Physical Presence Test and Bona Fide Residence Test for Foreign Earned Income Exclusion (FEIE)

The Foreign Earned Income Exclusion (FEIE) allows qualifying U.S. citizens and resident aliens (green card holders) to exclude a portion of their foreign earned income from U.S. taxation. To qualify, you must have a tax home in a foreign country and meet one of the two tests described below (from IRS Publication 54 and the Instructions for Form 2555). These tests determine your eligibility period, and the exclusion is prorated if you qualify for only part of the tax year.

1. Bona Fide Residence Test

This test is based on your intent and actions showing you are genuinely living in a foreign country (or countries) as a resident, not just temporarily visiting.

• Definition and requirements: You must be a bona fide resident of one or more foreign countries for an uninterrupted period that includes an entire tax year (for calendar-year filers, this means January 1 through December 31 of a given year). "Bona fide resident" depends on facts and circumstances: your intention to make the foreign country your home for an indefinite or extended period (not a definite, temporary purpose), your actions (e.g., renting/buying a home, moving family, local ties like bank accounts, driver's license, social connections, visa type), and whether you treat it as your primary residence separate from the U.S. Brief or temporary trips back to the U.S. (e.g., vacations, business) do not break the "uninterrupted" period if you intend to return without unreasonable delay. U.S. citizens qualify directly. Resident aliens generally qualify only if they are citizens/nationals of a country with a U.S. income tax treaty in effect (see IRS Treaty Tables at IRS.gov/TreatyTables). If you file a statement of nonresidence with foreign tax authorities (claiming you're not a resident there for their taxes), you generally do not qualify as bona fide for U.S. purposes.
• Mid-year departure or arrival: The period must include a full tax year somewhere in the uninterrupted stretch.
• If you move abroad mid-year (e.g., arrive February 15, 2025) and stay long enough to cover a full year (e.g., remain through December 31, 2025, and continue), you qualify starting from your arrival date. The exclusion begins on the date bona fide residence starts.
• Example (from Pub. 54 and related guidance): You move abroad on February 14, 2020, and remain bona fide resident through October 31, 2024. You qualify for part of 2020 (from Feb. 14 onward) because your uninterrupted period includes a full tax year (e.g., 2021).
• If you leave mid-year before covering a full tax year in the period, you may not qualify under this test (but you might under physical presence).
• The test is stricter in partial years: no exclusion if the uninterrupted period doesn't include a complete tax year.

On Form 2555, enter the beginning and ending dates of your bona fide residence (or "Continues" if ongoing) on line 10.

2. Physical Presence Test

This is a pure day-count test — it ignores your intent, visa, or ties. It focuses only on actual time spent outside the U.S.

• Definition and requirements: You must be physically present in a foreign country (or countries) for at least 330 full days during any period of 12 consecutive months.
• A full day = 24-hour period from midnight to midnight spent entirely in a foreign country.
• The day you arrive in a foreign country or depart from the U.S. counts as a full foreign day only if you're present the entire 24 hours (midnight to midnight) in the foreign country. Partial days (e.g., flying out mid-day) usually do not count as full foreign days.
• Days in international waters/airspace, or brief U.S. visits, interrupt the count but are allowed as long as you hit 330 full foreign days in the 12-month window.
• The 12-month period is flexible: any rolling 12 consecutive months (365 days, or 366 in a leap year) that includes part of the tax year you're claiming for. You choose the period to maximize qualifying days (this is the "slide rule" flexibility). It can start or end mid-year, before or after the tax year.
• You need a tax home abroad during this time.
• Mid-year departure or arrival (how to count when you leave/return in the middle of the year): The test works well for partial years because you pick the 12-month window that best captures your foreign days.
• Example: You leave the U.S. and arrive abroad on August 13, 2025. You stay abroad continuously.
  You can choose a 12-month period starting August 13, 2025 (or slide it slightly to optimize).
  By mid-2026 (after ~330 days), you meet the test.
  For your 2025 tax return (filed in 2026), you claim the exclusion prorated for the qualifying days in 2025 (e.g., August 13–December 31 ≈ 141 days, so exclusion ≈ 141/365 of the max amount).
• You enter the exact 12-month dates on Form 2555, line 16 (no "Continues" allowed here).
• If you return to the U.S. before hitting 330 days in your chosen period, you fail the test for that period (no exclusion).
• Brief U.S. absences: Up to certain short trips back don't disqualify you, but they reduce your foreign day count.

On Form 2555, list all travel dates in the table (Part III), show the 12-month period on line 16, and calculate qualifying days.

Key differences and prorating:

• Bona fide is subjective (intent + facts) but allows qualification even with some U.S. time; physical presence is objective (day count) and easier for short/mid-year moves.
• Many use physical presence for the first/last partial years because it's more flexible with sliding the 12-month window.
• In both cases, the FEIE amount is prorated: Maximum exclusion (e.g., $130,000 for 2025, $132,900 for 2026) × (qualifying days in the tax year / 365).
• If you qualify under either test for only part of the year, the exclusion starts/ends on the qualifying date.