Who this is for: This guide is for US citizens and green card holders living in France who still file a US tax return and want to understand the two main tools for avoiding double taxation: the Foreign Earned Income Exclusion and the Foreign Tax Credit.
The United States taxes its citizens on worldwide income no matter where they live, so an American in France files both a French return and a US return on the same income. Two mechanisms exist to stop that income being taxed twice: the Foreign Earned Income Exclusion (FEIE) on Form 2555, and the Foreign Tax Credit (FTC) on Form 1116. Choosing between them, or combining them, is one of the most consequential decisions on an expat return, and in a high-tax country like France the answer is often not the one people expect. If you are also behind on filing altogether, start with our guide to the Streamlined Filing Compliance Procedures. If you are also behind on filing altogether, start with our guide to the Streamlined Filing Compliance Procedures.
Table of Contents
The Foreign Earned Income Exclusion (Form 2555)
The FEIE lets you exclude a capped amount of foreign earned income from US tax. The cap is indexed annually: it is $130,000 for the 2025 tax year and $132,900 for 2026, per the IRS foreign earned income exclusion guidance. A married couple who both work abroad and each qualify can each claim their own exclusion.
To claim it you must pass one of two tests: the Physical Presence Test (330 full days outside the US in a 12-month period) or the Bona Fide Residence Test (established residence in France for a full tax year). Crucially, the FEIE applies only to earned income, meaning wages and self-employment income. It does nothing for passive income such as dividends, interest, rental income or capital gains.
The two qualifying tests
Test | What it requires | Best suited to |
Physical Presence | 330 full days outside the US in any rolling 12-month period | People who moved mid-year, or who travel a lot |
Bona Fide Residence | Residence established in France for an uninterrupted period including a full tax year | People genuinely settled in France with a French home and life |
You only need to pass one. The IRS explains the mechanics of apportioning the exclusion in a part-year situation in its guidance on figuring the foreign earned income exclusion.
What the FEIE does not do
Two limits catch people out. It does not reduce US self-employment tax, so a freelancer in France can exclude every euro of profit and still owe SE tax unless the France-US totalization agreement covers them. And it does nothing for passive income, which for most families in France is the larger long-term issue.
The two qualifying tests
Test | What it requires | Best suited to |
Physical Presence | 330 full days outside the US in any rolling 12-month period | People who moved mid-year, or who travel a lot |
Bona Fide Residence | Residence established in France for an uninterrupted period including a full tax year | People genuinely settled in France with a French home and life |
You only need to pass one. The IRS explains the mechanics of apportioning the exclusion in a part-year situation in its guidance on figuring the foreign earned income exclusion.
What the FEIE does not do
Two limits catch people out. It does not reduce US self-employment tax, so a freelancer in France can exclude every euro of profit and still owe SE tax unless the France-US totalization agreement covers them. And it does nothing for passive income, which for most families in France is the larger long-term issue.
The Foreign Tax Credit (Form 1116)
The FTC gives you a dollar-for-dollar credit against your US tax bill for income taxes you have already paid to France. Unlike the FEIE, it applies to both earned and passive income, so it can shelter dividends, interest and rental income as well as salary. If your French tax on a category of income is higher than the US tax on it, the credit can eliminate the US liability entirely, and unused credit carries forward up to 10 years (or back 1 year).
Carryforward is the quiet advantage
Because French tax often exceeds US tax on the same income, many returns generate more credit than they can use in the year. That excess is not wasted. It carries back one year and forward up to ten, building a reserve that can shelter a future US liability, for example in a year with a US-source capital gain or a move back to the States. The FEIE never produces anything comparable.
Carryforward is the quiet advantage
Because French tax often exceeds US tax on the same income, many returns generate more credit than they can use in the year. That excess is not wasted. It carries back one year and forward up to ten, building a reserve that can shelter a future US liability, for example in a year with a US-source capital gain or a move back to the States. The FEIE never produces anything comparable.
FEIE vs FTC at a glance
FEIE (Form 2555) | FTC (Form 1116) | |
Covers | Earned income only, up to the annual cap | Earned and passive income, no cap |
Best when | You live in a low-tax or no-tax country | You live in a high-tax country like France |
Creates carryforward | No | Yes, unused credits carry forward up to 10 years |
Helps with French dividends, rent, gains | No | Yes |
Interaction with child tax credit | Can reduce or eliminate the refundable credit | Generally preserves it |
Why the Foreign Tax Credit often works better in France
France is a high-tax country. For most employees and self-employed people at middle and upper income levels, French income tax and related charges on a given slice of income exceed the US tax on that same income. When that is true, the FTC can eliminate the US liability and leave you with excess credits to carry forward, which the FEIE never generates.
