Digital Nomad
Digital Nomad Tax Insights: Foreign Earned Income Exclusion & AMT Adjustments in 2026
For digital nomads earning abroad, changes to the foreign earned income exclusion and AMT exemption can significantly affect your tax planning—learn how to optimize your tax position overseas.
By NomadicTax Research Team • 5-8 min read • November 18, 2025
## Foreign Earned Income Exclusion (FEIE): What’s Changed
The exclusion that allows qualifying U.S. taxpayers living abroad to exclude a portion of foreign earned income has risen from **$130,000 in 2025** to **$132,900 for tax year 2026**, under IRS inflation adjustments.([irs.gov](https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill?utm_source=openai))
**Why it matters for digital nomads:** If your foreign earned income (after adjustments) is below this threshold and you qualify under the physical presence or bona fide residence test, you may not owe U.S. federal tax on that portion of income. Any income above the exclusion remains taxable.
## AMT Exemption and Phase-out Changes Impacting Nomads
Digital nomads with high earned or investment income abroad should pay special attention to the **Alternative Minimum Tax (AMT)**. For **unmarried individuals**, the 2026 AMT exemption is now **$90,100**, with phase-out starting at **$500,000**. For married filing jointly, the phase-out begins at $1,000,000.([irs.gov](https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill?utm_source=openai))
If your foreign income pushes you into AMT territory, deductions often disallowed under AMT may impact you (e.g., state taxes, miscellaneous itemized deductions).
## Planning Tips for Digital Nomads
1. **Know your qualifying tests**: Ensure you meet either the bona fide residence or physical presence test to secure FEIE. Keep travel logs and residency records.
2. **Manage foreign housing & deductions**: Excluded housing costs only apply when FEIE is applicable; otherwise, report housing allowances or reimbursements carefully.
3. **Monitor foreign tax credits**: If you've paid foreign income taxes, you may be able to offset U.S. tax via foreign tax credits—especially if FEIE doesn’t cover all income.
4. **Watch AMT triggers**: Capital gains, investment income, or significant foreign income can trigger AMT. Adjust timing of income recognition or deductions accordingly.
## Example Scenario
Sarah works remotely for a US-based tech company from Bali. In 2025, she earned USD 140,000, of which USD 130,000 is eligible for FEIE. In 2026, with FEIE raised to **$132,900**, her taxable foreign income drops slightly. However, a large gain on investments or potential asset sales could push her past the **AMT exemption phase-out thresholds**, causing more of her deductions (foreign taxes, housing costs) to be limited.
## Actionable Steps Right Now
- Track all income streams including foreign non-employment income.
- Keep meticulous records of your days abroad and residency status.
- Plan outsized income events (selling assets, bonuses) strategically around tax year boundaries.
- Consult a cross-border tax specialist if your income or activities span multiple jurisdictions or trigger AMT.
**Bottom line**: Inflation adjustments under OBBB offer slight relief for digital nomads, especially with FEIE and exemptions. But with higher thresholds come potential traps—plan carefully to keep your tax exposure minimized.