Which Test Should I Use: Bona Fide Residence or Physical Presence?
- What Is the Foreign Earned Income Exclusion?
- What Is the Bona Fide Residence Test?
- What Is the Physical Presence Test?
- How Do These Tests Compare? Key Differences
- Which Test Should I Choose?
- What About Exceptions to These Tests?
- How Do I Track My Days for Physical Presence?
- Can I Combine the FEIE With Other Tax Benefits?
- What If I Don't Qualify for Either Test?
- Get Expert Help Choosing Your Test
- Related Resources
Here’s great news: 62% of expats owe $0 in U.S. taxes after applying the Foreign Earned Income Exclusion. But to claim the FEIE and exclude up to $130,000 of your 2025 foreign income from U.S. taxation, you need to pass one of two tests: the bona fide residence test or the physical presence test.
The big question: Which test is right for you?
The answer depends on your lifestyle, how often you travel, and whether you plan to stay abroad long-term or return to the U.S. after a temporary assignment.
Quick comparison:
- Bona fide residence requires living in one place for a full calendar year with no plans to return to the U.S.
- Physical presence requires 330 full days abroad in any 12-month period, regardless of where you live or your intentions
Neither test is inherently better. The right choice depends on your specific situation. Digital nomads moving between countries every few months? Physical presence is usually your only option. Corporate expat on a three-year assignment? Same answer. Permanent move abroad with no return date? Bona fide residence gives you more flexibility.
This guide breaks down both tests in detail, shows you real examples of each, and helps you determine which test makes the most sense for claiming the Foreign Earned Income Exclusion.
Not Sure Which Residency Test Applies to You?
What Is the Foreign Earned Income Exclusion?
The Foreign Earned Income Exclusion (FEIE) lets qualifying Americans exclude up to $130,000 of foreign earned income from U.S. federal income tax for the 2025 tax year (filed in 2026).
How it works:
- You earn $90,000 working in Germany → Exclude all $90,000 → Owe $0 in U.S. federal income tax
- You earn $150,000 working in Singapore → Exclude $130,000 → Only pay U.S. tax on the remaining $20,000
Critical requirement: To claim the FEIE, you must pass either the bona fide residence test OR the physical presence test. You only need to pass one, not both.
The FEIE only applies to earned income from work (salaries, wages, self-employment income). Investment income, rental income, pensions, and other passive income don’t qualify for the exclusion.
What Is the Bona Fide Residence Test?
The bona fide residence test determines whether you’re genuinely a resident of a foreign country, not just visiting or on a temporary assignment.
Requirements to qualify:
- You must be a U.S. citizen or resident alien
- You must establish residence in a foreign country
- You must live there for one full calendar year (January 1 through December 31)
- You must intend to stay indefinitely with no fixed return date
- You must earn foreign income while residing abroad
What “indefinitely” means: You don’t need to plan to stay forever, but you cannot have a predetermined end date for your stay. If you know you’re returning to the U.S. after your two-year contract ends, you don’t qualify.
Key advantage: Once you establish bona fide residence, you can take unlimited trips back to the U.S. without losing your status, as long as you maintain your foreign residence and clearly intend to return to it.
Example of qualifying: Maria moves to Spain on March 1, 2025, with no plans to return to the U.S. She establishes an apartment, gets local utilities, and starts a permanent job. By December 31, 2026, she has lived in Spain for the entire 2026 calendar year. She passes the bona fide residence test starting January 1, 2026, and can claim the FEIE for the entire time she remains a Spanish resident, including her partial months in 2025 and 2027.
Example of not qualifying: David takes a three-year assignment in Singapore starting January 2025. His contract ends in December 2027. Even though he has lived in Singapore for multiple full calendar years, he doesn’t qualify for bona fide residence because he has a predetermined return date.
What Is the Physical Presence Test?
The physical presence test is purely mathematical in nature. You count days spent abroad, and if you hit 330 full days in any 12-month period, you qualify.
Requirements to qualify:
- You must be physically present in foreign countries for at least 330 full days
- The 330 days must fall within any consecutive 12-month period
- A “full day” means 24 consecutive hours outside the U.S.
