How to Legally Pay Zero U.S. Taxes While Living Abroad
(2026 Update) on FEIE, treaties, and stacking strategies for the borderless professional
If you’re working from Mexico City, Dubai, Lisbon, or Bali and you’re still cutting the IRS a fat check every April, you’re doing it wrong. The U.S. tax code lets you eliminate most…often all,,of your federal income tax if you structure your life like a global operator instead of a W-2 employee.
Why the U.S. still taxes you abroad and how to make that irrelevant.
Exactly how the Foreign Earned Income Exclusion (FEIE) works (and where it breaks).
How to stack FEIE, the Foreign Housing Exclusion, and Foreign Tax Credits (FTC).
When to use a foreign company and how to avoid CFC/GILTI surprises.
What’s actually changing after 2025 and how to future-proof your setup.
Templates for employees, contractors/consultants, and founders.
The compliance traps (FBAR, FATCA, 5471/8858/8865) that wreck “zero-tax” dreams.
1. First Principles: How the IRS claims you abroad
The United States taxes citizens and green card holders on worldwide income even if you live in another country. Living overseas doesn’t magically turn off your federal obligations. What changes the outcome is applying the international provisions that reduce or eliminate your taxable base. Start with these:
FEIE (Form 2555): Exclude a big chunk of earned income if you (a) have a foreign tax home and (b) pass either the Physical Presence Test (330 full days outside the U.S. in any 12-month window) or the Bona Fide Residence Test (a full tax year as a genuine resident of another country).
Foreign Housing Exclusion/Deduction: On top of FEIE, you can exclude housing expenses above a base amount tied to the FEIE and, in high-cost cities, up to a higher location-specific cap.
Foreign Tax Credit (Form 1116): Dollar for dollar credit for income taxes you pay to a foreign country often wiping out any U.S. residual once income exceeds the FEIE cap.
FEIE covers only earned income (salary/active business comp). Investment income (dividends, interest, capital gains, crypto, rental profits) isn’t excludable with FEIE…but can be offset by foreign tax credits.
2. The 2026 numbers So far
The IRS sets FEIE annually for inflation.
2024 FEIE: $126,500.
2025 FEIE: $130,000 (confirmed on Form 2555).
2026 FEIE: not published yet; expect another CPI bump. Always check the current Form 2555 instructions before filing.
Housing: Base housing amount = 16% of that year’s FEIE (computed daily). Standard cap is 30% of FEIE, higher if your city appears on the IRS “high-cost localities” table (updated each year by notice). For 2024, the base equals $20,240 and max standard cap $37,950; 2025 high-cost limits are published in Notice 2025-16.
TCJA sunset at end of 2025: Many individual provisions revert in 2026. FEIE itself is a long-standing provision and not a TCJA creation, but other items (brackets, QBI §199A, SALT cap, child credit, AMT thresholds) may shift, changing your residual tax modeling above FEIE. Track reputable analyses as Congress tinkers.
Bottom line…You can model 2026 FEIE with a small inflation bump from 2025.
3. Qualifying: Physical Presence vs. Bona Fide Residence
Physical Presence Test (PPT):
Be physically outside the U.S. 330 full days during any 12-month period (rolling window). “Full day” = midnight-to-midnight abroad. Don’t cut it close.
Bona Fide Residence (BFR):
Show an uninterrupted period that includes an entire tax year as a real resident (long-term lease, local ties, utility bills, resident card, etc.). IRS decides based on facts and filing Form 2555.
Common failure modes:
Spending too many U.S. days (PPT bust).
Keeping state ties (lease, driver’s license, voter reg, dependents in school) that imply a U.S. tax home.
Claiming FEIE from a U.S. Government job or contractor role that doesn’t qualify. S
Over-comply. Keep a day-by-day log, boarding passes, passport stamps. Don’t aim for 330… aim for 340+.
4. The math: Turning FEIE + Housing into $0
Solo earner example (2025 numbers for clarity)
Gross earned income: $180,000.
FEIE: $130,000 → taxable earned income left: $50,000.
Housing: Suppose you’re in a standard cap city with legit housing expenses of $42,000.
Base housing amount (2025 ≈ 16% of FEIE): about $20,800; excess housing = $21,200.
Standard cap (≈ 30% of FEIE): ≈ $39,000 → your $21,200 is fully excludable.
New U.S. taxable earned income: $50,000 − $21,200 = $28,800.
If your host country taxes that income at, say, 15–25%, your Foreign Tax Credit can typically wipe out the residual U.S. tax on the $28,800. Result: $0 U.S. federal.
Married couple hack
Each spouse can claim their own FEIE if both have qualifying earned income and both pass PPT/BFR. Two high earners can exclude 2 × FEIE plus two housing exclusions if both maintain qualifying facts.
