Tools
FEIE vs FTC Calculator
Which fits your situation? The two main ways US expats cut their US tax bill are the Foreign Earned Income Exclusion (FEIE, Form 2555) and the Foreign Tax Credit (FTC, Form 1116). This free calculator gives you a side-by-side estimate of the US income tax under each, and which likely saves more. The figures are rough 2025 estimates, not your actual tax.
These are rough 2025 estimates from the figures you enter (2025 tax brackets, the standard deduction, and the $130,000 FEIE cap), not tax advice or your actual tax. They ignore state tax, the net investment income tax, the FEIE five-year revocation rule, treaty positions, and the finer detail of the foreign tax credit limitation and Child Tax Credit phase-outs, all of which depend on your full situation. Self-employment tax is separate and is not reduced by either method.
FEIE vs FTC: which should you use?
The Foreign Earned Income Exclusion (FEIE, Form 2555) and the Foreign Tax Credit (FTC, Form 1116) are the two main ways US citizens abroad lower their US tax bill. You can use one, the other, or both in the same return. The calculator above estimates the US income tax under each from your numbers. This section explains how to read that result and when each one wins.
The difference in one table
| Factor | FEIE (Form 2555) | Foreign Tax Credit (Form 1116) |
|---|---|---|
| What it does | Excludes foreign earned income from US tax | Credits the foreign income tax you paid against your US tax |
| 2025 limit | Up to $130,000 of earned income, per qualifying spouse | No income cap |
| Best when | You live in a low-tax or no-tax country | Your country taxes you at a similar or higher rate than the US |
| Passive income | No, earned income only | Yes, with separate limits per income category |
| Refundable Child Tax Credit | Forfeited on excluded income | Preserved, up to $1,700 per child refundable for 2025 |
| IRA contributions | Excluded income does not count, which can block them | Income stays on the return, so it counts |
| Unused amount | Nothing to carry; the exclusion simply caps out | Excess credit carries back 1 year and forward 10 |
| Switching cost | Revoking the FEIE locks you out for 5 years | You can change year to year |
Worked examples
These use the same 2025 estimate engine as the calculator above. Run your own numbers to see your figures.
Low-tax or no-tax country: the FEIE usually wins
A single filer earning $90,000 in a country with no income tax, say the UAE, pays $0 in foreign tax, so the Foreign Tax Credit has nothing to credit and leaves about $11,249 of US tax. The FEIE excludes the full $90,000 and leaves $0. Here the FEIE saves roughly $11,249.
High-tax country: the FTC usually wins
A single filer earning $90,000 in a high-tax country such as Germany or the UK, who paid $30,000 in foreign tax, zeroes out US tax under either method. But the FTC also banks about $18,751 of unused credit to carry forward for up to 10 years, and it keeps the Child Tax Credit and IRA eligibility that the FEIE gives up. Same $0 this year, stronger position for the future.
Income above the FEIE cap: you often need both
A single filer earning $180,000 can exclude only the first $130,000 under the FEIE. The rest is taxed at the stacked rates, leaving about $8,220 of US tax. If that filer paid $45,000 in foreign tax and uses the FTC alone, the credit wipes out the entire US bill and banks about $12,733 to carry forward. Combining the FEIE on the first $130,000 with the FTC on the rest also zeroes out the tax, but requires scaling down the creditable foreign taxes, resulting in a smaller carryforward of about $4,280. Above the cap, the FTC alone, or combining both, usually beats the FEIE alone.
Parents: the FTC can pay you a refund
A head-of-household parent of two earning $30,000 who paid $3,000 in foreign tax owes $0 US income tax under the FTC, and because the income stays on the return, the refundable Additional Child Tax Credit pays out a $3,400 refund. The same parent using the FEIE excludes the income, forfeits the refundable credit, and gets $0 back. For expat parents, the FTC is often worth real money.
How stacking and combining work
The FEIE does not drop you into a lower bracket. Under the stacking rule (the Form 1040 Foreign Earned Income Tax Worksheet), any income you do not exclude is taxed at the rates that would apply as if the excluded income were still stacked underneath it. So income above the $130,000 cap is taxed at your higher marginal rates, not from the bottom bracket up. That is why the over-cap example above leaves a real tax bill on a relatively small slice of income.
You can also use both methods in the same year: the FEIE on your first $130,000 of earned income, and the FTC on the rest or on passive income the FEIE cannot touch. The catch is that you cannot credit foreign tax that was attributable to income you already excluded, so the two have to be coordinated. That coordination is where a preparer earns their fee.
Qualifying: bona fide residence vs physical presence
To claim the FEIE you must pass one of two tests. The physical presence test requires 330 full days outside the US in any 12-month period. The bona fide residence test requires being a genuine resident of a foreign country for an uninterrupted period that includes a full tax year, which allows more US travel but is judged on the facts of your life abroad. The FTC has no residence test: if you paid foreign income tax, you can generally claim the credit.
Frequently asked questions
Can I use both the FEIE and the FTC in the same year?
Yes. A common pattern is to exclude the first $130,000 of earned income with the FEIE and credit the foreign tax on income above the cap, or on passive income, with the FTC. You cannot claim the FTC on the foreign tax that applies to income you already excluded.
Which one lets me claim the Child Tax Credit refund?
The Foreign Tax Credit. Excluding your earned income with the FEIE removes the earned income that the refundable Additional Child Tax Credit is based on, so FEIE filers generally forfeit the refundable portion. Expat parents who want the refund usually use the FTC.
Does either one reduce self-employment tax?
No. US self-employment tax of 15.3% is separate from income tax and is not reduced by the FEIE or the FTC. Only a US totalization agreement with your country of residence can exempt you, in which case you pay into that country's system instead.
Can I switch from the FEIE to the FTC later?
You can, but revoking the FEIE locks you out of claiming it again for five years without IRS consent. Because the choice carries a multi-year cost, it is worth modeling before you switch, especially if your country or income is likely to change.
What if I live in a country with no income tax?
The FEIE is usually the better choice. With no foreign tax paid, the FTC has nothing to credit, while the FEIE excludes your earned income outright.