Why does this matter?
To exclude up to $130,000 (TY 2025) of foreign earned income via Form 2555 (FEIE), you must pass one of these two tests. Same exclusion, different qualifying paths.
Physical Presence Test (PPT) — Simpler
Physically present in foreign country (or countries) for at least 330 full days during any 12-consecutive-month period.
Key features:
- 12-month window can straddle calendar years
- "Full day" = 24 hours starting at midnight
- Time in international waters or transit over US doesn't count as foreign
- Easier to prove with travel records, boarding passes, passport stamps
Best for: First-year NRIs abroad, frequent India-US travelers who can plan a 330-day stretch, mid-year relocators.
Bona Fide Residence Test (BFRT) — Lifestyle Test
Bona fide resident of foreign country for an uninterrupted tax year (Jan 1 – Dec 31).
Key features:
- Not just physical presence — must establish residency: family, home, social ties, employment
- US visits during year allowed if foreign residency continues
- Requires intent to remain — "indefinite" stay, not specific job
- Subjective — IRS can challenge if facts are weak
Best for: Long-term NRIs settled in India, returning Indians with permanent house and family, multi-year assignment professionals.
Worked example
Rohan, US citizen, moved to India July 2024 with family. End of 2025, in India 18 months continuously, no US visits.
PPT for 2025: In India 330+ days in any 12-month window ending in 2025. Passes.
BFRT for 2025: Bona fide resident of India for entire calendar year 2025. Passes.
For 2024 (move year): PPT: In India only ~180 days July-Dec. Doesn't pass. BFRT: Not bona fide resident for entire 2024 (only since July). Doesn't pass.
But: Can use PPT for 2024 by selecting 12-month window overlapping 2024 (e.g. July 2024 – June 2025) and prorate FEIE.
Which test should I pick?
| Situation | Test |
|---|---|
| Moved mid-year, no US visits | PPT (prorate FEIE) |
| Settled in India calendar year+ | BFRT (cleaner) |
| Frequent US visits, integrated lifestyle | BFRT |
| Short-term assignment (under 12 months) | PPT (proration) |
| Trial relocation, may move back | PPT only |
Can I switch year-to-year?
Yes — strategic for transition years.
Common mistakes
- Counting partial travel days as "full" under PPT
- Claiming BFRT in move year (arrival or departure)
- Missing BFRT covers entire tax year
- Claiming FEIE while using FTC on same income (not allowed)
- Forgetting FEIE excludes earned income only — rental, dividend, capital gains not eligible
FEIE vs FTC
| Use FEIE when | Use FTC when |
|---|---|
| Low foreign tax rate | High foreign tax rate |
| Earned income only | Mixed income |
| Income under $130K | Carryover matters |
| Don't need refundable credits | Want max credits |
Can't use both on same income. We model both for every cross-border client.
Explore our complete US Tax Return Guide to understand refunds, filing rules, and IRS procedures for NRIs.