FEIE (Form 2555) vs Foreign Tax Credit (Form 1116): Which Saves You More Money Abroad?
The ultimate decision guide for US expats: Compare IRC §911 exclusion vs §904 credit mechanisms, 10-year carryovers, Roth IRA contribution limits, and refundable child tax credits.
American expats and remote workers have two primary legal mechanisms to avoid double taxation on foreign earnings: the Foreign Earned Income Exclusion (FEIE, Form 2555) and the Foreign Tax Credit (FTC, Form 1116). Choosing the wrong mechanism can cost you tens of thousands of dollars in lost tax credits, retirement account disqualifications, and foregone refunds.
1. Head-to-Head Comparison Matrix
| Tax Factor | FEIE (Form 2555) | FTC (Form 1116) |
|---|---|---|
| Mechanism | Excludes up to $133,000 (TY2026) from taxable income | Provides dollar-for-dollar tax credit for foreign income taxes paid |
| Best Country Scenario | Low or zero tax countries (UAE, Panama, Georgia, Costa Rica) | High tax countries (UK, Spain, Germany, France, Australia) |
| IRA / Roth IRA Contributions | Disallowed if 100% of income is excluded | Allowed (gross earned income remains taxable) |
| Child Tax Credit (Refundable ACTC) | Refundable portion cannot be claimed | Fully claimable as a refundable cash refund |
| Unused Credit Carryover | None (use-it-or-lose-it annually) | Carry back 1 year, carry forward up to 10 years |
| Day Counting Requirements | Must meet strict 330-day PPT or BFR test | No day counting needed; based purely on foreign taxes paid |
2. When to Choose the Foreign Tax Credit (FTC)
You should almost always elect the Foreign Tax Credit if:
- Your local tax rate is higher than your US rate: If you earn $150,000 in Germany and pay $45,000 in German income taxes, your US tentative tax of ~$25,000 is completely wiped out by the FTC, leaving $20,000 of excess tax credits that can be carried forward for 10 years.
- You want to max out a Roth IRA: The IRS requires taxable earned income to contribute up to $7,000/year to an IRA. With the FTC, your income is not excluded, so you retain IRA eligibility.
- You have dependent children: Under IRC §24, taxpayers claiming the FEIE are statutorily barred from receiving the refundable Additional Child Tax Credit (ACTC). Switching to FTC allows you to receive cash refunds per qualifying child.
Simulate FEIE vs FTC Side-by-Side
Check out our dedicated Form 1116 Foreign Tax Credit simulator with general/passive basket allocations.
Calculate Your Exact Expat Tax Liability
Test your 330-day physical presence window, simulate Schedule SE self-employment tax, and compute foreign housing exclusions with our deterministic 2026 tax engine.