what is the foreign earned income exclusion 
the foreign earned income exclusion is intended to prevent double taxation by excluding income taxed in another country from u s taxation the u s internal revenue service irs will tax your income earned worldwide however if you are an american expat this means you are taxed twice on this income the income you receive overseas is taxed in the foreign country and can be taxed again by the irs 1understanding foreign earned income exclusionthe foreign earned income exclusion is elected on irs tax form 2555 furthermore taxpayers who claim this exclusion make domestic retirement plan contributions of any kind that are based on this income or claim the foreign tax credit or deduction for any taxes paid to a foreign government on this income 34you must meet specific qualifications to claim the foreign earned income exclusion foreign housing amountthere is a statutory maximum exclusion amount plus a foreign housing amount which limits the exclusion it is prorated if the number of qualifying days in a foreign country is less than a full tax year the foreign housing amount is the housing costs you paid with foreign earned income that exceeds 16 of the maximum exclusion or base amount this amount has a cap of 30 of the maximum exclusion amount the foreign housing amount is taken as an exclusion by employees and as a deduction by self employed individuals 29for the 2022 tax year the maximum exclusion amount is 112 000 and it goes up to 120 000 in 2023 10example of foreign earned income exclusionlet s see how the foreign earned income exclusion works mp is an american working in vietnam they lived in hanoi for 345 days of the tax year and were absent for 10 days on a trip home for thanksgiving they earned a salary of 225 000 and paid 30 596 of it to lease a flat for the year mp paid 75 000 in vietnamese income tax and owed 81 000 in u s income tax on this income the upshot is that their foreign earned income is being taxed twice since mp is a u s citizen who paid foreign taxes on income they earned during 335 qualifying days in a foreign country they may elect to exclude the foreign earned income from their u s taxable income mp s 2022 exclusion is 112 000 and mp s 2022 foreign housing amount is 15 040 33 600 in housing costs 16 944 base amount since 13 652 is less than the 31 770 cap amount no further reduction is necessary 117the foreign earned income exclusion allows mp to exclude 111 000 from their taxable income but 114 000 remains included and since they have paid foreign taxes of 37 000 and still owe u s taxes of 36 000 it remains double taxed mp should take a 37 000 nonrefundable foreign tax credit against the 36 000 u s taxes they owe as long as they timely file form 2555 to elect the foreign earned income exclusion and form 1116 claiming the foreign tax credit they will not owe u s taxes on the foreign income 12who qualifies for the foreign earned income exclusion a u s citizen or u s resident alien who is physically present in another country for 330 days or more during 12 consecutive months a u s citizen who is a legal resident of a foreign country for an uninterrupted period that includes an entire tax year or a u s resident alien who is a citizen or national of a country with which the united states has an income tax treaty in effect who is a legal resident of a foreign country for an uninterrupted period that includes an entire tax year qualify for the foreign earned income exclusion 1