Does the FEIE apply to stock options, RSUs, or equity compensation I receive while living abroad?
It depends on where you performed the services that earned the equity. The Foreign Earned Income Exclusion treats equity compensation as earned income, but only the portion allocable to services performed in a foreign country qualifies for exclusion. If the grant was earned partly in the U.S. and partly abroad, you must split it.
How the IRS sources equity compensation:
| Equity type | Taxable event | Sourcing method |
| Restricted Stock Units (RSUs) | Vesting date | Days worked abroad during grant-to-vest period / total work days |
| Non-Qualified Stock Options (NQSOs) | Exercise date | Days worked abroad during grant-to-exercise period / total work days |
| Incentive Stock Options (ISOs) | Sale date (for AMT: exercise date) | Days abroad during grant-to-exercise for AMT; sale may be capital gain |
| Employee Stock Purchase Plan (ESPP) | Sale date | Days abroad during offering period / total days in offering period |
Example: You receive an RSU grant while working in the U.S. Two years later, it vests while you live in the UK. Of the 500 days between grant and vest, 300 were in the UK.
- Foreign-source portion: 300/500 = 60% of vest value
- That 60% qualifies for FEIE (subject to the $130,000 annual cap across all earned income)
- The remaining 40% is U.S.-source and does not qualify
Common traps:
- Large vest events can blow through the FEIE cap: a $200,000 RSU vest plus $150,000 salary means $350,000 of earned income competing for $130,000 of exclusion
- FTC may be better: the Foreign Tax Credit applies to the foreign tax on equity income without a dollar cap, making it preferable in many equity-heavy situations
- Double taxation risk: some countries tax equity at grant, others at vest, others at sale. Misalignment with U.S. timing creates complex FTC calculations
- ISOs and AMT: the AMT preference item on ISO exercise is sourced the same way, and the FEIE stacking rule can push AMT liability higher
If you’re a Corporate Expat with equity compensation, Greenback can help you source grants correctly and choose between FEIE and FTC for the best result.
Last updated on April 29, 2026
