2027 Foreign Earned Income Exclusion: $137,300 (IRS Official)
The IRS set the 2027 foreign earned income exclusion at $137,300 (Rev. Proc. 2026-35), the eleven-month result, plus the 2026 draft Form 2555 changes.
Every year, the same expat forum thread reappears in September: what will next year’s foreign earned income exclusion be, and does anyone actually know or is everyone just repeating last year’s number with a guess bolted on. The short answer: the exclusion for tax year 2027 is $137,300. The IRS made it official on November 5, 2026, in Revenue Procedure 2026-35, section 3.41 (news release IR-2026-133), up from $132,900 for 2026. It is the eleven-month result of our projection: on the chained CPI data through August 2026 we had $137,300 if the IRS averaged the eleven months of index data that actually exist, or $137,100 if it instead filled the one missing month with an estimate. That was the identical open question this site’s 2027 IRS inflation adjustments tracker tracked for the tax brackets, the standard deduction and a dozen other figures, and it turned on the same missing data point: the Bureau of Labor Statistics never published an October 2025 index because the government shutdown that year interrupted data collection.
The statute behind the number
The foreign earned income exclusion is not indexed by its own formula. 26 U.S.C. § 911(b)(2)(D) sets a base exclusion amount of $80,000 and increases it “by an amount equal to… the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting ‘2004’ for ‘2016’ in subparagraph (A)(ii) thereof.” That is the identical borrowed-formula pattern behind the 2027 Roth IRA and IRA deduction phase-outs, which substitutes “2005” for “2016” instead. Different base years, same mechanism: section 1(f)(3) measures the average chained CPI-U for the twelve months ending August 31 of the calendar year before the one in which the tax year begins, and the statute rounds any increase that is not a multiple of $100 down to the next lowest multiple of $100. There is no reference here to the third-quarter window that sets the 401(k) contribution limit. It is the tax-bracket clock, applied to a base year one year earlier than the Roth and IRA phase-outs use.
Qualifying for the exclusion in the first place is a separate question from its size. Under § 911(d)(1), a filer must have a tax home in a foreign country and satisfy either the bona fide residence test, an uninterrupted period of residence that includes an entire taxable year, or the physical presence test, at least 330 full days abroad during any 12 consecutive months. Neither test is affected by the inflation adjustment discussed below; they gate eligibility, while the CPI formula only sets the ceiling on how much qualifying income can be excluded once eligibility is established.
Checking the method against the confirmed 2026 figure
Before trusting any formula to project a year that had not happened yet, it needs to reproduce the year that already has. The IRS set the 2026 foreign earned income exclusion at $132,900 in Rev. Proc. 2025-32, section 4.39, up from $130,000 in 2025, and that same $132,900 figure is printed on line 37 of the 2026 draft Form 2555. The window average behind it, the same interim BLS figure the inflation adjustments tracker used to reproduce the 2026 tax brackets exactly, falls between 177.1105 and 177.1135. Run through the same statute, that window reproduces not just the $132,900 exclusion but seventeen other 2026 figures that have nothing to do with the tax brackets themselves, items like the monthly commuter transportation limit, the capital-gain rate thresholds, the adoption credit, and the dependent standard deduction. Eighteen figures, eighteen matches.
One wrinkle is worth flagging so nobody tries to check this arithmetic against current data and gets confused. Querying the BLS public API for that same September 2024-through-August 2025 window right now returns 177.2058, not the 177.1105-to-177.1135 range the IRS actually used. Chained CPI-U is revised after its initial release, sometimes more than once, and the IRS locks in the figures available to it at the time it calculates the adjustment. The published Rev. Proc. 2025-32 number is the one that matters for 2026; the live API number is simply a later revision of the same underlying series, useful for other purposes but not for reproducing what the IRS actually did.
The missing October 2025 month
The twelve-month window for the 2027 adjustment runs from September 2025 through August 2026. Eleven of those twelve months were published, and the last of them to land was August 2026: the Bureau of Labor Statistics released the August chained CPI-U reading of 185.739 on September 11, 2026, which closed the window and made a 2027 projection possible at all. The month that never arrived is October 2025. That year’s government shutdown interrupted data collection, and the Bureau simply never published a chained CPI-U index for that month, an absence that also shows up in the site’s coverage of the 2027 Roth IRA and IRA deduction phase-outs and the tax-bracket tracker, because all three share the identical CPI window.
That left the IRS with the same two paths every other 2027 figure on this site faced. Averaging the eleven months that were published gives a window average of 182.8565, which produces an unrounded exclusion of $137,308.85, rounding down to $137,300. Imputing a value for the missing October reading instead gives a window average of 182.6293, an unrounded exclusion of $137,138.30, and a rounded figure of $137,100. The gap between the two approaches is small in percentage terms, but it happens to straddle a $100 rounding step in an unusually tight way: the eleven-month reading clears its $137,300 step by only $8.85, one of the thinnest margins of any 2027 figure this site has projected. The cushion was about 0.012 points on the window average. A downward revision of that size to the interim chained figures would have been enough to turn $137,300 into $137,200. It did not: the IRS confirmed $137,300 in Revenue Procedure 2026-35, section 3.41, using the eleven-month average and leaving the missing October 2025 index out. Our eleven-month projection was exact, and the October-imputed $137,100 is the reading the IRS did not use.
