent entirely in a foreign country count. The 330 days need not be in a row, and you lose days for any reason you are not abroad, including illness, family needs, vacation or an employer's order (IRS: physical presence test). That leaves at most 35 days (36 with a February 29) in a 12-month window for US visits and travel days.

The regulation treats travel under 24 hours outside any foreign country as not leaving a foreign country (26 CFR 1.911-2(d)). Days in a country in violation of US travel rules, such as Cuba, do not count (Form 2555 instructions).

Missing 330 days because of illness or a recall is not excused. The only waiver is for leaving a country on the IRS list because of war, civil unrest or similar conditions (IRS: physical presence test).

Which 12-month period can you pick, and can it start before you moved?

You can pick any 12 consecutive months that contain 330 full days abroad and fall at least partly in the tax year you are filing, and the period may begin before you arrive abroad. The period starts on any day and ends the day before the same date 12 months later. Periods can overlap, so a second year can use a different window than the first (IRS: physical presence test; 26 CFR 1.911-2(d)).

Only the 330 full days need a foreign tax home. The window around them can include days in the US and days before your tax home moved. Those days still count as qualifying days for the first-year limit, which is why starting the window early can raise it (26 CFR 1.911-3(d)(3)). That count rests on the regulation: the IRS web page and the Form 2555 line 31 instructions word the qualifying period more narrowly, as days you meet the tax home test, so an examiner may count fewer days (Form 2555 instructions). With only 35 spare days, the window can start at most that many days before your first full day abroad, and fewer if you travel in the months that follow.

On Form 2555, line 16, enter both dates of the window you choose; "Continues" is not allowed. List your travel during the window on line 18, leaving out travel between foreign countries unless it put you over international waters or in or over the US for 24 hours or more (Form 2555).

What makes your tax home foreign?

Your tax home is the general area of your main place of work, wherever your family lives. But you have no foreign tax home for any period your abode is in the US, and abode means where your family, economic and personal ties are (IRS: tax home in a foreign country).

• Keeping a US home. Owning or renting a US dwelling, even one your spouse uses, does not by itself put your abode in the US, but it counts toward that result. In an IRS example, a worker on a 28-days-on, 28-days-off foreign rotation who returns to the family home in the US between rotations has a US abode and cannot claim the exclusion.
• Remote work for a US company. Your employer's location does not set your tax home; where you regularly work does. Pay for work physically done abroad can be foreign earned income from a US or a foreign employer (IRS: international tax questions). For W-2 withholding and Form 673, see working abroad for a US employer.
• Digital nomads. With no regular place of work, your tax home may be where you regularly live. Only with neither are you an itinerant, with a tax home wherever you work, so moving between countries does not by itself rule out a foreign tax home. A US abode does.
• Short assignments. Work in one place expected to last, and lasting, a year or less is generally temporary unless the facts show otherwise, and while temporarily away from a US tax home you have no foreign tax home. Work expected to last more than a year is indefinite.
• Tourist visas. The physical presence test does not look at your visa, so your day count and tax home decide. Form 2555 asks for it under the bona fide residence test, where a visa that limits your stay must be explained and can weigh against residence.

Whether your abode moved is a facts-and-circumstances question with no bright line. Leases, local bank accounts, a local driver's license and family living with you point abroad; a family, home, car and job ties left in the US point back.

What does the bona fide residence test on Form 2555 require?

The bona fide residence test requires residence in a foreign country for an uninterrupted period that includes a full calendar year, judged on your intentions and acts. A fixed-term job abroad usually does not make you a bona fide resident, even if it lasts more than a year (IRS: bona fide residence test).

The IRS decides largely from your answers on Form 2555, Part II: your housing, family with you, contract terms, visa type, whether you kept a US home, and US days. Leaving out requested information can lead to the exclusion being disallowed (Form 2555). Brief trips to the US or elsewhere do not break residence if you clearly intend to return without unreasonable delay.

Telling the foreign tax office you are not a resident can sink the test. If you give that country's authorities a statement that you are not a resident and they hold that you are not subject to their income tax as a resident, you are not a bona fide resident there. While they have not decided, you are also not treated as one (26 CFR 1.911-2(c); Form 2555 instructions). The physical presence test has no such rule.

Once you complete a full calendar year as a bona fide resident abroad, your residence period counts from the day it began, so part of your arrival year can qualify for the exclusion.

FEIE in your first year abroad: how much can you exclude after a mid-year move?

In a partial year, the $132,900 limit is multiplied by your qualifying days in the year ÷ 365 (366 in a leap year). Qualifying days are the days in the tax year inside your qualifying period: the 12-month window for physical presence, or your residence period for bona fide residence (IRS: figuring the exclusion; Form 2555 instructions).

Only pay for work done abroad during that period is foreign earned income. US wages earned before the move stay fully taxable.

A US citizen still files one full-year Form 1040 reporting worldwide income for the moving year; moving abroad does not by itself create a part-year federal return. A green card holder generally stays a US resident too (IRS: U.S. citizens and resident aliens abroad). Your former state may treat the year differently; see ending state residency when moving abroad.

Form 2350 extension or file now and amend later?

If you will not meet either test by your filing deadline, you can ask for a Form 2350 extension to a date after you qualify, or file on time without the exclusion and amend after you qualify (Form 2555 instructions). First check whether a window that starts before you left already holds 330 full days by your deadline; if it does, you need neither route. Form 2350 fits if you want one return and can wait to file; filing now fits if you would rather file and pay on time and claim a refund later. For deadlines generally, see filing while living abroad.

