Should I take the FEIE or claim foreign tax credits?

Typically FTCs win for higher earners in high-tax countries like the UK because UK rates exceed US brackets, generating carry-forward credits. FEIE is cleaner when your UK tax is below the US bracket or you're in a low/no-tax country. We model both before choosing.

What's the 2025 FEIE limit?

$130,000 per person for the 2025 tax year (rising to $132,900 for 2026), indexed annually. Married couples filing jointly can each claim on their own earned income — so up to ~$260,000 combined for 2025 if both qualify.

Bona fide residence or physical presence — which test do I use?

Either works. Bona fide residence requires an uninterrupted tax year abroad plus intent to stay. Physical presence is mechanical — 330 full days in any rolling 12-month period. Physical presence suits first-year movers; bona fide residence suits long-term expats.

Can I combine FEIE with the foreign housing exclusion?

Yes, and it's often worth it in expensive cities like London. Housing costs above a base amount (roughly 16% of the FEIE cap) can be excluded on top of the ~$130k earned-income figure, up to city-specific ceilings.

Does FEIE cover my UK pension contributions?

FEIE only excludes earned income. Employer pension contributions, most investment income, and capital gains aren't earned income so they need separate treatment — usually FTCs or treaty positions.

◉ Foreign Income & Credits

Foreign earned income exclusion

Exclude up to ~$130,000 of foreign earned income (2025 tax year) if you qualify under the bona fide residence or physical presence test.

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Short answer

The Foreign Earned Income Exclusion lets a US citizen or Green Card holder who meets the bona fide residence or physical presence test exclude up to $130,000 of foreign earned income for 2025 ($132,900 for 2026) on Form 2555. It applies to salary and self-employment income only — not pensions, investment income or rent — and choosing it affects credits such as the Child Tax Credit.

Overview

Why this filing matters

Exclude up to ~$130,000 of foreign earned income (2025 tax year) if you qualify under the bona fide residence or physical presence test.

Note — Up to ~$130k exclusion (2025) — subject to annual IRS limit.

◉ Who this is for

•Americans working in the UK under an employment contract
•Self-employed expats meeting the physical presence test

✓ What you get

✓FEIE eligibility analysis
✓Housing exclusion/deduction where applicable
✓Form 2555 preparation

At a glance

Key forms: 2555
Category: Foreign Income & Credits
Turnaround: 2–3 weeks once documents are complete
Filed by: ACCA-qualified IRS Enrolled Agent

Our approach

Relief claimed deliberately, not by default.

The Foreign Earned Income Exclusion and the Foreign Tax Credit both reduce US tax on income you have already been taxed on in the UK — but they pull in different directions. FEIE can strand foreign tax you could have credited; the credit can leave earned income exposed that FEIE would have removed. Switching between them carries a five-year lock-out most people only discover afterwards.

We model both routes against your real income mix and your plans for the next few years, claim the one that holds up over time rather than just this filing, and carry unused foreign tax credits forward so nothing you have already paid expires unused.

FEIE and Form 1116 credit compared on your numbers before either is claimed
The FEIE revocation lock-out flagged before you trigger it by accident
Foreign tax credit carryovers tracked year-on-year so paid tax is not wasted

Reviewing a multi-year tax plan across US and UK obligations

Our process

How we handle your filing

Four steps from first email to filed return. Fixed fee confirmed in writing before any work begins.

Intake

Send us your situation by email or the enquiry form. We come back with the questions we need answered — every source of income for the year, filing history, accounts and entities — and a tailored document list.

Review

We analyse your position, flag any cross-border risks, and confirm the scope and fixed fee in writing before any work starts.

Prepare

Draft returns and schedules are prepared with plain-English commentary on key positions for your review.

File

You sign electronically; we e-file with the IRS / FinCEN and send you the acceptance confirmations for your records.

Pricing

Fixed fees — no surprises

FEIE analysis and Form 2555 are typically bundled with your 1040 return. Standalone FEIE-vs-FTC modelling (if you're reconsidering strategy) starts from £250 + VAT.

Prices are indicative starting points and exclude UK VAT, which applies to UK-resident clients only. We quote in writing once we have confirmed every source of income and your filing history for the years involved.

Request fee quote See full pricing →

FAQs

Common questions

Sources

Rules, thresholds and penalties are as published by the IRS and FinCEN at the time of our last review (2026-09-08); always check the current instructions for the year you are filing.

Related services

Others in Foreign Income & Credits

Foreign Tax Credits (Form 1116)

Offset UK income tax paid against your US liability. Often more beneficial than the FEIE for higher earners.

Learn more →

Treaty positions (Form 8833)

Claim benefits under the US-UK double tax treaty — residence tie-breaker, pension sourcing, and more.

Learn more →

Who this is for

Situations where this filing usually applies

Guides from our team on this topic

Ready to get this filed?

Tell us your situation and we’ll reply by email within 2 working days with our questions, then a written scope, fixed fee and document list.

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