Because the US taxes citizens on worldwide income wherever they live, Americans abroad still file US returns. The FEIE lets those who qualify — by passing either the Physical Presence Test (330 days abroad in 12 months) or the Bona Fide Residence Test — exclude a sizeable amount of earned income (well over $120,000, indexed annually) from US tax.
The FEIE covers earned income like salary and self-employment, not passive income like dividends or rental income, and it doesn't remove the filing obligation. It's often combined with the Foreign Tax Credit; which is better depends on your situation.
Why it matters for your move
For American remote workers and employees abroad, the FEIE is often the difference between a manageable US tax bill and a painful one — it's central to making a move financially work as a US citizen.