You can claim a foreign tax credit with FEIE on the same return, but not on the same dollars. Section 911(d)(6) of the Internal Revenue Code disallows the share of foreign tax that relates to excluded income, using a fraction set out in the IRS Form 1116 instructions. Only the foreign tax on earnings above the exclusion, plus tax on other income, stays creditable.
That rule sounds simple. In practice, the disallowed amount is often the largest number on a London-based client's return, and it is invisible unless you read line 12 of Form 1116. Below we work through it with 2026 figures and show when claiming both reliefs costs you more than claiming the credit alone.
How the foreign tax credit with FEIE interacts
The foreign earned income exclusion (FEIE), claimed on Form 2555, removes up to $132,900 of foreign earned income from US tax for 2026, according to IRS Revenue Procedure 2025-32. The foreign tax credit, claimed on Form 1116, reduces US tax by foreign income tax paid. Combining them is legal; doubling up is not.
How the foreign tax credit with FEIE is reduced
The Instructions for Form 1116 tell you to reduce your foreign taxes by the tax allocable to excluded income. The formula is:
Disallowed tax = foreign tax on foreign earned income × (excluded income − related deductions) ÷ (total foreign earned income − related deductions)
The housing exclusion counts in the numerator. You enter the result on line 12, and it never becomes a carryover. It is simply lost.
The stacking rule
Section 911(f) adds a second effect. Income above the exclusion is taxed at the rates that would apply if the excluded income were still taxable. The Foreign Earned Income Tax Worksheet in the Form 1040 instructions applies this. Consequently, the remaining salary starts in the 24% bracket, not the 10% bracket.
Worked example: a London salary in 2026
Take a US citizen living in London all year, single, with an illustrative salary of £150,000 for 2026. At an illustrative exchange rate of $1.30, that is $195,000 of foreign earned income. Using the 2026/27 rates for England on GOV.UK's Income Tax rates page, the personal allowance is fully tapered away above £125,140, and UK income tax comes to £53,703, or $69,814. For simplicity we treat the UK tax year as matching the calendar year and ignore National Insurance, which is not creditable for a worker covered by the UK under the US-UK Totalization Agreement.
Route A: FEIE plus the foreign tax credit
The exclusion is $132,900, so the fraction is 132,900 ÷ 195,000, or 68.15%. Disallowed UK tax is $69,814 × 68.15% = $47,581. Creditable UK tax is $22,233.
Taxable income after the exclusion and the 2026 standard deduction of $16,100 is $46,000. Under the stacking rule, US tax is the tax on $178,900 ($35,534) minus the tax on $132,900 ($24,494), which equals $11,040. The $22,233 credit wipes that out and leaves $11,193 of excess credit to carry forward.
Route B: the foreign tax credit alone
Without Form 2555, taxable income is $178,900 and US tax is $35,534. The full $69,814 of UK tax is creditable, so US tax is again zero. The excess credit is $34,280.
| Item (2026, illustrative) | Route A: FEIE + credit | Route B: credit only |
|---|---|---|
| Foreign earned income | $195,000 | $195,000 |
| Excluded on Form 2555 | $132,900 | $0 |
| US tax before credit | $11,040 | $35,534 |
| UK tax disallowed (line 12) | $47,581 | $0 |
| US tax after credit | $0 | $0 |
| Excess credit carried forward | $11,193 | $34,280 |
Both routes produce a nil US bill this year. Route B, however, keeps three times as much credit alive. Under section 904(c), excess credits carry back one year and forward ten years, which our guide to foreign tax credit carryovers on Schedule B explains.
When the carryover actually matters
A carryover is worth something only if a future year has spare limitation in the same category. Three situations create that space for our clients.
A move to a lower-tax country
A client who later moves from London to Dubai pays no UAE income tax. If their UAE salary exceeds the exclusion, US tax falls on the excess, and general-category carryovers from the UK years can absorb it. Our guide for a US citizen working in Dubai covers the UAE side.
Bonuses and equity vesting
A large UK bonus or RSU vest can create foreign earned income well above the cap in one year. Prior excess credits cover the resulting US tax without new UK tax being needed.
Children and refundable credits
Anyone who claims the FEIE cannot claim the refundable additional child tax credit, according to the Schedule 8812 instructions. A parent on the credit-only route can, as our guide to the child tax credit for Americans abroad shows.
