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2026 Foreign Earned Income Exclusion | International Tax Lawyer & Attorney

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The Foreign Earned Income Exclusion (“FEIE”) is a valuable tax strategy available to US tax residents who live and work abroad. It allows US citizens to exclude a certain amount of foreign earned income from their US taxable income. The IRS adjusts the precise amount every year.  In this article, I will discuss the 2026 Foreign Earned Income Exclusion.

2026 Foreign Earned Income Exclusion: Background Information

FEIE was born out of the fact that the US tax system is unique and taxes its citizens and even more broadly its residents on their worldwide income irrespective of where they reside. In many countries, such taxpayers are subject to local foreign income taxes on the same income. In order to alleviate the potential burden of double taxation, the US Congress enacted Section 911 of the Internal Revenue Code. This section codified FEIE.

Section 911 allows qualifying individuals to exclude a specified amount of foreign earned income from US taxable income. The IRS adjusts this amount every single year.  A taxpayer must use Form 2555 to claim FEIE.

2026 Foreign Earned Income Exclusion: Eligibility

In order to claim FEIE, a taxpayer must meet certain requirements set forth in IRC §911. I will provide only a brief outline of these requirements in this article. They are discussed in more detail in other articles on our website.

First of all, FEIE applies only to foreign earned income, not passive income and not US-source income.

Second, the taxpayer must maintain his tax home in a foreign country. “Tax Home” is a term of art that has its specific meaning.

Third, you must pass either the physical presence test or the bona fide residence test.

2026 Foreign Earned Income Exclusion: Additional Considerations

While FEIE brings a huge benefit of income exclusion, it often is not the best option for US taxpayers who reside overseas. Let’s focus on the four most important considerations.

First, FEIE limits and in some cases completely eliminates the ability to take Foreign Tax Credit (“FTC”). If you use FEIE, you cannot use the FTC to reduce US taxes on income already excluded under the FEIE.  The problem arises when FTC is actually higher than the US tax.  In this case, you may be losing a very important tax strategy to reduce your US taxes not only in the current year, but also in the future.

Second, FEIE may result in ineligibility to take other tax credits normally available to a taxpayer.

Third, despite the income tax exclusion, your tax bracket will still be the same as if you were taxed on the whole amount (i.e. as if you had not claimed the foreign earned income exclusion).

Finally, while not a tax consideration, usage of FEIE by US permanent residents may result in the abandonment of their green card. In other words, FEIE may present a huge risk to the immigration goals of a taxpayer.

2026 Foreign Earned Income Exclusion: Adjustment for 2026

On October 9, 2025, the IRS announced that the foreign earned income exclusion amount under §911(b)(2)(D)(i) is going to be $132,900 for the tax year 2026. This is up from $130,000 in the tax year 2025.

Contact Sherayzen Law Office for Professional Help with Foreign Earned Income Exclusion

The Foreign Earned Income Exclusion is a vital tax tool for US taxpayers working abroad, but it must be used cautiously and after careful consideration of all circumstances.  Hence, if you are a US taxpayer who lives abroad or you are planning to accept a job overseas, you need to secure the help of Sherayzen Law Office, a premier firm in US international tax compliance. We can help you navigate the complexities of FEIE, determine your eligibility for it and build a tax strategy to help you maximize the advantages offered by the Internal Revenue Code. Contact Us Today to Schedule Your Confidential Consultation!

Substantial Presence Test Exceptions | Minneapolis Minnesota International Tax Lawyer

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In a previous article, I discussed in detail the Substantial Presence Test and I mentioned that there are a number of exceptions to the Test. This means that, even though a person met the requirements of the substantial presence test, he can still avoid the resident alien status for US income tax purposes based on a specific exception.  In this brief essay, I will summarize these Substantial Present Test exceptions.

Substantial Presence Test Exceptions: Closer Connection

The first set of exceptions includes the Closer Connection Exception and the Tax Treaty Exception.  Let’s deal with each one separately.

Under the Closer Connection Exception, an individual who meets the requirements of the Substantial Presence Test is able to escape being a US tax resident for income tax purposes if he can demonstrate a “closer connection” to a foreign country.

