If you’re a U.S. expat living abroad, one of the most important tools available to reduce your U.S. tax bill is the foreign earned income exclusion. To qualify for the foreign earned income exclusion, you need to pass either the bona fide residence test or the physical presence test. This article focuses on the latter: what it is, how it works, and how to know if it applies to you.
The physical presence test is used by the Internal Revenue Service to determine whether you’ve spent enough time in a foreign country to exclude up to $120,000+ of foreign earned income (amount adjusted annually) from your worldwide income. If you’re working abroad and want to legally lower your tax bill, understanding this presence test is critical.
What Is the Physical Presence Test?
The physical presence test determines whether a natural person—a U.S. citizen or resident alien—was physically present in one or more foreign countries for at least 330 full days during a 12-month period.
To pass the physical presence test, you:
- Must be present in a foreign country or countries for 330 full days
- Must complete this within a 12-month period
- Do not need to align the 12-month period with a calendar year
- Can be anywhere outside the U.S., as long as it’s not international waters or international airspace
A full day means a calendar day from midnight to midnight. Days you spend in international waters, international airspace, or back in the U.S. do not count.
What Counts as a Day Abroad?
A “full day” is defined as a 24-hour period beginning at midnight. Importantly, only days spent within the borders, airspace, or territorial waters of a foreign country count toward this requirement. A few important rules:
- If you leave the U.S. and arrive in a foreign country at 10 AM, your first full day begins the next day.
- Days spent abroad for business meetings, vacations, or other purposes can count—as long as you are physically present for the entire day.
- Travel in international waters doesn’t count toward your 330 days.
- Temporary trips to the U.S. break the continuity of your 12-month test period if they reduce your qualifying days.
You must be physically present—residency, intent, or tax home do not matter for this test.
How to Count Days for the Physical Presence Test
When trying to pass the physical presence test, it’s important to keep detailed records. Here’s how to count your days:
- Full day = 24 hours in a foreign country
- Partial days (due to travel) do not count
- Days spent in international waters or on a plane crossing borders do not count
- Use passport stamps, airline tickets, or travel logs to track your time spent abroad
If you spend 330 full days in one or more foreign countries within any 12-month period, you meet the test requirements.
Example of a Physical Presence Period
Let’s say you move to Spain for work on March 15, 2023, and remain there until April 1, 2024, only returning to the U.S. briefly from December 20–29, 2023.
- You choose the period from March 16, 2023, to March 15, 2024.
- You were in the U.S. for 10 days in December—so you must ensure the rest of your days total at least 330.
- If you have 330 qualifying days, you pass the physical presence test.
✅ Example 1 – Qualifies for Physical Presence (Split Years, Filed with Extension)
Sophia, a U.S. expat, moves to France on August 10, 2024 to work for a French startup. She stays in France until December 2025, with no extended travel to the U.S. other than a one-week vacation in Italy and a short trip to Spain.
Although she’s abroad for well over 330 days, she doesn’t meet the full 330-day threshold within the 2024 calendar year. But if she chooses a 12-month period from August 11, 2024, to August 10, 2025, she’ll have more than 330 full days in foreign countries and can clearly pass the physical presence test.
To do this properly, she files a tax extension for 2024 and waits until after August 10, 2025, to file her return and claim the foreign earned income exclusion using Form 2555.
❌ Example 2 – Fails Physical Presence
Michael has been living in Thailand since 2013. He works there full-time and maintains a permanent home, local driver’s license, and pays foreign income taxes.
In 2025, Michael needs to return to the U.S. for family reasons and ends up staying from May through July—a full two months. That breaks the 330-day physical presence threshold within any 12-month period that overlaps the 2025 tax year.
However, because Michael has clear bona fide residence in Thailand, and 2025 will be part of an uninterrupted period that includes an entire tax year, he qualifies under the bona fide residence test, even though he doesn’t pass the presence test.
✅ Example 3 – Qualifies for Physical Presence with Short U.S. Trips
Jennifer works remotely from Colombia. She’s there from January 5, 2024, through March 15, 2025, only returning to the U.S. for two short visits: 10 days for Christmas and 7 days over Easter.
She chooses the 12-month period from March 16, 2024, to March 15, 2025. During this time, she is present in foreign countries for 338 full days, easily surpassing the 330-day requirement.
She passes the physical presence test and is eligible to claim the foreign earned income exclusion on her income earned abroad.
❌ Example 4 – Fails Physical Presence and Doesn’t Qualify for Bona Fide Residence
Derek, a U.S. citizen, accepts a 6-month teaching contract in South Korea starting in February 2025 and returns to the U.S. in mid-August. He takes a couple of weekend trips to Japan and Vietnam, and never stays abroad for more than 180 total days.
- He doesn’t meet the 330-day physical presence requirement in any 12-month period.
- He also doesn’t qualify under the bona fide residence test, since he was not in a foreign country for an entire tax year and had no long-term intent to stay.
Derek will need to report his foreign earned income on his U.S. income tax return, and may only be eligible for a foreign tax credit if he paid taxes abroad.
✅ Bonus Example – Qualifies with Continuous Stays and Minimal U.S. Travel
Aisha moved to Germany in April 2023 for work. She remains there through April 2024 and only travels back to the U.S. twice: once for 5 days in November and again for 7 days in June.
She selects a 12-month period from May 1, 2023, to April 30, 2024, during which she was physically present in foreign countries for 342 days.
Even with short U.S. visits, Aisha passes the physical presence test and qualifies to exclude her foreign earned income from U.S. taxation.
Where and How to Report the Exclusion on Your Tax Return?
To claim the foreign earned income exclusion using the physical presence test, you’ll need to file Form 2555 with your annual U.S. income tax return. This is the official form provided by the Internal Revenue Service to report foreign earned income, establish your presence in a foreign country, and confirm that you meet the test requirements.
You’ll complete Part III of Form 2555 to certify that you meet the physical presence test. This section asks for detailed information about the time spent abroad, including the exact dates you were present in a foreign country or countries, how many consecutive months you were there, and if any adverse conditions (such as war or civil unrest) affected your ability to stay abroad.
Form 2555, Part III – Section where U.S. expats report qualifying dates and full days abroad to claim the Foreign Earned Income Exclusion under the physical presence test
What If I Was Forced to Return Early?
The IRS does allow exceptions under adverse conditions, like civil unrest or travel restrictions.
If you had to return to the U.S. due to civil unrest, you may still qualify if:
- You can show you expected to meet the test
- You were present in the foreign country before the adverse condition was announced
- The IRS has listed the foreign country under IRS Publication 54 as qualifying
Always check the IRS website for an updated list of countries affected by similar adverse conditions.
Should You Use the Physical Presence Test?
If you’re a U.S. expat who travels, lives, or works abroad and wants to reduce your U.S. tax burden, the physical presence test can help you qualify for the foreign earned income exclusion—no questions asked about your intent or residency ties.
✅ Use the presence test if:
- You’re abroad for most of the year
- You have clear records of your travel
- You can prove 330 full days in a foreign country
If you don’t meet the time requirement, consider the bona fide residence test or consult with expat tax experts to determine the best strategy for your foreign income.
Need help tracking your days abroad or filing Form 2555?
We at 1040 Abroad specialize in helping resident aliens abroad, U.S. citizens, and green card holders lower their tax bill with expert guidance. Reach out today for a free consultation.
