Form 2555 Exchange Rate: Converting Foreign Salary to Dollars for the Foreign Earned Income Exclusion

A US citizen or resident working abroad can exclude foreign earned income up to an annual limit by filing Form 2555. The salary arrives in pounds, euros, yen or rupees; the form is in dollars. Whether your income is under or over the limit, and how much tax remains, depends on the conversion. This guide sets out what the form and the IRS say, and compares the two methods people actually use.

What the form says

The rule is printed on Form 2555 itself, in the note to Part IV: "Report amounts in U.S. dollars, using the exchange rates in effect when you actually or constructively received the income." The Form 2555 instructions add nothing on currency. Publication 54 says that income received in foreign currency must be translated into US dollars and refers to the IRS exchange rate pages, which state:

• "In general, use the exchange rate prevailing (i.e., the spot rate) when you receive, pay or accrue the item."
• "The Internal Revenue Service has no official exchange rate. Generally, it accepts any posted exchange rate that is used consistently."

The IRS also publishes a table of yearly average exchange rates and describes how to apply it: divide the foreign currency amount by the yearly average rate. It does not set conditions for using the average. In practice an average stands in for the per-payment rates when income arrives evenly through the year, which is what a monthly salary does.

The exclusion limits

Worked example: a GBP 90,000 salary in 2025

A US citizen in London earned GBP 90,000 in 2025, paid in twelve equal instalments of GBP 7,500.

Method 1, yearly average. The IRS 2025 yearly average for the United Kingdom is 0.759 pounds per dollar. GBP 90,000 divided by 0.759 is $118,577.

Method 2, month by month. Each instalment is converted at the average Federal Reserve H.10 rate for the month it was received (US dollars per pound, so multiply):

The two methods land within $100 of each other, about 0.1%, because the salary was even. Both are under the $130,000 limit for 2025, so the whole salary is excludable if the other tests are met.

When the average misleads

Sterling rose from an average of 1.2354 in January 2025 to 1.3577 in June, a 10% move. Income that is not spread evenly is where the yearly average goes wrong:

• A bonus. A GBP 20,000 bonus paid in June 2025 is $27,154 at June's rate and $26,350 at the yearly average. Use the rate for the date it was received.
• A part-year move. If you started the job in September, an average over January to December includes eight months in which you earned nothing. Average only the months you were paid, or convert each payslip.
• Near the limit. If your income is close to the exclusion maximum, a 1% difference in the rate decides whether some of it is taxable. Use the method you can defend line by line.

Whichever you choose, use it for every item of the same kind and in every year. Consistency is the one condition the IRS states.

Other figures on the return

• Foreign housing costs on Form 2555 are expenses paid in foreign currency and are translated at the rate when paid, or an average if paid evenly, on the same basis as the income.
• Foreign tax credit on income above the exclusion has its own rule under section 986. See the Form 1116 guide.
• Form 8938 and the FBAR use the Treasury year-end rate, not an average. See the Form 8938 guide.

Getting the rates

The IRS yearly average table as JSON:

curl "https://allratestoday.com/api/open/central-bank/irs"
# { "base": "USD", "quote": "GBP", "type": "yearly_average", "value": 0.759 }

Monthly averages from the Federal Reserve daily series, in pandas, from the public yearly CSV:

import pandas as pd
url = "https://raw.githubusercontent.com/AllRates-Today/central-bank-exchange-rates/main/data/fed/history/2025.csv"
df = pd.read_csv(url, parse_dates=["date"])
gbp = df[df.base == "GBP"].set_index("date").value          # USD per GBP
monthly = gbp.resample("ME").mean().round(4)
print(round((7500 * monthly).sum()))                      # about 118,667

For the rate on one specific pay date, the API returns the H.10 table for that day:

curl -H "Authorization: Bearer YOUR_KEY" \
  "https://allratestoday.com/api/v1/central-bank/fed/2025-06-27"

Dated tables and history are on paid plans. The CSV archive is licensed CC BY-NC 4.0 for personal filing, research and internal non-commercial use.

FAQ

Which exchange rate do I use on Form 2555?

The form says to report amounts in U.S. dollars using the exchange rates in effect when you actually or constructively received the income. The IRS says it has no official exchange rate and generally accepts any posted rate used consistently.

Can I use the IRS yearly average exchange rate for my foreign salary?

The IRS publishes a yearly average table and explains how to apply it. For a salary received evenly through the year the average gives nearly the same result as converting each payment. For bonuses, part-year employment or other uneven income, use the rate at the time of receipt.

What is the foreign earned income exclusion for 2025 and 2026?

$130,000 for tax year 2025 and $132,900 for tax year 2026.

Do I divide or multiply by the IRS rate?

Divide. The IRS table shows foreign currency units per one US dollar, so a foreign amount divided by the rate gives dollars. Federal Reserve H.10 quotes the pound, euro, Australian dollar and New Zealand dollar the other way round, in dollars per unit, so those are multiplied.

Is the rate for Form 2555 the same as for the FBAR?

No. The FBAR and Form 8938 use the Treasury rate on the last day of the year. Form 2555 income uses rates in effect when the income was received, or an average that approximates them.