How much income can I exclude with the FEIE in 2025?

For tax year 2025, the Foreign Earned Income Exclusion allows you to exclude up to $130,000 of foreign earned income from US federal income tax. The amount is adjusted annually for inflation.

Does the FEIE eliminate self-employment tax?

No. The FEIE only eliminates federal income tax on qualified foreign earnings. You still owe 15.3% self-employment tax (Social Security and Medicare) unless you are covered by a Totalization Agreement between the US and the country where you work.

What counts as a 'full day' outside the US for the 330-day test?

A full day means a complete 24-hour period (midnight to midnight) spent outside the United States. Travel days where you are in transit between the US and a foreign country generally do not count as full days abroad.

international Audience: self employed 3 min read

Foreign Earned Income Exclusion: A Guide for Digital Nomads

Work from Bali? You might owe $0 US income tax on your first ~$130k (2025/26). Mastering the FEIE.

Last updated on February 21, 2026

The US is one of the only countries that taxes based on Citizenship, not Residency. Even if you live on the Moon, you owe the IRS. However, to prevent double taxation (and encourage working abroad), we have the Foreign Earned Income Exclusion (FEIE) based on Form 2555.

Key Takeaways

The Exclusion: You can exclude ~$130,000 (inflation adjusted) of wages/self-employment income from US Tax.
The Test: You must be outside the US for 330 full days in a 12-month period (Physical Presence Test).
Self-Employment Tax: FEIE does NOT exempt you from Social Security/Medicare tax (15.3%) unless there is a 'Totalization Agreement'.
State Tax: States like California might still claim you are a resident even if the Feds don't.

The “330 Day” Count

It is strict. 330 full days. Travel days don’t count. If you come back for a wedding and stay 36 days… you lose the entire deduction. Strategy: Track your location in a spreadsheet. Do not cut it close. 330 is the minimum; aim for 340.

The SE Tax Gotcha

If you are a freelancer in Portugal:

FEIE wipes out your Income Tax.
But you still owe 15.3% SE Tax to the US.
Fix: Establish a foreign corporation (Strategy varies by country) to turn “Self-Employment Income” into “Salary” or “Dividends” of a non-US entity. (Highly complex, requires pro help).

Living tax-free is possible, but you have to sever ties thoroughly.

What the FEIE Does Not Cover

The FEIE is powerful, but it has limits every digital nomad should understand:

Self-Employment Tax: Even with FEIE, you owe self-employment tax on your net earnings. This is the 15.3% that catches expats off guard.
Quarterly Payments: If you owe SE tax, you still need to make quarterly estimated tax payments to the IRS from abroad.
Investment Income: FEIE only covers earned income. Capital gains, dividends, and rental income are still taxable. Review the capital gains tax strategies guide if you also invest from abroad.

States can also be sticky about residency. For a deeper look at how state rules differ, see our state income tax guide.

How sharper.tax Helps

sharper.tax analyzes your uploaded return and identifies whether the Foreign Earned Income Exclusion is being claimed correctly, and whether you are overpaying on self-employment tax. We flag Totalization Agreement eligibility and other strategies that reduce your remaining US tax obligations while abroad. Sophisticated tax planning used to require a high-end CPA --- we make it available for free.

Sources

The information above is educational and not tax advice.