Can I use the Foreign Earned Income Exclusion on self-employment income as a U.S. expat?
Yes, the Foreign Earned Income Exclusion (FEIE) can exclude up to $130,000 of self-employment income from U.S. income tax in 2025 ($132,900 in 2026), but it does not reduce 15.3% self-employment tax. You claim the exclusion by filing Form 2555 with Form 1040.
Self-employment earnings qualify as foreign earned income when:
- The services are performed in a foreign country
- You have a tax home abroad
- You pass either the Physical Presence Test (330 full days abroad in 12 months) or the Bona Fide Residence Test
What the FEIE covers and does not cover:
| Tax type | FEIE effect |
| U.S. income tax on excluded earnings | Eliminated up to $130,000 |
| Self-employment tax (Social Security + Medicare) | Not reduced, full 15.3% still owed |
| Income above the exclusion | Taxed at graduated rates |
| Passive income (interest, dividends) | Not excluded |
Because the SE tax still applies, self-employed expats often have an effective tax burden of 15.3% on covered earnings even when the FEIE zeroes out income tax. A totalization agreement is the only way to eliminate SE tax entirely. 30+ countries have one, including the U.S., the UK, Germany, France, Canada, Australia, Japan, and South Korea.
Strategy tip: if you live in a high-tax country and paid significant foreign tax, the Foreign Tax Credit may produce a better result than the FEIE because it can also offset tax on unearned income and does not lock you out of future choices for five years.
For side-by-side FEIE vs FTC analysis for self-employed filers, see our foreign earned income exclusion guide.
Last updated on April 29, 2026
