I am a US citizen working abroad for a US company. How do I report my foreign earned income and claim the Foreign Tax Credit or Exclusion for 2025?

U.S. citizens and resident aliens are taxed on their worldwide income, regardless of where they live or where the income is earned. When working abroad, you generally have two primary mechanisms to prevent double taxation on foreign earned income for the 2025 tax year: the Foreign Earned Income Exclusion (FEIE) or the Foreign Tax Credit (FTC).

### 1. Foreign Earned Income Exclusion (FEIE)

The FEIE allows eligible individuals to exclude a significant portion of their foreign wages or self-employment earnings from U.S. taxation. For the 2025 tax year, this amount is expected to be indexed for inflation, but historically follows the previous year’s limit (e.g., approximately USD 126,500 for 2024).

Eligibility Requirements (Tests): To qualify for the FEIE, you must meet either the Physical Presence Test or the Bona Fide Residence Test.

• Physical Presence Test: You must be present in a foreign country for at least 330 full days during any consecutive 12-month period that includes the time you worked abroad.
• Bona Fide Residence Test: You must be a resident of a foreign country for an uninterrupted period that includes an entire tax year.

Reporting: The FEIE is claimed by filing Form 2555, Foreign Earned Income Exclusion, with your Form 1040.

### 2. Foreign Tax Credit (FTC)

The FTC allows you to claim a dollar-for-dollar credit against your U.S. tax liability for income taxes you paid to a foreign country on the same income. This is often more beneficial if you live in a country with high income tax rates (e.g., many Western European nations), as the FTC can offset the U.S. tax liability on income that exceeds the FEIE limit.

Reporting: The FTC is claimed by filing Form 1116, Foreign Tax Credit (Individual, Estate, or Trust).

### Choosing Between FEIE and FTC

It is generally an 'all or nothing' election for the year regarding earned income:

• If you claim the FEIE, you exclude the income from U.S. tax entirely, and you cannot claim the FTC on that excluded amount.
• If you use the FTC, you must report all foreign earned income but receive a credit for foreign taxes paid.

Strategic Consideration: If your foreign tax rate is higher than your U.S. tax rate on that income, the FTC is usually better. If your foreign tax rate is lower, or if you have substantial income exceeding the FEIE limit, the FEIE might be preferable for the excluded portion, while the FTC might be used on any remaining foreign income.

### Income Earned from a U.S. Employer

If you work for a U.S. company while abroad, your employer may withhold U.S. taxes. If you qualify for the FEIE, you may be able to adjust your W-4 withholding with your employer to prevent over-withholding of U.S. tax throughout the year. If you paid foreign taxes, you must ensure you do not claim a credit for taxes that were already exempt under the FEIE.

Taxpayers must consult IRS Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, for the most current exclusion amounts and detailed filing requirements.