In another article, I detail all of the requirements of the Closer Connection Exception.  Here I would like to restate the main requirements under IRC § 7701(b)(3)(B) and Treas. Reg. § 301.7701(b)-2(a):

1.The individual must be present in the United States for fewer than 183 days in the current calendar year;

2.The individual must maintain a tax home in a foreign country during the year;

3.The individual must have a closer connection to that foreign country than to the United States; and

4. An individual must be an eligible individual.

Substantial Presence Test Exceptions: Tax Treaty Exception

The Tax Treaty Exception is very similar to the Closer Connection Exception, but it is based on a completely different concept – the tie-breaker rules of a tax treaty.

 IRC §7701(b)(6) and Treas. Reg. §301.7701(b)-7 provide that an individual who meets the substantial presence test but is a resident of a treaty country under a tie-breaker provision of an income tax treaty may elect to be treated as a nonresident alien for US income tax purposes. This individual will need to make an election on Form 8833, Treaty-Based Return Position Disclosure.

Substantial Presence Test Exceptions: Eight Categories of Exempt Individuals

While the Closer Connection and the Tax Treaty Exceptions deal with someone who actually met the Substantial Presence Test and is trying to escape the its consequences, the second set of exceptions exempts the days spent in the United States from the consideration of the Substantial Presence Test so that the exempt individual never meets the Substantial Presence Test.  This is a very important distinction, because it may greatly affect one’s obligations concerning US international information returns.

Here is a list of categories of exempt persons:

Foreign government-related individuals and their immediate family (26 USC §7701(b)(5)(B))

Teachers and trainees and their immediate family (26 USC §7701(b)(5)(C))

Foreign students on F-, J-, M- or Q-visas (26 USC §7701(b)(5)(D))

Professional athletes temporarily in the US for charitable sporting events (26 USC §7701(b)(5)(A)(iv))

Individuals unable to leave the US due to medical conditions (26 USC §7701(b)(3)(D)(ii))

commuters from Canada and Mexico 26 USC §§7701(b)(7)(B)

foreign vessel crew members 7701(b)(7)(D) and

and persons who travel between two foreign countries with a less than a 24-hour layover in the United States 7701(b)(7)(C)

Substantial Presence Test Exceptions: Note on the Professional Athletes Exception

The “professional athletes who are temporarily present in the United States to compete in a charitable sporting event” category  has very specific requirements for the sport events in order for exemption to apply.  First, the sports event must be organized primarily to benefit §503(c)(3) tax-exempt organization. Second, the net proceeds from the event must be contributed to the benefitted tax-exempt organization. Finally, the event must be carried out substantially by volunteers.

Substantial Presence Test Exceptions: Note on the Medical Condition Exception

Concerning the last category “foreign aliens who are unable to leave the United States because of a medical condition”, Rev. Proc. 2020-20 expanded this medical condition exception to include “COVID-19 Medical Condition Travel Exception” for eligible individuals unable to leave United States during “COVID-19 Emergency Period”. The term COVID-19 Emergency Period is a single period of up to 60 consecutive calendar days selected by an individual starting on or after February 1, 2020 and on or before April 1, 2020 during which the individual is physically present in the United States on each day. An Eligible Individual may claim the COVID-19 Medical Condition Travel Exception in addition to, or instead of, claiming other exceptions from the substantial presence test for which the individual is eligible.

Substantial Presence Test Exceptions: Eligibility is on Day-by-Day Basis

The eligibility for any particular exception is determined on a day-by-day basis. If an alien ceases to qualify for any of these exceptions because of a change in circumstances but remains in the United States, he must count the days present in the United States for the purposes of the substantial presence.  The count must start from the very day that he no longer qualifies for the exception.

Substantial Presence Test Exceptions: Immediate Family

Immediate family can be derivatively eligible for a substantial present test exception only for the following categories: foreign government-related individual, a teacher or trainee (J-visa or Q-visa holder) and a student (F-visa or M-visa holder).  The family of the individuals in the other five categories may only claim an exception based on their own particular facts and circumstances.