5. When a U.S. LLC is the wrong tool
A disregarded U.S. LLC doesn’t make income “foreign.” If your Stripe hits a Wyoming LLC and you pay yourself, the source and entity classification can keep it squarely in the U.S. system. Many expats are better off with:
A foreign corporation in their country of residence or a compliant low-tax jurisdiction, paired with a real foreign tax home.
Or a hybrid: foreign company for active ops + reduced U.S. footprint for investments.
But once you own >10% of a foreign corp, welcome to CFC land. That means information returns (Form 5471) and possible GILTI inclusions unless you qualify for the high-tax exclusion (roughly foreign effective tax ≥ 18.9%, calculated by tested unit).
Translation: If your company’s foreign effective tax rate is at or above ~19%, you may be able to elect out of GILTI on that tested income. Get this wrong and your “tax-free” plan explodes.
6. Foreign Housing:
Base housing = 16% of FEIE; you can only exclude costs above this.
Cap = typically 30% of FEIE: but high-cost localities (IRS notice each year) let you exclude more. 2025 limits are published in Notice 2025-16 (examples: Luanda, Buenos Aires, etc.).
Qualifying expenses: rent, utilities (not TV/internet), and certain insurance. Not qualifying: purchase price, capital improvements, non-essential extras.
Tactic: If you live in a designated high cost city, the housing exclusion often knocks out the entire remainder above FEIE, making the FTC unnecessary or minimizing the credit you need.
7. Treaties, totalization, and the Mexico myth
Income tax treaties help avoid double taxation; totalization agreements coordinate Social Security coverage. Two different animals.
The U.S. has no totalization agreement in force with Mexico as of late 2025. An agreement was signed in 2004 but never entered into force; Mexico is not on SSA’s “Countries with Agreements” list. If a consultant site says otherwise, it’s outdated.
For countries with totalization agreements, you can often avoid paying Social Security twice by securing a certificate of coverage.
Treaties do not override FEIE eligibility rules. You don’t “treaty your way” around failing PPT/BFR.
8. Compliance minefield: FBAR, FATCA, information returns
Zero tax with sloppy filings is how people lose sleep. Hit these:
FBAR (FinCEN 114): File if your aggregate foreign account balances exceed $10,000 at any point in the year (bank, brokerage, sometimes crypto on foreign platforms. Due April 15 with automatic extension; filed with FinCEN, not IRS.
FATCA (Form 8938): If you live abroad, thresholds are higher: $200,000 single at year-end (or $300,000 at any time); $400,000/$600,000 married filing jointly. This is in addition to FBAR.
Entity/asset forms:
5471 (certain foreign corps/CFC), 8858 (foreign disregarded entities/branches), 8865 (foreign partnerships), 8621 (PFICs). Miss these, and penalties can dwarf your tax.
Form 2555 timing: You can file on extension if you haven’t met PPT by April; Pub 54 and the 2555 instructions explain the timing mechanics.
9. Advanced stacking that actually works
Stack A: FEIE + Housing + FTC (classic expat in a normal-tax country)
Exclude FEIE.
Knock out more with housing.
Use FTC on what’s left. Outcome: $0 U.S. federal in most cases when the host country tax is ≥ your residual U.S. liability.
Stack B: Low-tax or no-tax jurisdiction + FEIE
Run operations through a UAE Free Zone entity; pay yourself salary up to FEIE.
With no local income tax and FEIE covering salary, U.S. liability on earned income can be $0; dividends/retained earnings planning depends on CFC/GILTI and election strategy. (GILTI high-tax exclusion won’t help at 0%, so plan distributions/salaries carefully.)
Stack C: Two-earner couple
Each spouse qualifies independently → 2 × FEIE + 2 × housing where facts support it. Coordination avoids double claims.
Stack D: Founder with foreign corp and real residence
Pay yourself a salary near FEIE; any excess profit is taxed locally in the company.
If foreign effective rate ≥ ~18.9%, the GILTI high-tax exclusion can block U.S. inclusions (with elections).
10. State taxes: kill them before they kill you
Federal is solvable. States are petty. High-tax states (CA/NY) will cling to you if you keep property, DL, voter reg, dependents, or “abode.” If you want a clean global setup, sever ties: move your domicile to a zero-tax state before you go abroad (and don’t keep a home available for use).
11. What 2026 might change and what won’t
FEIE: It’s not a TCJA invention. Historically survives political shifts. Expect normal CPI adjustment for 2026 unless Congress specifically targets it. Always confirm the published amount at filing time.
