FEIE vs foreign tax credit: let the destination pick the tool
By Skyler Bissell · August 6, 2026 · 8 min read
The US federal income tax on a $150,000 single filer is $24,734 by our engine's math, and every American abroad owns one of two tools for attacking it. Germany hands a Berlin resident an income-tax receipt bigger than that entire bill, which makes the choice there nearly automatic. Singapore hands over a receipt about half its size, which makes the choice there automatic in the other direction. Most FEIE-versus-FTC guides list the rules and leave you to guess; the rules matter less than one comparison, your new country's income tax against your old US bill, and that comparison is computable in advance.
The foreign earned income exclusion (FEIE) removes up to $132,900 of 2026 salary earned abroad from US tax entirely, no foreign tax required. The foreign tax credit (FTC) subtracts foreign income tax you paid from US tax on the same income, dollar for dollar, with no cap. Both are claimed on the 1040; they cannot both cover the same dollar.
TL;DR
- Where local income tax beats your US bill, which is most of Western Europe, the credit alone zeroes US tax and banks the surplus. The verdicts.
- Where local tax runs below the US rate (Singapore, the Gulf), the exclusion leads and the credit mops up above the cap. The low-tax lane.
- The FTC is a yearly election; the FEIE is sticky, and revoking it locks you out for 5 years. Choose once, deliberately. The traps.
What each tool is, side by side
| FEIE (Form 2555) | Foreign tax credit (Form 1116) | |
|---|---|---|
| Mechanism | Excludes earned income from US tax | Credits foreign income tax against US tax |
| 2026 limit | $132,900 per person | No cap |
| Qualify by | 330 full days abroad, or bona fide residence | Paying creditable foreign income tax |
| Income covered | Earned income only | Earned and investment income |
| Unused benefit | Gone | Carries back 1 year, forward 10 |
| Flexibility | Sticky: revoking locks you out 5 years | Elected year by year |
| Self-employment tax | No effect | No effect |
The mechanics come from the IRS's own pages on the foreign earned income exclusion and the foreign tax credit. Read the last three rows twice, because they decide more real cases than the headline cap does. The credit's overflow survives for a decade; the exclusion's unused room evaporates each year. The credit can be picked up and put down; the exclusion resents being dropped. And neither touches self-employment tax, which answers to totalization agreements instead.
The decision, by destination
Set your would-be US federal bill next to what the destination's tax office will charge on the same salary, income tax only, since that is the slice the credit can use. Our engine runs both sides at a $150,000-equivalent salary, single filer:
- Berlin: the credit, no contest. German income tax comes to €35,829, about $41,300, against a US federal bill of $24,734. The credit erases the US liability and banks a five-figure surplus. Filing the FEIE here adds paperwork and can waste credit on the excluded slice.
- London: the credit again. UK income tax at the same level is £34,212, about $46,100, comfortably past the US bill. Same verdict across most of Western Europe, where every rate on our take-home pay by country table outruns the American one.
- Singapore: the exclusion leads. Singapore's income tax on the equivalent salary is SGD 19,530, about $15,300. That covers barely half the US bill, so the credit alone leaves real US tax standing. The exclusion shelters its capped slice outright, and the modest Singapore tax credits against part of the remainder.
- Dubai: the exclusion is the only tool. No income tax means nothing to credit. Without the FEIE, a US citizen in the UAE owes full US tax on every dirham of salary; with it, the first $132,900 walks free and only the excess is taxed.
The pattern generalizes into a one-line rule. When the destination's income tax exceeds your US federal bill, take the credit; when it falls short, lead with the exclusion. The crossover sits wherever local tax equals the US charge, and since the US federal bill on $150,000 comes to about a sixth of gross while Western European income-tax lines run far past that, the map splits cleanly: Europe, Japan, Canada, Australia are credit country; the Gulf, Singapore, and most low-tax Asian bases are exclusion country. Where you sit on that map is checkable before you accept the offer, along with everything else about the move, in the calculator.
