The Foreign Tax Credit (FTC) and the Foreign Earned Income Exclusion (FEIE) are powerful tools that can significantly lower your tax liability as a US expat - saving you hundreds or even thousands of dollars. Determining the best strategy can be complex, but MyExpatTaxes makes it easy. Simply complete our questionnaire, and our software will automatically choose whether to apply the FTC, the FEIE, or both, ensuring you take advantage of the best tax benefits for your unique situation. Read on for a summary of each benefit.
Advantages of the Foreign Tax Credit (FTC)
- The FTC provides a dollar-for-dollar reduction in your US tax liability based on taxes paid to your host country. In many cases, this can reduce your US taxes to $0, especially if you’re in a country that has a higher tax rate than the US.
- The FTC allows you to declare your net self-employment income or wages as taxable in the US. This is crucial because having taxable income makes you eligible to contribute to an IRA (Individual Retirement Account).
- The FTC allows you to claim the refundable portion of the Child Tax Credit (CTC) if your income meets eligibility thresholds, even if it reduces your US tax liability to zero.
Advantages of the Foreign Earned Income Exclusion (FEIE)
- The FEIE is particularly beneficial for US citizens working abroad whose annual earnings fall below the exclusion limit ($120,000 in 2025), as it eliminates federal taxes on that portion of their income.
- The FEIE is a great way to reduce US tax liability for expats living in countries with little or no income tax (such as UAE or Monaco), where the FTC would be of limited benefit.
- It is also beneficial for US citizens working in countries with high tax rates (such as Germany or France). It will help reduce or eliminate your overall tax by excluding the foreign income from US federal taxes.
- If your income exceeds the maximum FEIE amount, you can use the Foreign Tax Credit on the remainder of your income.
- If you have housing expenses that exceed a certain limit, you may be eligible for the Foreign Housing Exclusion in addition to the FEIE.
Changing between the FEIE and FTC
Changing from FEIE to FTC
Once you file Form 2555 to exclude your foreign earned income, that choice remains in effect unless you revoke it. If you revoke the FEIE and within 5 tax years wish to choose it again, you have to apply to the Internal Revenue Service (IRS) for approval.
Learn about revoking the Foreign Earned Income Exclusion.
Changing from the FTC to the FEIE
If you have previously filed the FTC and the FEIE becomes the most favorable benefit, you don’t need to take any action to revoke the FTC. What’s more, our software will automatically use the FTC to reduce your tax liability on any amount of foreign earned income in excess of the amounts you excluded under the FEIE and/or the foreign housing exclusion.
With MyExpat Taxes, you’re in the right hands.
No matter your situation, MyExpatTaxes will ensure you receive the right benefits to reduce your tax liability as much as possible.
Want to know in advance which benefit is the most advantageous for your individual situation? Find out in a few clicks with our FTC / FEIE Calculator tool.
RECOMMENDED TOPICS
