FEIE 2027: exclusion rises to $137,300
For tax year 2027 the IRS set the foreign earned income exclusion at $137,300, up from $132,900 in 2026. U.S. citizens and resident aliens living abroad may exclude that amount if their tax home is in a foreign country and they meet the bona fide residence test or the 330-day physical presence test.
The new ceiling appears in IRS news release IR-2026-133, dated 5 November 2026. The 2027 adjustments generally apply to returns filed in 2028. Living abroad does not by itself end U.S. tax on worldwide income: the exclusion is a separate claim. If you work from Italy for a U.S. employer, also see our note on the U.S.–Italy totalization agreement.
TL;DR
- The 2027 foreign earned income exclusion is $137,300 (was $132,900 in 2026).
- You still need foreign earned income, a foreign tax home, and either bona fide residence or 330 full days abroad in a 12-month period.
- U.S. citizens and resident aliens remain taxable on worldwide income unless they qualify and claim the exclusion.
- Self-employment income can be excluded for income tax, but not for self-employment tax.
- Claim it on Form 2555; tax on what remains is figured as if the exclusion had not been taken.
The 2027 figure
On 5 November 2026 the IRS published the annual inflation adjustments in Revenue Procedure 2026-35. Among the listed items, the foreign earned income exclusion rises to $137,300 for tax year 2027.
The IRS also notes that you may qualify for a foreign housing exclusion or deduction. The 5 November news release does not state a separate 2027 housing ceiling, so that amount should be checked on the Form 2555 instructions when they are updated for 2027.
Who qualifies
The IRS foreign earned income exclusion page sets three cumulative conditions. You must have foreign earned income, your tax home must be in a foreign country, and you must be one of the following:
- a U.S. citizen who is a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year;
- a U.S. resident alien who is a citizen or national of a country with which the United States has an income tax treaty, and who meets that same bona fide residence test; or
- a U.S. citizen or resident alien who is physically present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.
A foreign tax home generally means your work is in a foreign country and you expect to be employed there for an indefinite period, rather than a temporary one. You do not have a foreign tax home if your abode remains in the United States — that is, where you keep closer familial, economic and personal ties — unless you work in a Presidentially declared combat zone in support of the U.S. Armed Forces.
What counts as foreign earned income
Foreign earned income means wages, salaries, professional fees or other amounts paid for personal services you performed. It does not include amounts that are really a distribution of corporate earnings and profits rather than reasonable compensation.
It also does not include:
- pay received as a military or civilian employee of the U.S. government or any of its agencies;
- pay for services conducted in international waters or airspace (not a foreign country);
- payments received after the end of the tax year following the year in which the services were performed;
- pay otherwise excludible, such as qualifying employer-provided meals and lodging;
- pension or annuity payments, including Social Security benefits.
Self-employed people who qualify may claim the exclusion on foreign earned self-employment income. The excluded amount reduces regular income tax but does not reduce self-employment tax. A self-employed person may be able to claim the foreign housing deduction instead of the housing exclusion.
How the tax is figured
If you qualify, Form 2555 is used to figure the foreign earned income exclusion and any housing exclusion or deduction. You cannot exclude or deduct more than your foreign earned income for the year.
If you claim the earned-income exclusion, the housing exclusion, or both, you must figure the tax on remaining non-excluded income using the rates that would have applied had you not claimed the exclusion. The IRS points to the Foreign Earned Income Tax Worksheet in the Form 1040 instructions.
The IRS also offers an Interactive Tax Assistant to help decide whether income earned in a foreign country is eligible. For a wider compliance view, see our cross-border employment checklist and the Italy digital nomad visa requirements.
FAQ
What is the 2027 amount? $137,300, up from $132,900 in 2026, according to IRS IR-2026-133. It generally applies to returns filed in 2028.
Who qualifies? Foreign earned income, a foreign tax home, and either bona fide residence for a full tax year or 330 full days abroad in any 12 consecutive months.
Does it cut self-employment tax? No. It can reduce regular income tax on qualifying self-employment income, but not self-employment tax.
How do I claim it? On Form 2555. You cannot exclude more than your foreign earned income for the year.
General information as of 8 November 2026, not tax or legal advice. Check your situation with the IRS or a qualified professional, and confirm figures on the official pages linked below.
Sources
Checked on 8 November 2026.