When the FEIE still wins
Claiming a foreign tax credit with FEIE is not always the worse choice. The exclusion tends to win where foreign tax is low relative to US tax.
| Situation | Usually better | Why |
|---|---|---|
| UAE or other zero-tax salary | FEIE | No foreign tax to credit, so only the exclusion removes US tax |
| UK salary taxed at 40%–45% | Credit only | UK tax exceeds US tax; the FEIE wastes most of it |
| UK salary below the cap, no children | Either; check carryover value | All UK tax is disallowed under the FEIE, but the US bill is nil both ways |
| Contributions to a US IRA planned | Credit only | Excluded income is not compensation for IRA purposes |
| Self-employed in the UK | Depends | Neither relief removes self-employment tax unless the Totalization Agreement applies |
The revocation trap
Once you elect the FEIE, it stays in force for later years until you revoke it. Treasury Regulation section 1.911-7(b) bars you from re-electing for five tax years after a revocation without IRS consent. A client who switches to the credit for a London posting and then moves to Dubai two years later may be unable to return to the exclusion when it would help most. Model at least the next five years before revoking, using the IRS foreign earned income exclusion rules alongside your expected moves.
Checklist before you file
- Total your foreign earned income, including housing amounts, and compare it with the $132,900 cap for 2026.
- Separate foreign tax on earned income from tax on interest, dividends and gains, which goes in other Form 1116 categories.
- Calculate the line 12 disallowance with the Form 1116 fraction and keep the working.
- Run both routes, including the stacking rule, the carryover and any refundable child credit.
- Check whether you plan to move to a lower-tax country within five years before revoking the FEIE.
- Match UK tax for the 6 April–5 April year to the US calendar year consistently.
For the full framework behind these choices, see our US expat tax returns pillar and our earlier comparison of FEIE vs foreign tax credit.
How Tranzesta can help
We model the foreign tax credit with FEIE route and the credit-only route over a five-year horizon for clients in the UK and UAE, calculate the exact line 12 disallowance and track carryovers so they are used before they expire. If you have claimed the FEIE on a high UK salary, book a consultation and we will check whether amending or switching recovers credit you have been losing.
Frequently Asked Questions
Can I claim the foreign tax credit and the FEIE in the same year?
Yes. A US citizen or resident can claim the foreign earned income exclusion on Form 2555 and the foreign tax credit on Form 1116 in the same year, but section 911(d)(6) disallows any credit for foreign tax allocable to the excluded income. Only foreign tax on income above the exclusion, or on other income such as dividends, remains creditable.
How is the disallowed foreign tax calculated?
The IRS Form 1116 instructions calculate disallowed foreign tax by multiplying foreign tax on foreign earned income by a fraction: excluded income minus related deductions, divided by total foreign earned income minus related deductions. The result is entered on Form 1116 line 12 and cannot be carried forward.
What is the 2026 foreign earned income exclusion limit?
The maximum foreign earned income exclusion for tax year 2026 is $132,900 per qualifying person, up from $130,000 for 2025, according to IRS Revenue Procedure 2025-32. Married taxpayers who both have foreign earned income and both qualify can each claim up to that amount.
Is the FEIE or foreign tax credit better for someone in the UK?
For a US citizen paying UK income tax at 40% or 45%, the foreign tax credit alone usually gives the same nil US bill as the FEIE while preserving far more excess credit to carry forward ten years. The FEIE tends to suit people with low or no foreign tax, such as salaried workers in the UAE.
Can foreign tax credit carryovers be used after moving to the UAE?
Yes, if the later year has spare limitation in the same Form 1116 category. A US citizen in the UAE whose salary exceeds the foreign earned income exclusion owes US tax on the excess, and general-category carryovers from earlier UK years can offset that tax until they expire after ten years.
What happens if I revoke the foreign earned income exclusion?
Under Treasury Regulation section 1.911-7(b), a taxpayer who revokes the foreign earned income exclusion cannot elect it again for the next five tax years without IRS consent. Anyone planning a move to a low-tax country should model those five years before revoking.
Does UK National Insurance count toward the foreign tax credit?
No, not for a worker covered by the UK system under the US-UK Totalization Agreement. Social security contributions paid to a country under a totalization agreement are not creditable foreign income taxes for US purposes, so only UK income tax enters Form 1116.
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