Scale changes the verdicts less than you might guess. Raise the salary to $250,000 and the same subtraction returns the same answers: the US federal bill grows to $51,754 while Singapore's income tax reaches SGD 44,350, about $34,600, still short of the US charge, so the exclusion still leads there and Berlin's larger bill still buries the crossover. What does change at senior salaries is the stacking rule's bite: the $117,100 left over after a maxed 2026 exclusion is taxed as the top slice of a $250,000 income, and the exclusion never lowers the brackets underneath it.
Where the choice gets sticky
Three rules turn a clean comparison into a planning exercise. First, the stacking rule: income above the exclusion is taxed at the rate it would have faced without the exclusion, so the FEIE removes dollars from the top brackets' reach less generously than it appears. Second, the no-doubling rule: foreign tax paid on excluded income is dead weight, neither creditable nor deductible, which is the quiet cost of filing Form 2555 in a high-tax country. Third, the revocation rule: use the exclusion once and stopping counts as a revocation that bars it for five years without IRS consent. A Berlin assignment followed by a Dubai transfer can leave you wanting the tool you gave up.
A quieter mechanical rule rides underneath all three: the credit is claimed in dollars, converted at the rate in force when each foreign tax was paid, or at an annual average under the accrual election. A strengthening local currency inflates your creditable tax in USD terms; a weakening one shrinks it. Exchange rates move this comparison the same way they move every equivalence figure on this site, which is one more reason to rerun the numbers in the year you file rather than the year you flew.
The competition also has a blind spot worth naming: both tools are federal. Neither one touches a sticky state's claim on your worldwide income, which is a separate exit with separate paperwork, mapped in do expats pay state taxes. And both sit inside a wider machine, credits, exclusions, treaties, and totalization, that decides the broader question of whether expats pay taxes in both countries. The FEIE's own qualification tests, the 330-day math, and the 2026 cap get the full treatment in the foreign earned income exclusion guide; this page's job is only the fork in the road.
FAQ
Can I file Form 2555 and Form 1116 in the same return?
Yes, on different slices of income. A common high-earner pattern excludes salary up to the FEIE cap on Form 2555 and claims the credit on Form 1116 for foreign tax paid on income above it. The one hard rule is no doubling: foreign tax attributable to income you excluded cannot also be credited.
Does the foreign housing exclusion change the math?
At the margin, yes. Renters abroad can exclude qualifying housing costs above a base threshold tied to the FEIE amount, with caps that rise in listed high-cost cities. It extends the exclusion route's reach in expensive, low-tax places, which is exactly where the FEIE was already winning.
Which is better for parents claiming the child tax credit?
Usually the credit. Income excluded under the FEIE cannot support the refundable additional child tax credit, so a family that excludes everything can forfeit a refund worth thousands. Taking the foreign tax credit instead keeps the income on the return and the refundable credit alive. Run both before filing; this is the single most common reason families pick the FTC in high-tax countries.
Do provincial or city taxes abroad count for the foreign tax credit?
Generally yes. The credit covers foreign income taxes at any level of government, so a Swiss cantonal tax or a Japanese local inhabitant tax is creditable alongside the national bill. What never counts: social security contributions, VAT, and property taxes, which are neither income taxes nor creditable.
Pick the destination first and the tool picks itself. The homework worth doing before the flight is one subtraction, local income tax against your US federal bill, plus one honest look at where the next posting after this one might be. The people who get burned are the ones who chose a tool for the country they were in, and kept it for a country it was never built for.
Sources. Tool mechanics: the IRS Foreign Earned Income Exclusion and Foreign Tax Credit pages. Destination tax figures are computed by cityparity's per-city engine; per-field provenance is in data/_meta.json.
Elections interact with treaties, state rules, and family credits in ways one page cannot cover; treat the figures as current at publication and have a cross-border preparer run both routes before you file. See the methodology.