Contact Sherayzen Law Office for Professional Help with US International Tax Law

US international tax law is incredibly complex.  This is why you need to contact Sherayzen Law Office for professional help.  Sherayzen Law Office is a highly-experienced leader in US international tax compliance that stands out for its ability to navigate complex international tax issues with creativity, precision and depth.

Contact Us Today to Schedule Your Confidential Consultation!

Substantial Presence Test United States Definition | International Tax Lawyer Minneapolis

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Foreigners who satisfy the Substantial Presence Test constitute a an important and very large category of resident aliens for US tax purposes. Substantial Presence Test is based on the number of days that an individual is physically present in the country. The definition of “United States” varies depending on a particular Internal Revenue Code (IRC) provision.  This brief essay explores the Substantial Presence Test United States definition.

Substantial Presence Test United States Definition: Background Information

In a previous article, I explored in detail the Substantial Presence Test. I will only provide a summary of the test in this essay.

In reality, there are two substantial presence tests; if an individual meets either test, he is a US tax resident unless an exception applies.

The first substantial presence test is met if a person is physically present in the United States for at least 183 days during the calendar year. 26 USC §7701(b)(3).  

The second test (the so-called “lookback test”) is satisfied if two conditions are met: (1) the person is present in the United States for at least 31 days during the calendar year; and (2) the sum of the days on which this person was present in the country during the current and the two preceding calendar years (multiplied by the fractions found in §7701(b)(3)(A)(ii)) equals to or exceeds 183 days. 26 USC 7701(b)(3)(A).  

Let’s discuss how exactly the lookback test works.  The way to determine to determine whether the 183-day test is met is to add: (a) all days present in the United States during the current calendar year (i.e. the year for which you are trying to determine whether the Substantial Presence Test is met) + (b) one-third of the days spent in the United States in the year immediately preceding the current year + (c) one-sixth of the days spent in the United States in the second year preceding the current calendar year. See 26 USC §7701(b)(3).

Substantial Presence Test United States Definition: Definition of United States

Treas. Regs. §301.7701(b)-1(c)(2)(ii) define “United States” for the purposes of the Substantial Presence Test.  In particular, the regulations state that “United States” includes all fifty states of the United States and the District of Columbia.  Moreover, the definition of “United States” also includes: “the territorial waters of the United States and the seabed and subsoil of those submarine areas which are adjacent to the territorial waters of the United States and over which the United States has exclusive rights, in accordance with international law, with respect to the exploration and exploitation of natural resources”.  Id.

Moreover, the regulations specifically exclude all possessions and territories of the United States as well as the air space over the United States. Id.  For example, time spent in Puerto Rico will not count toward the substantial presence test. Similarly, if an alien flies over the United States on a plane and never lands, then the IRS will exclude this day from the count.

Contact Sherayzen Law Office for Professional Help with US International Tax Law

The Substantial Presence Test United States Definition is just one of a huge array of complications in US international tax law.  This is why you need to secure the help of Sherayzen Law Office for professional help with US international tax issues, including tax compliance, tax planning and offshore voluntary disclosures.  We have helped hundreds of taxpayers around the world.  We can help you!

Contact Us Today to Schedule Your Confidential Consultation!

Residents versus Nonresidents: US Tax Differences | International Tax Lawyer Minneapolis

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There is a huge difference between the US tax obligations of a US tax resident versus nonresident alien. This brief essay strives to outline the main differences in the US tax treatment of tax residents versus nonresidents.

Residents versus Nonresidents: Worldwide Income Taxation

One of the key differences in the tax treatment of residents versus nonresidents is concerning what income is subject to US taxation.  A resident alien is subject to worldwide income taxation similarly to a US citizen. It does not matter where the income is earned, whether it is subject to taxation in a foreign country, whether it has been repatriated to the United States, whether it comes from pre-US funds, et cetera – a resident alien is always subject to worldwide income taxation.

Moreover, a resident alien may also be subject to highly invasive anti-deferral tax regimes such as Subpart F rules and GILTI tax (see below). Under these regimes, a resident alien may have to recognize income that the IRS deems that he earned, but there was no actual distribution.

