FEIE vs Foreign Tax Credit: Which Should You Use?
Updated for 2026 tax year
Quick Answer
FEIE is generally better if you live in a low-tax country (Thailand, UAE, Panama). FTC is generally better if you live in a high-tax country (Germany, France, UK). Use our free calculator to run both scenarios for your income.
What is the FEIE?
The Foreign Earned Income Exclusion (FEIE) lets qualifying US citizens abroad exclude up to $126,500 (2024) of foreign earned income from US federal taxes. To qualify, you must pass either the Bona Fide Residence Test or the Physical Presence Test (330 days outside the US in any 12-month period).
The FEIE only applies to earned income (wages, self-employment). It does NOT reduce self-employment tax (SE tax), which is still owed on net self-employment income regardless of location.
What is the Foreign Tax Credit?
The Foreign Tax Credit (FTC) lets you offset US taxes dollar-for-dollar with taxes you paid to a foreign government. If you paid $15,000 in German income tax, you can reduce your US tax bill by up to $15,000. Unused credits carry forward for 10 years.
The FTC is especially valuable in high-tax countries where foreign taxes exceed US taxes — meaning you may owe zero additional US tax after credits.
FEIE vs FTC: Side-by-Side
| Factor | FEIE | FTC |
|---|---|---|
| Best for | Low-tax countries | High-tax countries |
| Applies to SE tax? | No | Partially (income only) |
| Max benefit (2024) | $126,500 exclusion | Dollar-for-dollar credit |
| Carryforward | No | Yes, 10 years |
| Required filing form | Form 2555 | Form 1116 |
| Can combine with FEIE? | N/A | Yes, for income above exclusion |
When to use FEIE
- You live in a country with no or low income tax (UAE, Cayman Islands, Thailand)
- Your self-employment income is under $126,500
- You want simpler filing (one form vs multiple)
When to use FTC
- You live in a high-tax country (Germany, France, UK, Scandinavia)
- Your foreign taxes paid exceed your US tax liability
- Your income exceeds the FEIE limit ($126,500+)
- You have foreign passive income (dividends, rental income)
Calculate which saves you more
Our free FEIE vs FTC calculator runs both scenarios side-by-side for your income and tax situation.
FEIE vs FTC Calculator →Tax Information Notice
This content is for informational and educational purposes only. It does not constitute tax, legal, or financial advice. Tax laws change frequently. Always consult a qualified CPA or Enrolled Agent for your specific situation.