Individual brackets/QBI/AMT/SALT: These are the moving parts with 2025 sunset dynamics. If QBI §199A or bracket changes increase your U.S. residual above FEIE, you’ll lean more on FTC or re-optimize pay mix and entity flow.
GILTI: The high-tax exclusion framework is established in regulations; elections and tested-unit math still apply. Expect tweaks, butnot abolition.
Future-proofing tactics now:
Use PPT if your travel pattern is heavy; use BFR if you’re planted in one country.
If you’ll exceed FEIE, ensure your host-country effective tax plus FTC planning zeros U.S. residual.
For founders: decide now between salary-heavy (FEIE-driven) vs. corporate-tax-heavy (GILTI high-tax exclusion) models.
12. Templates and person ecxamples
A) Remote employee on a foreign contract
Employer of record abroad or local contract.
Qualify via PPT or BFR; establish foreign tax home.
Claim FEIE + Housing.
If salary > FEIE + Housing, rely on FTC for the remainder.
File FBAR/FATCA as required; keep clean U.S. state exit.
B) U.S. employee seconded abroad (no totalization relief)
If your destination doesn’t have a totalization agreement (e.g., Mexico), you may owe both U.S. FICA and local social taxes unless your employer structures coverage carefully. Verify with HR/SSA guidance and consider renegotiation.
Same FEIE/Housing/FTC stack on the income tax side.
C) Freelancer/consultant
Plant a foreign tax home (lease + utilities + local residency).
Consider foreign entity in your residence or suitable jurisdiction.
Pay yourself FEIE-sized salary; exclude housing; use FTC as needed.
Watch CFC/GILTI/5471 exposure; elect high-tax exclusion where eligible.
D) Startup founder
If raising VC or selling to U.S. enterprises, pick a corporate structure investors accept (often foreign OpCo with U.S. contract entity, or U.S. HoldCo with foreign subs tradeoffs).
Model GILTI vs. local corporate tax; if local ETR ≥ ~18.9%, the high-tax exclusion can neutralize U.S. inclusions.
Pay FEIE-sized salary; use dividends/retained earnings strategically.
E) Investor with passive income
FEIE doesn’t help you.
You’ll rely on FTC for foreign-taxed dividends/interest.
PFICs (foreign funds) trigger Form 8621 complexity avoid casual foreign mutual funds unless you enjoy pain.
13 Mistakes that trigger audits or big bills
Missing the 330-day count or misunderstanding “full day.”
Double-dipping FEIE and FTC on the same dollars. (Order matters; Form 1116 has limitation rules.)
Claiming FEIE with a shaky tax home or lingering state residency.
Ignoring FBAR/FATCA: separate regimes with separate thresholds.
Owning a foreign company and “forgetting” 5471 or skipping GILTI analysis.
14. FAQs you didn’t know to ask
Can I qualify for FEIE if I bounce between countries?
Yes: FEIE doesn’t require you to be in one country, just outside the U.S. for PPT, or a bona fide resident under BFR. PPT is easier for heavy travelers.
Does FEIE work if my company pays me in the U.S.?
FEIE cares that you earned it abroad with a foreign tax home and passed PPT/BFR not which bank received it. But entity choice affects reporting and state exposure.
Is Mexico covered by a U.S. totalization agreement?
No, not in force as of 2025; SSA’s “Countries with Agreements” list excludes Mexico.
What about crypto or rentals?
Not FEIE-eligible. Use FTC if taxed abroad and report foreign wallets/exchanges when required; keep up with FBAR/FATCA rules.
What if I blow PPT with an emergency trip home?
All or nothing for that 12-month period. Consider extending your tax return so you can start a new 12-month window and still qualify. See Pub 54 and the 2555 instructions for timing mechanics.
15. Final take
Don’t try to hide income, renounce citizenship, or take sketchy “offshore guru” advice. You just need a foreign tax home, the right test (PPT/BFR), and a clean stack: FEIE → Housing → FTC. Founders layer smart entity choices and GILTI elections; employees get foreign contracts; couples double up.
If you want more deep-dive structuring for specific countries, banks, and entity combos, say which profile you fit (employee, consultant, founder, investor) and your current base. Book a Consult.
Sources you should look into
Foreign Earned Income Exclusion overview; Physical Presence and Bona Fide Residence tests; Form 2555 instructions and current FEIE amounts.
2024–2025 FEIE amounts and housing math, base/30% cap, high-cost localities (IRS notices).
FBAR (FinCEN 114) and FATCA (Form 8938) thresholds for taxpayers living abroad.
GILTI and high-tax exclusion regs/background. IRS+2federalregister.gov+2
TCJA 2025 sunset context.
SSA totalization program + country list (note: no Mexico in force).