On the other hand, a nonresident alien may have to pay US taxes on only four types of income. First, US-source income (that the Internal Revenue Code does not otherwise exclude from taxation) that the IRS considers as FDAP income (fixed, determinable, annual or periodical income) under IRC §871(a) (see below more on this subject). Second, a nonresident alien has to pay US taxes on US-source capital gains.  Third, a nonresident alien has to declare on his US income tax returns all ECI (Effectively Connected Income) income from a trade or business within the United States. Finally, certain other US-source and certain other foreign-source income under highly limited exceptions. All other income is excluded from taxation of nonresident aliens.

Residents versus Nonresidents: Deductions

On the other hand, a resident alien has available (at least hypothetically) a far broader range of deductions, including a more expanded list of itemized deductions (for example, mortgage interest, property taxes, et cetera) and a standard deduction.

A nonresident alien, however, has available a far more limited range of deductions.  First, deductions related to the ECI earnings. Second, only three specific kinds of itemized deductions: casualty/theft losses from property located in the United States, charitable contributions to qualified US charities only and one personal exemption (which is a moot point at the time of this writing). Third, a nonresident alien can only claim a standard deduction in the case of a few income tax treaties that allow the claim of a standard deduction; otherwise, the standard deduction is not available.

Residents versus Nonresidents: Tax Filing Status

If a resident alien marries another resident alien or a US citizen, then the couple may elect to file a joint US tax return. Married Filing Jointly is probably the most beneficial tax filing status in the United States.

On the other hand, nonresident aliens (if they want to keep their nonresident status) married to a resident alien or a US citizen can only file as “married filing separately”.  In most situations, this is the most unfavorable tax filing status from the US tax perspective.

Residents versus Nonresidents: US International Information Returns

Compliance with US international information returns is potentially a huge difference between the US tax burden of residents versus nonresidents. A resident alien may be required to file a bewildering array of US international information returns depending on his particular situation.  A failure to do so may result in the imposition of very high IRS penalties.

The main examples of such returns are: FBAR (officially FinCEN Form 114, the Report of Foreign Bank and Financial Accounts), Form 3520, Form 3520-A, Form 5471, Form 8621, Form 8865, Form 8938, Form 926, et cetera.

Residents versus Nonresidents: Tax Withholding on US-Source Income

There are several situations in which a payment to a non-US person may be classified as a US-source income and subject to tax withholding under IRC §§1441 and 1442 solely due to the “US resident” classification of the payor.  Here, I am referring to a situation where the US tax code classifies an interest payment as US-source income only because it is a resident alien made the payment. If such a payment were made by a nonresident alien, then it would be foreign-source income not subject to US tax withholding.

The most common example of such a situation involves interest payments.  Under §861(a)(1), interest paid by noncorporate resident of the United States is US-source income potentially subject to tax withholding. However, if the individual is a nonresident alien for US tax purposes, then the interest is not US-source income exempt from US tax withholding, at least under IRC §§1441 and 1442.

As a side note, I should mention that if the interest made by a US tax resident is classified as “portfolio interest” under §871(h), it would be exempt from the 30% tax withholding pursuant to §§871(a)(1) and 881.  There is also a potential for the exclusion from tax withholding under a particular tax treaty. As always, an international tax attorney should analyze each particular set of facts in its own context in order to determine whether income would be subject to US tax withholding.

Residents versus Nonresidents: Anti-deferral Tax Regimes

A US tax resident may be subject to a wide variety of various US anti-deferral tax regimes, such as PFIC (Passive Foreign Investment Company), GILTI, Subpart F rules, et cetera.

Moreover, a situation may occur where US resident classification as resident under the IRC does not impact this particular individual’s US income tax obligations but may affect such obligations of other US persons.  The most common example is the classification of a foreign corporation as a Controlled Foreign Corporation or CFC. 

Imagine where a person is a US tax resident under the IRC but utilizes the “tie-breaker” provisions of an income tax treaty to continue being classified as a nonresident alien. In this case, this individual’s US income tax obligations are the same as before. However, for the purposes of classifying a foreign corporation as a CFC, he remains a US tax resident. For example, if he owns 10% and the other US owners own at least 41% of this foreign corporation, then the corporation itself will become a CFC without any regard to the treaty provisions. See Reg. §301.7701(b)-7(a)(3).

