FEIE vs FTC: Which Should You Use?

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. This section explains what separates them and when each one tends to win.

The difference in one table

Worked examples

These are worked hypotheticals, computed from the 2025 figures published further down this page. They are illustrations of how the two methods behave, not predictions about anyone in particular.

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 no §911 election was made, the refundable Additional Child Tax Credit pays out a $3,400 refund (capped at $1,700 per child; 15% of earned income over $2,500 would otherwise allow $4,125). The same parent electing the FEIE gets $0 back, because IRC §24(d)(3) switches the refundable credit off for the year once the election is made. 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 present in one or more foreign countries during any 12-month period. A day spent traveling between two foreign places still counts; what breaks a day is time in the US or its possessions, and travel over international waters that runs 24 hours or more. 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.

The 2025 figures the computation runs on

These are the published amounts a preparer works from for tax year 2025, filed in 2026. They are reference data, not a calculation about you.

Federal ordinary income tax rates, 2025

Read each cell as the top of that rate band, measured against taxable income.

Source: IRC §1; IRS Rev. Proc. 2024-40. The rate bands themselves were not changed by P.L. 119-21.

The other 2025 amounts

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 lets me claim the Child Tax Credit refund, the FEIE or the FTC?

The Foreign Tax Credit. Electing the FEIE bars the refundable Additional Child Tax Credit for the entire year under IRC §24(d)(3), which switches off the refundable credit for any taxpayer who "elects to exclude any amount from gross income under section 911". It is the election that does it, not the arithmetic: a filer earning above the cap still has unexcluded earned income on the return and still cannot claim the refundable portion. The non-refundable part of the credit can still offset US tax on the income that was not excluded. Expat parents who want the refund usually use the FTC.

Does the FEIE or FTC reduce self-employment tax?

No. US self-employment tax is separate from income tax and is not reduced by the FEIE or the FTC: 15.3% total (12.4% Social Security plus 2.9% Medicare) on 92.35% of net self-employment earnings, with the Social Security portion capped at the annual wage base. 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.

Which is better 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.