Sources: Form 2350 and instructions; Publication 54.

On Form 2350, line 1, the requested date is 12 months and 30 days after your first full day abroad for physical presence, or after January 1 of your first full year abroad for bona fide residence. File Form 2350 only once per move; later years use Form 4868. You may qualify under either test, whichever one Form 2350 named, but you must file by the approved date (Publication 54).

If you pay substantial foreign income tax, the foreign tax credit may make waiting unnecessary; see the exclusion or the credit.

My foreign employer gives me no W-2: how do I report the wages?

Report the gross pay anyway, converted to US dollars: a US citizen or resident is taxed on worldwide income wherever it is paid (IRS: U.S. citizens and resident aliens abroad). It goes on Form 1040, line 1, and on Form 2555, Part IV; Form 2555 then subtracts the excluded amount on Schedule 1 (Form 2555 instructions; Publication 54).

• Use gross pay. Include allowances, housing or a car provided by the employer, and foreign tax your employer pays for you (Form 2555 instructions; Publication 54).
• Foreign tax withheld is not US withholding. Do not enter it as federal income tax withheld (Form 2555 instructions).
• Convert to dollars. The general rule is the exchange rate when you are paid (IRS: foreign currency). The IRS has no official rate, accepts any posted rate used consistently, and publishes yearly average rates. Keep the rate source with your records.

Self-employed income goes on Schedule C instead, and the exclusion never removes self-employment tax; see self-employment tax abroad.

I'm filing late: can I still elect the exclusion?

Usually yes. You can first elect the exclusion on a timely return, an amendment of a timely return, or a late return filed within one year of the original due date, not counting extensions (IRS: choosing the exclusion).

After that, you can still elect it if you owe no federal income tax after the exclusion, or if you file before the IRS discovers you failed to elect it. Either way, write "FILED PURSUANT TO SECTION 1.911-7(a)(2)(i)(D)" at the top of page 1 of Form 1040. If you owe tax and the IRS found the omission first, you must request a private letter ruling under Treasury Regulation 301.9100-3, which the IRS may grant or deny.

For several unfiled years, see the Streamlined Foreign Offshore Procedures.

What records prove my days, and what if the IRS disallows the exclusion?

Keep records that rebuild every day of the 12-month window and every residence fact Form 2555 asks for. The IRS judges both tests from your Form 2555 answers and can disallow the exclusion when requested information is missing (Form 2555).

• Days: passport stamps or entry and exit records, boarding passes, and a log of each trip with departure and arrival times.
• Tax home and residence: lease or deed, local registration or residence permit, work contract showing length of assignment, foreign tax returns, and proof of what happened to your US home.

Wrong dates on a filed Form 2555: file Form 1040-X with a corrected Form 2555; a refund must be claimed within the window above. A new window may raise or lower the limit, so recheck it first.

Exclusion disallowed after an audit: if you have records the examiner did not consider, you can ask for audit reconsideration of an unpaid assessment. It is not available after a closing agreement or a final court decision. If you already paid in full, file a refund claim on Form 1040-X instead (IRS: Publication 3598).

Example

Illustrative only; all amounts are US dollars, using a $132,900 annual limit, and neither year is a leap year.

Moved to Japan in mid-April

Ana arrives in Japan on April 14 of Year 1 and works there with no trips out until well into Year 2. Her first full day is April 15, and she reaches 330 full days on March 10 of Year 2.

• Window from her first full day: April 15 to April 14 gives 261 qualifying days in Year 1, a limit of about $132,900 × 261 ÷ 365 = $95,000.
• Earliest window: March 11 of Year 1 to March 10 of Year 2 still holds 330 full days and gives 296 qualifying days under the regulation, a limit of about $107,800. The narrower IRS reading gives 261.

She earns $100,000 in Japan from April to December. With the earlier window the limit covers all of it; with the first window about $5,000 stays taxable, at the rates that would apply without the exclusion. Her January to April US wages stay taxable either way. She meets the test in March, before her filing deadline, so she needs no Form 2350.

A layover in New York and a week in Chicago

Ben lives in London. He flies to Mexico City for work, only changing planes during a six-hour layover in New York, and finishes the trip on the same day. Under 24 hours outside any foreign country, so he loses no full days. Later he leaves London on the morning of June 1, spends seven nights with family in Chicago, and lands back in London on the morning of June 9. June 1 through June 9 are all lost: nine full days.

Remote worker with a home in Ohio

Cara works remotely for a US company, moving between countries on tourist visas and spending well over 330 full days abroad. Her spouse, house and car stay in Ohio, and she returns there between stays. If her abode is in the US, she has no foreign tax home and no exclusion, however many days she spends abroad. Whether it is depends on where her family, economic and personal ties are.

Different for you?

• You are not sure you must file, or you need the deadlines or the housing exclusion: see filing while living abroad.
• You qualify and must choose between the exclusion and the credit: see the exclusion or the foreign tax credit.
• You are leaving a state such as California or New York: see ending state residency when moving abroad.
• You hold a green card and have moved home for good: see leaving the US.
• Your spouse is not a US citizen or resident: see married to a nonresident.
• You are self-employed abroad: see self-employment tax abroad.
• You are a US company's employee working abroad: see working abroad for a US employer.
• You live in Canada: see Americans living in Canada.
• You never filed some years: see the Streamlined Foreign Offshore Procedures.
• The IRS disallowed your exclusion, several returns are late, or you split work between US and foreign days: gather your travel log, Form 2555 and IRS letters for cross-border tax help.