The Foreign Earned Income Exclusion (FEIE), Housing Exclusion (HE) and Housing Deduction (HD) And TIPRA (Tax Increase Prevention and Reconciliation Act of 2005 Changes effective January 1, 2006 to the FEIE, and HE/ HD

January 9, 2021

by: Marc J. Strohl, CPA, Protax Consulting Services Inc.

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The goal of this article is to provide a comprehensive checklist of information for the U.S. person to consider prior to accepting an assignment outside the U.S.  This article is not intended to teach you the technical competence required to perform self compliance; however it will certainly arm you with the technical knowledge to determine if your U.S. tax preparer knows all that they should know to provide you with technically competent professional services.


TIPRA Changes:


Effective January 1, 2006 as amended by IRC Sec. 515 of the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA)- until December 31, 2005 the first $108,700 for 2021 ($107,600 for 2020, $105,900 for 2019, $103,900 for 2018, $102,100 for 2017, $101,300 for 2016, $100,800 for 2015, $99,200 for 2014, $97,600 for 2013, $95,100 for 2012, $92,900 for 2011 and $91,500 for 2010) of income earned overseas was excluded from U.S. taxation, with the next dollar earned overseas treated as though it were the first dollar of income and taxed at the very lowest tax bracket.  This new law provides for “stacking”.  “Stacking” results in the next dollar of income taxed at a much higher marginal rate of tax, as though it was the $108,701st dollar of income earned.  Therefore this “stacking” feature assumes that the excluded foreign earned income is actually present for tax calculation purposes, effectively using the tax bracket in which it would have been taxed had the excluded foreign earned income actually been present for tax calculation purposes.  This results in the taxpayer being pushed into an initially higher starting tax bracket at higher tax rates on that first dollar of unexcluded income.

The implementation of the “stacking” mechanism results in three obvious factors, in addition to an additional tax grab: 1) The usefulness or effectiveness of the FTC and 2) the potential for the FTC carryover are both diminished, in addition 3) in the case of high tax foreign countries, it may be preferable to use the FTC alone.  Protax continually optimizes and tests for these factors.  Keeping in mind the deemed revocation implications, weighing the alternatives both quantitively and qualitatively.



However, housing costs for the convenience of the employer on the employer premises such as in a man camp are not considered taxable compensation.  These types of arrangements may also include a safety or security or remoteness element.

Effective January 1, 2006, as amended by IRC Sec. 515 of the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), this new law provides for two changes regarding the HE and HD:

  • the base housing amount (or deductible) representing the amount that needs to be exceeded before any qualified housing costs are excluded or deducted, effective January 1, 2021, has risen from $47.04 per day or $17,216 for a full 366 days for 2020 to $447.65 per day or $17,392 for a full 365 days for 2021, representing 16% of the amount of the FEIE or $108,700 for 2021 ($107,600 for 2020).
  • further TIPRA has placed an overall effective cap on the total qualified housing costs eligible for consideration for either the HE or HD, at 30% of the FEIE of $108,700 for 2021 ($107,600 for 2020) or for 2021 $89.34 per day or $32,610 for a full 365 days (30% * $108,700). For 2020- $88.20 per day or $32,280 for a full 365 days (30% * $107,600).  This cap had not existed prior to January 1, 2006. 

Therefore, the maximum excludable or deductible qualified housing expenses is the difference between the cap of $32,610 less the deductible base housing amount of $17,392 which equals $15,218 or $41.69 per day for a full 35 days.

Further to the ratification of TIPRA, the IRS continues to  issue IRS Notice(s) for 2020 Notice 2020-13 (issued February 21, 2020), (2019 Notice 2019-24 (issued March 29, 2019))- which allows for certain cities (of 52 countries worldwide) with very high housing costs a higher overall exclusion cap, effectively overriding the 30% limitation on the FEIE or $32,610 cap.  Until the 2021 IRS Notice is issued assumingly in March or April of 2021 for the 2021 tax year, we will continue to apply the 2020 Notice to 2020 tax year.  When the 2021 Notice is issued, we may elect to apply the 2021 Notice adjustments to the 2020 tax year in lieu of the adjusted 2020 Notice adjustments (Notice 2020-13) if the 2021 Notice limitations are higher.  Please consult us on a list of these cities and amounts separately.

Marc J. Strohl, CPA is a Principal at Protax Consulting Services Inc.
He may be reached at: Tel: (212) 714-1805, Fax: (212) 714-6654
Web site:

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