Housing base and cap
The exclusion is not the only dollar figure that moves with this same CPI window. § 911(c) sets a separate housing cost exclusion or deduction, and both its floor and its ceiling are defined as percentages of the foreign earned income exclusion itself, computed on a daily basis. The base housing amount is 16% of the exclusion; the general cap on housing expenses eligible for the benefit is 30% of the exclusion. Because both are simple percentages of the same number, they move in lockstep with the exclusion figure the IRS adopted.
| Year | Exclusion | Housing base (16%, per day) | General housing cap (30%) |
|---|---|---|---|
| 2026 (confirmed) | $132,900 | $21,264 ($58.26/day) | $39,870 |
| 2027, official (eleven-month) | $137,300 | $21,968 ($60.19/day) | $41,190 |
| 2027, October imputed (the reading the IRS did not use) | $137,100 | $21,936 ($60.10/day) | $41,130 |
The draft 2026 Form 2555 spells out the daily mechanics on line 32: “Multiply $58.26 by the number of days on line 31. If 365 is entered on line 31, enter $21,264 here.” A filer abroad for a full calendar year uses the flat figure; a filer present for only part of the year multiplies the daily rate by the actual number of qualifying days. Section 911(c)(2)(B) also lets the IRS publish higher housing limits for specific high-cost foreign locations in an annual notice, a separate mechanism from the general 30% cap described here.
What changed on the 2026 draft Form 2555
The IRS posted its 2026 draft Form 2555 on the draft forms page on September 23, 2026 (the form itself is stamped “Created 9/18/26”), marked “draft, do not file” as every early-release draft is. The final 2026 Form 2555, posted on November 5, 2026, kept the draft’s text unchanged on every line discussed here. Measured against the 2025 form, five changes stand out. Line 37 updates the exclusion figure itself to $132,900, from $130,000. Line 32 updates the housing daily rate and full-year figure to $58.26 and $21,264, from $56.99 and $20,800 in 2025. Line 16, which asks about the physical presence test, now spells out the 330-day rule explicitly, stating that the test “is based on 330 full days of presence in a foreign country or countries during the 12-month period from… through…”; the 2025 version simply referenced “the 12-month period from… through…” without naming the 330-day standard in that line’s own text. Line 44 now refers filers to Form 1040 or 1040-SR line 11a, rather than line 11, matching the 2026 draft Form 1040’s own split of adjusted gross income into lines 11a and 11b, a change covered in full in this site’s line-by-line look at the 2026 draft Form 1040 and its companion piece on where AGI lives on the form. Line 49, the housing deduction carryover, now references the carryover from 2025 rather than 2024, and its worksheet points to the 2025 limit rather than the 2024 one, an annual roll-forward rather than a substantive change.
A sixth change touches the form’s numbering rather than its content: several sub-items that carried only a letter in the 2025 form, such as items labeled simply (a), (b) or (c) within a line, now carry full line numbers in the 2026 draft, including 5a through 5e, 11a through 11d, 13b, 15b, 15d, 20a, 21a through 21d, and 22a through 22g. That is a labeling and formatting change the IRS made across the form, not a change to any underlying rule or dollar figure.
The stacking rule, and what the exclusion does not do
Excluding foreign earned income from gross income does not mean the rest of a filer’s income is taxed as if the excluded amount never existed. § 911(f) requires what practitioners call the stacking rule: tax on the remaining taxable income is computed as the tax on the sum of taxable income plus the excluded amount, minus the tax on the excluded amount by itself. In plain terms, the remaining, taxable income is taxed at the marginal rates it would have faced had it been stacked on top of the excluded income, rather than starting fresh at the bottom bracket. A filer who excludes $130,000 and reports $40,000 of additional taxable income does not get $40,000 taxed at the lowest brackets; that $40,000 is taxed as though it began where the $130,000 left off.
The exclusion also leaves one major tax untouched entirely. § 1402(a)(11) requires that net earnings from self-employment be computed without regard to the section 911 exclusion. A self-employed American living and working abroad who excludes the full amount from income tax still owes self-employment tax, the Social Security and Medicare tax of the self-employed, on that same income in full. The exclusion is an income-tax mechanism only; it was never designed to touch the separate payroll-tax base.
