Foreign Earned Income Exclusion 2025: Guide for Australian Expats

Is your Aussie salary coming from a job overseas? The Foreign Earned Income Exclusion (FEIE) could play a major role in your tax bill—if you know how to use it. For Australians living and working abroad, 2025 brings fresh considerations as global tax treaties tighten and compliance standards rise. Here’s your essential guide to making the most of the FEIE in today’s regulatory landscape.

What is the Foreign Earned Income Exclusion?

The FEIE allows individuals to exclude a certain amount of foreign-earned income from their taxable income at home. While it’s a long-standing provision in the US tax code, it matters for Australians with dual citizenship or US tax obligations—and increasingly for Aussies as more countries collaborate to crack down on tax avoidance.

In 2025, the US Internal Revenue Service (IRS) has increased the FEIE threshold to USD $127,000 (roughly AUD $191,000 at current rates). Australian citizens who are also US citizens or green card holders need to pay close attention, as they remain subject to US tax on worldwide income.

• Eligibility: You must have a tax home in a foreign country and meet either the Physical Presence Test (330 days abroad in 12 months) or the Bona Fide Residence Test (residency in a foreign country for a full tax year).
• What counts as foreign earned income? Salaries, wages, and self-employment income earned outside the US. Investment income and government payments are excluded.

Australian Expats: Why the FEIE Matters in 2025

Australia doesn’t have an FEIE provision in its own tax code, but the concept is relevant for Aussies who file US tax returns, or who work in countries with similar exclusions. With the ATO ramping up data sharing with global tax authorities through initiatives like the Common Reporting Standard (CRS), dual filers are under more scrutiny than ever.

Policy update for 2025: The US has strengthened enforcement of the FEIE, requiring more documentation to prove foreign residency and income sources. Meanwhile, the ATO is using enhanced data analytics to spot mismatches in overseas income reporting.

Here’s what this means for Australians abroad:

• Dual citizens: If you’re an Australian who also holds US citizenship or a green card, you must file US tax returns regardless of residency—and the FEIE can help reduce or eliminate double taxation.
• Australians in the Middle East, Asia, or the UK: Some countries have their own foreign income exclusions or tax treaties with Australia—always check if you’re eligible for local relief and if there’s an overlap with Australian obligations.
• Remote work and digital nomads: The rise of remote work means more Australians are earning foreign income. The ATO has clarified that even digital nomads may have Australian tax obligations if they maintain strong ties (such as property, family, or business interests) at home.

Making the Most of the FEIE: Real-World Examples & Tips

Let’s look at how the FEIE plays out for different Aussies abroad in 2025:

• Case 1: Sarah, US-Australian dual citizen in Singapore
  Sarah earns AUD $180,000 working for a fintech in Singapore. She qualifies for the FEIE, excluding most of her income from US tax. But she still needs to file a US tax return, report her Singaporean superannuation (CPF), and ensure she’s compliant with both US and Australian reporting rules.
• Case 2: Tom, Australian IT consultant in Dubai
  Tom is a sole Australian citizen and resident in Dubai. While the FEIE doesn’t apply directly, he must prove non-residency to the ATO to avoid being taxed on his Dubai income. The ATO’s 2025 rules require more evidence of severing ties with Australia (long-term lease abroad, no dependents in Australia, etc).
• Case 3: Priya, remote worker in Bali
  Priya, an Australian citizen, works remotely for a US-based company while living in Bali. She doesn’t qualify for the FEIE unless she’s a US citizen or green card holder, but her situation is complex: the ATO may still consider her an Australian resident for tax purposes, especially if she has a home or family in Australia.

Key tips for 2025:

• Keep detailed records of your foreign income, residency status, and travel days.
• Review both US and Australian tax residency rules annually, as thresholds and enforcement priorities are shifting.
• Watch for digital platforms (like banks and investment apps) to share more of your data across borders, increasing audit risks.

Planning Ahead: What to Watch in the Coming Year

Tax compliance is getting tougher in 2025, and the gap is closing for those who try to fly under the radar. Both the ATO and IRS are using AI and data-matching to identify expats who underreport or misreport foreign income.

• New reporting standards: Expect more forms and documentation requirements for the FEIE and foreign income disclosures.
• Exchange rates matter: The value of the FEIE in AUD fluctuates, so monitor exchange rates when planning your tax strategies.
• Tax treaties: Australia’s network of tax treaties with the US, UK, Singapore, and others can change—stay informed about treaty updates that could impact your obligations.

Whether you’re a digital nomad, a seasoned expat, or considering a stint overseas, understanding the FEIE and your tax residency status is crucial to avoid costly mistakes in 2025.