- You can move between multiple countries
- The 330 days don’t need to be consecutive
What counts as a “full day”: You must be outside the U.S. for the entire 24-hour period. If you spend even one second in the U.S. during a day, that day doesn’t count toward your 330 days.
Time in the U.S. counts against you: You have a 35-day buffer (365 days minus 330 days = 35 days). Use these strategically for holidays, emergencies, or business trips home.
Key advantage: The physical presence test is suitable for temporary assignments, digital nomads, and individuals who do not meet the strict requirements of bona fide residence. Your intentions don’t matter—only your physical location.
Example of qualifying: James works in Thailand from January 1 through December 31, 2025 (365 days). He takes two short trips to the U.S. in April (5 days) and December (8 days). His total U.S. days: 13. His qualifying foreign days: 352. He easily passes the physical presence test for 2025.
Example of not qualifying: Sophie works remotely from Portugal but visits the U.S. frequently to see family. She spends 40 days in the U.S. over the year. Her foreign days: 325. She’s 5 days short and doesn’t pass the physical presence test for that 12-month period.
How Do These Tests Compare? Key Differences
Here’s a side-by-side comparison of the two tests:
| Factor | Bona Fide Residence Test | Physical Presence Test |
|---|---|---|
| Time Requirement | One full calendar year (January 1 to December 31) | 330 full days in any consecutive 12-month period |
| Start Date Flexibility | Must align with a calendar year | Can start any day of any month |
| U.S. Trips Allowed | Unlimited trips, as long as you maintain your foreign residence and intend to return | Maximum 35 days in the U.S. during your 12-month period |
| Intent Requirement | Must intend to stay indefinitely with no fixed return date | Your intentions don’t matter at all |
| Residency Requirement | Must establish genuine residence in one foreign country | Can move between multiple countries freely |
| Who Can Use It | U.S. citizens and resident aliens | U.S. citizens and resident aliens |
| Best For | Permanent moves, long-term expats, retirees abroad | Temporary assignments, digital nomads, corporate expats, contractors |
| Documentation Needed | Could lose status if you announce plans to return to the U.S. | Passport stamps, travel records, accommodation receipts, flight itineraries |
| Qualifying Period | Once you qualify for one full year, you can claim FEIE for all time as a bona fide resident | Must requalify each year by meeting the 330-day requirement |
| Family Considerations | Easier if family moves with you (strengthens residency claim) | Doesn’t matter where your family lives |
| Employment Type | Any foreign employment, including self-employment | Any foreign employment, including self-employment |
| Risk of Disqualification | Could lose status if you announce plans to return to U.S. | Only at risk if you spend too many days in the U.S. |
Quick decision guide: Bona fide residence requires living in one place for a full calendar year with no plans to return to the U.S.
Which Test Should I Choose?
Choose based on your specific situation:
Choose Bona Fide Residence If:
- You’ve made a permanent move abroad with no return date
- You want to visit the U.S. frequently without counting days
- You’ve established a genuine home in a foreign country
- You plan to stay in one country for multiple years
- You’re retiring abroad indefinitely
- You’re building a life abroad with no intention to return soon
Choose Physical Presence If:
- You’re on a temporary work assignment with a fixed end date
- You’re a digital nomad moving between countries
- You haven’t been abroad for a full calendar year yet
- You prefer the precision of counting days
- Your employer might relocate you before completing a full year
- You’re a contractor with project-based work
- You travel frequently and need certainty about your status
Can I switch between tests? Yes. You can use physical presence for one year and bona fide residence for another year, depending on which test you qualify for. Many expats use physical presence for their first partial year abroad, then switch to bona fide residence once they complete a full calendar year.
What About Exceptions to These Tests?
Both tests have important exceptions you should know about:
War or Civil Unrest Exception: If you were forced to leave a foreign country due to war, civil unrest, or similar hazardous conditions, the IRS may waive the time requirements. The IRS publishes a list of countries and dates where this exception applies.
