Foreign Earned Income Exclusion vs. Foreign Tax Credit for Remote Tech Workers

A four-panel digital comic titled "Foreign Earned Income Exclusion vs. Foreign Tax Credit for Remote Tech Workers." Panel 1: A tax advisor says, “You have two main tools: FEIE and FTC.” Panel 2: A digital nomad sitting with a laptop thinks, “Hmm... Which saves me more?” Panel 3: The advisor explains, “FEIE excludes income, FTC gives dollar-for-dollar tax credits.” Panel 4: The nomad smiles and says, “Got it! I’ll optimize both for max savings!” with a globe and dollar signs behind him.

Foreign Earned Income Exclusion vs. Foreign Tax Credit for Remote Tech Workers

📌 Table of Contents

Remote Work and U.S. Tax Obligations

Even if you’re working remotely from Bali, Berlin, or Bogotá—if you're a U.S. citizen or green card holder, you're still required to file a U.S. tax return.

Thankfully, the IRS offers two powerful tools to prevent double taxation: the **Foreign Earned Income Exclusion (FEIE)** and the **Foreign Tax Credit (FTC).**

Each has unique benefits—and choosing the right one can save you thousands.

What Is the Foreign Earned Income Exclusion (FEIE)?

FEIE allows qualifying expats to exclude up to **$120,000** of foreign earned income (as of 2023) from U.S. taxes.

To qualify, you must meet either the **Bona Fide Residence Test** (living in a foreign country for a full calendar year) or the **Physical Presence Test** (330 full days outside the U.S. in a 12-month period).

It only applies to **earned income** like salary or freelance income—not passive income like dividends or rental earnings.

What Is the Foreign Tax Credit (FTC)?

The FTC gives you a dollar-for-dollar credit against U.S. tax liability for income taxes paid to a foreign government.

It’s available even if you don’t meet FEIE’s time tests, and it covers a broader range of income—including passive income.

To claim it, you must file **Form 1116** and provide documentation of foreign tax paid.

FEIE vs. FTC: Key Differences

🛫 Residency Requirement: FEIE requires living abroad full-time. FTC does not.

📈 Income Type: FEIE excludes earned income. FTC applies to all foreign income that’s taxed by another country.

📜 Forms: FEIE is claimed on Form 2555; FTC uses Form 1116.

🧮 Income Limits: FEIE has a cap (~$120,000), while FTC has no exclusion limit.

💼 Ideal Use: FEIE is better if you earn under the limit and live abroad full-time. FTC is better if you’re in a high-tax country or earn investment income.

Can You Use Both Together?

Yes—but with restrictions.

You can exclude income with FEIE and apply FTC to income above the exclusion limit or to unearned income like dividends.

However, you **cannot double-dip**—meaning you can't take a credit on income you've already excluded.

Strategic layering of both options is often used by remote tech workers with high incomes and stock-based compensation.

Conclusion

Remote tech workers abroad have powerful tools to avoid double taxation—but choosing between FEIE and FTC (or combining them) requires careful planning.

FEIE is simpler and works great for lower-earning digital nomads. FTC is better for those living in high-tax countries or earning passive income.

Consult an expat tax advisor to tailor the strategy to your situation, especially if you're dealing with equity comp, multiple currencies, or frequent travel.

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Keywords: foreign earned income exclusion, foreign tax credit, remote tech worker taxes, expat tax strategy, digital nomad tax planning