Legal Definitions - foreign-earned-income exclusion

The Foreign-Earned-Income Exclusion is a provision in the Internal Revenue Code that allows nonresident taxpayers to exclude a limited amount of income earned outside the United States from taxation. This means that if you earn money while living and working abroad, you may not have to pay taxes on a portion of that income.

For example, if you are a U.S. citizen working in Japan and earn $100,000 in a year, you may be able to exclude up to $107,600 of that income from U.S. taxation in 2020. This exclusion amount is adjusted annually for inflation.

It's important to note that you must elect between the Foreign-Earned-Income Exclusion and the Foreign Tax Credit, which is another way to reduce your U.S. tax liability on foreign income. You cannot claim both.

Overall, the Foreign-Earned-Income Exclusion is designed to help U.S. citizens and residents who work abroad avoid double taxation and reduce their overall tax burden.