The Physical Presence Test: A Guide for US Expats and Non-US Owners

The physical presence test is one of two methods US expats can use to qualify for the Foreign Earned Income Exclusion (FEIE), which allows them to exclude a significant portion of their foreign-earned income from US taxation. It is also relevant for non-US individuals trying to understand whether their presence in the United States creates US tax obligations. This guide explains both dimensions.

Part 1: The Physical Presence Test for US Expats

US citizens and permanent residents living abroad are still required to file US tax returns and report their worldwide income. The Foreign Earned Income Exclusion is one of the main tools available to reduce US tax on income earned abroad. To claim the FEIE, you must qualify under either the physical presence test or the bona fide residence test.

What the Physical Presence Test Requires

The physical presence test has a single, measurable requirement: you must be physically present in a foreign country or countries for at least 330 full days during any consecutive 12-month period.

Several details matter in applying this correctly:

• The 330 days do not need to fall within a single calendar year. The 12-month period can begin on any date.
• The days must be ‘full days,’ meaning 24-hour periods when you are outside the United States. Travel days are counted from the moment you leave the US or arrive back.
• The 330-day count looks at time outside the US, not at time spent in any particular country. Moving between multiple countries still qualifies as long as you remain outside the US.
• Days spent in the US for any reason, including vacation, medical care, or business, count against your 330-day total.

You can spend up to 35 days in the US during a 12-month qualifying period and still meet the 330-day threshold. But once you exceed that, you lose the ability to claim the FEIE using the physical presence test for that period.

How It Differs from the Bona Fide Residence Test

The bona fide residence test is the other qualifying method for the FEIE. It requires that you have established a genuine, long-term residence in a foreign country. It is less mechanical than the physical presence test but harder to satisfy for people who have recently moved abroad or who split time between countries.

The physical presence test is often simpler to document and is especially useful for digital nomads or people in the early years of living abroad who have not yet established clear tax residency in another country.

The 2025 FEIE Exclusion Amount

For tax year 2025, the maximum FEIE is $130,000 per qualifying individual, adjusted annually for inflation. If you and your spouse both earn foreign income and both qualify under the physical presence test, you can each claim the exclusion separately.

The exclusion applies to earned income only, meaning wages, salaries, and self-employment income from work performed outside the US. It does not apply to investment income, pension income, or income from US sources.

Partial-Year Qualifying Periods

If you do not have a full year qualifying period that spans the entire tax year, you can still claim a partial FEIE. The exclusion is prorated based on the number of qualifying days within the tax year. This commonly applies in the year you first move abroad or the year you return to the United States.

Self-Employment Tax Still Applies

US citizens who are self-employed and claim the FEIE still owe US self-employment tax on their excluded income. The FEIE reduces income tax but not self-employment tax. This surprises many freelancers and independent contractors living abroad. Totalization agreements with some countries can reduce or eliminate this obligation, but the coverage varies significantly.

Part 2: Physical Presence and US Tax Obligations for Non-US Persons

For non-US individuals, the concept of physical presence in the United States works in a different direction. Rather than qualifying for an exclusion, physical presence in the US can create tax obligations where none otherwise would exist.

The Substantial Presence Test

A non-US person who spends enough time in the United States can become a US resident for tax purposes under the substantial presence test, even without a green card or immigrant visa. The test counts current-year days plus fractions of days from the prior two years:

• All days present in the US in the current year
• One-third of the days present in the first prior year
• One-sixth of the days present in the second prior year

If the total equals 183 or more, and you spent at least 31 days in the US during the current year, you may be treated as a US tax resident. This has significant implications, including an obligation to report worldwide income to the IRS.

Working in the US as a Non-Resident

For non-US entrepreneurs who own a US LLC, any work performed physically inside the United States can create US tax obligations, even if the work is identical to what the person does abroad. Services performed in the US are treated as US-sourced income, regardless of where the client is located or where the LLC is based.

This is a nuance that catches some international entrepreneurs off guard. If you visit the US for a few weeks and work during those weeks, that portion of your income may become US-taxable.

Documenting Your Days

Whether you are claiming the FEIE under the physical presence test or trying to demonstrate that you did not have a taxable US presence, documentation is important. Useful records include:

• Passport stamps and travel records
• Flight and hotel receipts
• Calendar records showing locations
• Bank and credit card statements showing where transactions occurred

The IRS may ask for documentation to support a physical presence test claim, particularly in cases where the FEIE exclusion reduces a large tax bill. Maintaining these records throughout the year is much easier than reconstructing them at tax time.