Contact Sherayzen Law Office for Professional Help Regarding US International Tax Law

In this article, I summarized some of the most important US tax differences between US residents versus nonresidents.  There are many more complexities and tax traps in this area of law.

This is precisely why you need to contact Sherayzen Law Office for professional help with your US tax classification and any other US international tax issue. Our firm has extensive experience in advising clients concerning their US tax status and the potential US tax consequences of a particular US tax classification.

Contact Us Today to Schedule Your Confidential Consultation!

Saving Clause | International Tax Lawyer & Attorney Minneapolis

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The Saving Clause is a provision that all US income tax treaties contain. In this brief essay, I will introduce the readers to the Saving Clause, its purpose and its effect.

Saving Clause vs. Savings Clause

The first thing to note is that the proper way to refer to this important tax treaty provision is “saving clause” and not “savings clause” (see, for example, 2016 US Model Income Tax Treaty, article 1(4)).  You will still see sometimes various articles and even tax provisions (for example, §7852(d)(2)) incorrectly use “savings clause”.

Saving Clause: Effect on US Citizens

The Saving Clause provides that the United States may tax its citizens as if the tax treaty were not in effect. Here is a common example of the clause from the US-Spain tax treaty: “Notwithstanding any provision of the Convention except paragraph 4, a Contracting State may tax its residents (as determined under Article 4 (Residence)), and by reason of citizenship may tax its citizens, as if the Convention had not come into effect” (italics added).

In other words, the Saving Clause prevents US citizens who are classified as income tax residents of the treaty country from claiming a different tax treatment that would otherwise be available under the treaty to noncitizens who are residents of the treaty country. For example, a US citizen cannot claim an exemption from certain income otherwise exempt for a noncitizen who is a resident of a treaty country.

Saving Clause: Effect on US Residents

The impact of the Saving Clause on US residents is more complicated.  The Clause usually provides that the United States may tax its residents as determined by a treaty (usually in an Article 4) as if the treaty were not in effect.  Usually, these resident provisions would contain tie-breaker rules. This would mean that an individual who is a resident alien under §7701(b) but a resident of the treaty country under the treaty, then the saving clause cannot deny the individual any of the exemptions from US tax law or reductions in US tax that are provided by the treaty to residents of the treaty country. In such cases, the saving clause would have limited impact on residents.

If, however, a tax treaty does not contain the tie-breaker provisions in its definition of a tax resident (as some old treaties), then the impact of the Saving Clause may be tremendous and even dispositive. In this situation, the Saving Clause assures that an individual who is, at the same time, a resident alien under the Internal Revenue Code IRC) provisions and a resident of the treaty country under the treaty country’s laws will still be taxed as a US resident alien irrespective of the tax treaty.

Saving Clause: Worldwide Income Reporting and Foreign Asset Disclosure Requirements

The application of the Saving Clause may have tremendous impact on an individual’s US tax obligations.  First of all, I remind the readers that, absent treaty limitations, all US tax residents are taxed on their worldwide income. This is the rule irrespective of whether the income is earned, whether it is repatriated to the United States and whether it is subject to foreign tax withholding.

Moreover, US Persons may also be subject to multiple US information return reporting requirements, including FBAR, Form 8938, Form 5471, et cetera.  In this context, it is important to remember that the definition of a “US Person” is broader than the definition of a “resident” for income tax purposes. In other words, a person may be a nonresident for tax purposes due to a tax treaty provision, but he will still be a US Person for the purposes of filing an FBAR or another US information tax return.

Contact Sherayzen Law Office for Professional Help with Your US International Tax Compliance

If you are a US tax resident or a US person, you may be subject to highly complex US international tax requirements.  In order to ensure your full compliance with US international tax provisions, contact Sherayzen Law Office for professional help.

Since 2005, Sherayzen Law Office has helped hundreds of US taxpayers to resolve their prior US tax noncompliance and assure their continuous compliance with US international tax laws.  We have extensive experience with all major US tax compliance requirements such as: worldwide income tax compliance, FBAR, Form 926, Form 3520, Form 3520-A, Form 5471, Form 8621, Form 8865, FATCA Form 8938, et cetera. We can help you!

Contact Us Today to Schedule Your Confidential Consultation!