One more feature of the statute matters to anyone weighing whether to claim the exclusion at all. Under § 911(e), once made, the election applies to the year it is made and to all later years, until affirmatively revoked. Revoking it is the decision that carries weight: after a revocation, the filer cannot make a new section 911 election for any taxable year before the sixth taxable year after the year of revocation, unless the IRS consents. A filer who revokes to switch to the foreign tax credit, perhaps after moving to a country with higher income tax, therefore gives up the exclusion for five years. If circumstances change again, for example a move to a low-tax country the next year, the exclusion is not available to come back to until that period has run. Americans abroad who are weighing the opposite step, giving up citizenship or a green card, face a separate set of indexed figures: the covered expatriate tax test and the exit tax exclusion (exit tax 2027).
The calendar from here
The IRS released the 2026 figures in Rev. Proc. 2025-32 on October 9, 2025, and the 2027 figures in Rev. Proc. 2026-35 on November 5, 2026. The $137,300 exclusion is confirmed; the $137,100 figure above is the October-imputed reading the IRS did not use. Watch the 2027 IRS inflation adjustments tracker for how the rest of the revenue procedure came out, including the tax brackets, the standard deduction, and the Roth IRA and IRA deduction phase-outs covered elsewhere on this site.
Sources
- 26 U.S.C. § 911 — law.cornell.edu/uscode/text/26/911
- 26 U.S.C. § 1(f)(3) — law.cornell.edu/uscode/text/26/1
- 26 U.S.C. § 1402(a)(11) — law.cornell.edu/uscode/text/26/1402
- Internal Revenue Service, Rev. Proc. 2026-35, section 3.41 (2027 foreign earned income exclusion) — irs.gov/pub/irs-drop/rp-26-35.pdf
- Internal Revenue Service, news release IR-2026-133, November 5, 2026 — irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2027-taxpayers-continue-to-benefit-from-the-working-families-tax-cuts
- Internal Revenue Service, Rev. Proc. 2025-32, section 4.39 — irs.gov/pub/irs-drop/rp-25-32.pdf
- Internal Revenue Service, draft Form 2555 (2026), posted September 23, 2026 — irs.gov/pub/irs-dft/f2555—dft.pdf
- Internal Revenue Service, Form 2555 (2026), final, posted November 5, 2026 — irs.gov/pub/irs-pdf/f2555.pdf
- Internal Revenue Service, Form 2555 (2025) — irs.gov/pub/irs-prior/f2555—2025.pdf
- Bureau of Labor Statistics, Chained CPI-U series SUUR0000SA0 — api.bls.gov/publicAPI/v2/timeseries/data/
- finbarrow, 2027 IRS inflation adjustments tracker — companion page for the shared CPI window and the October 2025 imputation question
Quick answers
What is the foreign earned income exclusion for 2027?
It is $137,300, as the IRS confirmed in Revenue Procedure 2026-35, section 3.41, released November 5, 2026, up from $132,900 for 2026. On chained CPI data through August 2026 our projection was $137,300 if the IRS averaged the eleven published months of the twelve-month window, or $137,100 if it imputed a value for the unpublished October 2025 reading. The IRS averaged the eleven published months and left October 2025 out, so our eleven-month projection was exact. The unrounded eleven-month figure, $137,308.85, was only $8.85 above its $137,300 rounding step, one of the thinnest margins among the 2027 figures this site tracked.
How is the foreign earned income exclusion adjusted for inflation each year?
Section 911(b)(2)(D) starts from an $80,000 base and increases it by the cost-of-living adjustment in section 1(f)(3), the same tax-bracket formula used elsewhere in the code, but substituting "2004" for "2016," which sets a different base year than most other indexed figures. The adjustment measures the average chained CPI-U for the twelve months ending August 31 of the prior year, and any increase that is not a multiple of $100 is rounded down to the next lowest multiple of $100.
Does the same formula that projects 2027 actually reproduce the confirmed 2026 exclusion amount?
Yes. The window average the IRS used for 2026 falls between 177.1105 and 177.1135, and applying it reproduces the $132,900 exclusion in Rev. Proc. 2025-32 along with seventeen other 2026 figures that do not depend on the tax brackets, eighteen for eighteen. Recomputing that same window today through the live BLS API returns 177.2058 instead, because chained CPI data is revised after the fact; the IRS used the values available to it at the time.
How did the missing October 2025 inflation reading affect the 2027 foreign earned income exclusion?
The Bureau of Labor Statistics never published a chained CPI-U reading for October 2025; data collection stopped during that year's government shutdown. The twelve-month window that sets the 2027 exclusion needs that month, so the IRS had to either average the eleven months that do exist, which produces $137,300, or impute a value for the missing month, which produces $137,100. The IRS averaged the eleven months and published $137,300 in Revenue Procedure 2026-35, section 3.41.
Does the foreign earned income exclusion reduce self-employment tax?
No. Section 1402(a)(11) keeps net earnings from self-employment measured without regard to the section 911 exclusion, so a self-employed filer living abroad still owes self-employment tax on the full amount, even on income excluded from income tax. The exclusion also does not zero out the rate on remaining income: section 911(f)'s stacking rule taxes what is left as though it sat on top of the excluded amount, at the rates that income would have faced there, not at the rates it would face starting from zero.
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