Your €115,000 salary sits $203 under the $130,000 foreign earned income exclusion at the whole-year exchange rate the Internal Revenue Service (IRS) printed for 2025. At the rate it printed for 2021, the same euros overrun your cap by $5,934, and nothing about the job changed — the cap is a dollar figure and the pay is not. The printed average gives one number for a whole year, while the rule for a single payday asks for the rate on that exact day [1]. Either way, a rate you never picked decides how much of the cap your pay uses.

The big picture:

The tax code writes its rules in plain dollars. The IRS says every amount on a return must change into dollars at the rate used when you get, pay, or owe the cash [1]. This means income from abroad is weighed rather than just listed. The scale moves on its own schedule.

My read is that standard tax software hides this basic math. It asks for a flat number, turns it into dollars, and rarely shows which rate it used. A filer then sees dollar income that grew without a raise, next to a tax credit that shrank without any change in the real tax they paid.

By the numbers

  • 0.886 — 2025 euro average: The IRS table sets 0.886 euros per dollar for 2025, so €100,000 is $112,867 at that rate and $105,152 under the 2022 rate, a 7.34% move in the dollar tax base with no change in pay [2].
  • 1.1130 — Daily reference rate: The European Central Bank (ECB) priced the dollar at 1.1130 per euro on 29 October 2026, which puts €100,000 at $111,300, or $1,567 below the 2025 average [3].
  • 1.1209 — Federal Reserve rate: The H.10 release of 26 October 2026 put the euro at 1.1209 dollars on 19 October 2026, within a cent of the ECB’s October figure [4].
  • 30% — Fast-inflation mark: A currency counts as fast-inflating once prices rise 30% across the 36 calendar months before the tax year ends, which pushes accrued tax onto the year-end rate [5].

What I’d watch:

  • The refund rule: A tax refund keeps the rate from the day you paid it, so a filer who paid too much in a strong year brings that old rate forward [5].
  • The three doors: Tax counted as it builds up drops to the payment-day rate when it is paid more than two years after its year ends, or paid in an earlier year, while fast-rising prices force the year-end rate [5].
  • The one-way choice: Filers using that buildup method can pick the payment-day rate instead, but this choice ties their hands in future years until the agency agrees to undo it [5].
  • The paper trail: Form 1116 asks for a written note on how you found the rate, and this note is the only place a tax checker sees your math [5].
  • The odd split: A bonus paid in one currency but taxed in another is where the gap between the paid rule and the counted rule bites hardest, because the two sides pull different daily rates.

The catch

The printed IRS averages give a single number for the year, but they do not grant a free pass for every payment. A worker paid evenly across the year builds a fair case to use the average rate. Someone whose income lands all at once in a single bonus holds a weaker hand, because the rules point to the rate on the day they got paid [1].

These tax caps also reset each year, so the dollar figure that makes your math work belongs strictly to last year’s return [6][7]. A rate change moves your tax base rather than your real buying power, so a filer who swaps money cheaply still spends at local prices. My read, held loosely — the habit that matters is settling the method once, noting the rate used, and keeping it. The expat tax and relocation model runs both rates side by side, and the gap shows what your paperwork must defend.

At a glance

  • The Big Shift: Pay from abroad arrives in foreign money while US tax limits rely on dollars, so exchange rates frame your tax cap before any real tax rules kick in.
  • Why It Matters: A flat euro salary can eat up or blow past the whole tax break without changing by a single cent, making your first rate choice the biggest filing step.
  • What I’d Watch: The places where your chosen math shows up on the tax form.
  • The refund rule: A tax refund locks in the rate from the first payment day, dragging old rates into new filings.
  • The three doors: Taxes paid late, paid early, or priced in fast-inflating money fall back to different rate rules.
  • The choice: Picking the payment-day rate ties up your future returns until the IRS lets you change it back.
  • The Catch: Printed yearly averages do not clear flat math for lump-sum bonuses, and a stronger paper rate does nothing to buy you more goods abroad.

Related reading

Sources

[1] Internal Revenue Service, “Foreign currency and currency exchange rates” — https://www.irs.gov/individuals/international-taxpayers/foreign-currency-and-currency-exchange-rates [2] Internal Revenue Service, “Yearly average currency exchange rates” — https://www.irs.gov/individuals/international-taxpayers/yearly-average-currency-exchange-rates [3] European Central Bank, “Euro foreign exchange reference rates” (29 October 2026) — https://www.ecb.europa.eu/stats/policy_and_exchange_rates/euro_reference_exchange_rates/html/index.en.html [4] Board of Governors of the Federal Reserve System, “Foreign Exchange Rates — H.10” (release of 26 October 2026) — https://www.federalreserve.gov/releases/h10/current/ [5] Internal Revenue Service, “Instructions for Form 1116” — https://www.irs.gov/instructions/i1116 [6] Internal Revenue Service, “Instructions for Form 2555” — https://www.irs.gov/instructions/i2555 [7] Internal Revenue Service, “IRS releases tax inflation adjustments for tax year 2025” — https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2025