The FEIE, by contrast, only helps up to its cap and only on earned income. It can also have unwelcome side effects: it can reduce or eliminate the refundable portion of the Child Tax Credit for US-citizen children, and once you revoke an FEIE election you generally cannot re-elect it for five years without IRS consent. For many families in France, relying on the FTC produces a better result across the whole return, not just one line of it. That said, the FEIE is still the better choice for some profiles — for example lower earners, those below the exclusion cap with little other US-taxable income, or people who spend part of the year in lower-tax situations — so the right answer depends on the individual return.
Can you use both?
Yes, but not on the same dollar of income. A common approach is to apply the FEIE to earned income up to the cap and the FTC to whatever remains US-taxable, including passive income. This is legitimate, but it interacts with a stacking rule that taxes your non-excluded income at the rate that would have applied without the exclusion, and it complicates the FTC calculation. Combining the two well is a modelling exercise, not a default setting, and the optimal mix can change year to year.
Common pitfalls
- Defaulting to the FEIE because it sounds simpler. In France it often leaves money on the table compared with the FTC.
- Forgetting the FEIE does nothing for investment income. Dividends, interest, rent and gains need the FTC or treaty relief.
- Revoking the FEIE without realising the five-year lock-out on re-electing it.
- Losing a refundable Child Tax Credit by excluding the income it would have been calculated against.
- Ignoring carryforwards. Excess FTCs are a real asset that can shelter future US tax.
Which one usually fits which profile
Your situation | Usually points to |
Salaried employee in France, middle or upper income | FTC, because French tax on that income typically exceeds US tax |
Significant French dividends, rent or capital gains | FTC, since the FEIE cannot touch passive income |
US-citizen children and a refundable Child Tax Credit in play | FTC, which generally preserves the credit |
Lower earner, income comfortably under the cap, little passive income | FEIE can be simpler and sufficient |
Part-year abroad, or a year with substantial US-source income | Model both; the answer moves year to year |
Treat that as a starting hypothesis rather than an answer. The FEIE and FTC interact with the treaty, with self-employment tax and with credits elsewhere on the return, which is why the calculation is worth running properly. See also our guide on avoiding double taxation between France and the US.
Which one usually fits which profile
Your situation | Usually points to |
Salaried employee in France, middle or upper income | FTC, because French tax on that income typically exceeds US tax |
Significant French dividends, rent or capital gains | FTC, since the FEIE cannot touch passive income |
US-citizen children and a refundable Child Tax Credit in play | FTC, which generally preserves the credit |
Lower earner, income comfortably under the cap, little passive income | FEIE can be simpler and sufficient |
Part-year abroad, or a year with substantial US-source income | Model both; the answer moves year to year |
Treat that as a starting hypothesis rather than an answer. The FEIE and FTC interact with the treaty, with self-employment tax and with credits elsewhere on the return, which is why the calculation is worth running properly. See also our guide on avoiding double taxation between France and the US.
How Expand CPA can help
Expand CPA is a Franco-American accounting and tax advisory firm with offices in Paris, New York and Tel Aviv. We prepare US returns for Americans in France every year and model the FEIE, the FTC, the France-US treaty and the Child Tax Credit together, rather than in isolation, to find the combination that produces the lowest overall liability for your specific income mix. If you are unsure which election you are on, or suspect you are overpaying, we can review your prior returns and advise. You can also read our US expat tax filing guide for Americans in France, or get in touch. You can also read our US expat tax filing guide for Americans in France, or get in touch.
Disclaimer: Exclusion amounts and rules are adjusted over time and the best choice depends on your full financial picture. This article is general information only, not tax advice. Please consult a qualified adviser about your situation.
Frequently Asked Questions
Can I claim both the FEIE and the Foreign Tax Credit?
Yes, but not on the same income. A common approach is the FEIE on earned income up to the cap and the FTC on whatever remains US-taxable.
Which is often better for Americans in France?
In a high-tax country like France, the Foreign Tax Credit often produces a better result — it can eliminate US tax and create carryforwards the FEIE does not — but the FEIE is still better for some profiles, so it depends on your return.
Does the FEIE cover my French investment income?
No. The FEIE applies only to earned income; dividends, interest, rent and gains need the Foreign Tax Credit or treaty relief.