Requirements for the exception:
- You must have been a bona fide resident or physically present in the country before the adverse conditions began
- You must have left due to the conditions, not for personal or business reasons
- You must file Form 2555 and attach a statement explaining the situation
Transit Exception for Physical Presence: If you’re on a flight that passes through U.S. airspace or makes a brief stopover (less than 24 hours) and you don’t leave the airport, that time counts as a full day outside the U.S., not time in the U.S.
Example: You fly from Tokyo to London with a 3-hour layover in New York. You don’t leave the airport. That day counts as a full day outside the U.S. for the physical presence test.
Sanctioned Countries Exception: If you’re physically present in a country in violation of U.S. law (such as sanctioned countries like Iran or North Korea), your time there doesn’t count for either test, and income earned there doesn’t qualify as foreign earned income.
How Do I Track My Days for Physical Presence?
If you’re using the physical presence test, meticulous day tracking is essential.
What to track:
- Departure dates from the U.S. (include exact times if possible)
- Arrival dates in foreign countries
- Departure dates from foreign countries
- Return dates to the U.S.
- Countries visited and dates in each
- Flight numbers and itineraries
- Hotel receipts and accommodation records
Tracking tools:
- Spreadsheet with daily entries
- Travel tracking apps designed for expats
- Calendar with color-coded entries for each country
- Passport stamps (though not always reliable)
- Email confirmations for flights and hotels
Why this matters: The IRS can audit your FEIE claim and request proof of your physical presence. Without detailed records, you risk having your entire exclusion disallowed, potentially costing you tens of thousands of dollars in taxes and penalties.
Start tracking from day one. Don’t try to reconstruct months of travel from memory. Even a few missing days can drop you below the 330-day threshold.
Can I Combine the FEIE With Other Tax Benefits?
Yes, and you should. The FEIE works alongside other expat tax benefits:
- Foreign Tax Credit: If your income exceeds $130,000, use the FEIE for the first $130,000 and claim the Foreign Tax Credit for income above that amount. This prevents double taxation on your higher earnings.
- Foreign Housing Exclusion: If you have significant housing costs abroad, you can claim the Foreign Housing Exclusion in addition to the FEIE. This can add thousands more to your total exclusion.
Example: Chen lives in Hong Kong, earns $180,000, and pays $48,000 in annual rent.
- FEIE: Excludes $130,000
- Housing exclusion: Excludes $20,000 in rent above the base amount
- Foreign Tax Credit: Covers the remaining $30,000
- Result: Chen owes $0 in U.S. federal income tax
The key is strategically combining these benefits to minimize your U.S. tax liability.
What If I Don’t Qualify for Either Test?
If you don’t qualify for the bona fide residence test or physical presence test, you still have options:
- Foreign Tax Credit Only: You can claim the Foreign Tax Credit for foreign taxes you paid, even without qualifying for the FEIE. This provides a dollar-for-dollar reduction of your U.S. tax for foreign taxes paid.
- Partial-Year Exclusion: If you qualify for part of the year under physical presence, you can claim a prorated FEIE. The formula: ($130,000 × qualifying days ÷ 365) = your maximum exclusion.
Example: You spent 280 days abroad in 2025, but don’t meet the 330-day threshold. You cannot claim the FEIE at all—there’s no partial exclusion unless you meet the complete requirements.
Plan for Next Year: If you’re close to qualifying, adjust your travel plans for the following tax year to ensure you meet one of the tests.
Get Expert Help Choosing Your Test
Choosing between the bona fide residence and physical presence test can significantly impact your tax savings. The wrong choice—or missing the qualification by just a few days—could cost you thousands in unnecessary taxes.
We Help Expats Apply the Correct Residency Test.
This article is provided for general information purposes only and should not be construed as legal or tax advice. Each individual’s tax situation is unique. You should consult with a qualified tax professional regarding your specific circumstances. Greenback Expat Tax Services offers personalized guidance tailored to your particular situation.
Related Resources
FEIE Guides:
- Foreign Earned Income Exclusion Complete Guide
- Bona Fide Residence Test Explained
- Physical Presence Test Requirements
- Form 2555 Instructions
Other Tax Benefits:
For Specific Situations:
