Key Tax Changes Impacting U.S. Citizens Abroad for 2025-2026
U.S. tax laws updated via the One, Big, Beautiful Bill introduce several changes remote workers need to know:
| Change | What Changed | Why It Matters for Nomads |
|---|---|---|
| Foreign Earned Income Exclusion (FEIE) | Increased to $132,900 for tax year 2026, up from ~$130,000 in 2025 (irs.gov) | More income can be excluded, reducing U.S. tax for those abroad, especially if earnings hover around the prior threshold. |
| Standard Deduction boost | Standard deduction for single filers rose to $16,100 and married filing jointly to $32,200 for 2026 (irs.gov) | Reduced taxable income universally, helpful for remote workers with limited deductions and fewer U.S. tax credits. |
| Retirement savings limits | 401(k)/403(b)/457 plans increased to $24,500 (base contribution), IRA limits up to $7,500; catch-up contributions also increased under SECURE-2.0 changes (irs.gov) | Helps nomads plan for retirement contributions via U.S.-based plans while abroad, allowing maximizing tax-efficient retirement savings. |
Deductions, Credits & Filing Requirements to Watch Out For
- Foreign Tax Credit (FTC): While FEIE is rising, the FTC still applies to taxes paid overseas. Compare both strategies (FEIE vs FTC) to avoid overpaying.
- Qualified Business Income Deduction (QBI): Some remote work income may qualify; income thresholds have been indexed up, so check whether your AGI disqualifies you under new limits.
- Reporting requirements: Even if using FEIE, Form 2555 must be filed. Include details of foreign location, residence or physical presence to support the exclusions.
- Retirement contributions: If contributing via U.S. plans remotely, understand where contributions are excluded or taxed under local country laws. Social Security obligations abroad may differ depending on bilateral agreements.
Practical Strategies for Remote Workers
- Claim FEIE up to $132,900 when advantage outweighs claiming FTC.
- Use standard deduction + QBI, if eligible, to reduce taxable income further.
- Contribute to U.S. retirement accounts if possible, especially given increased contribution limits.
- Keep detailed travel and residency logs to support physical presence or bona fide residence tests.
- Consult both U.S. tax professionals and local tax advisors—dual taxation treaty provisions may alter how benefits apply abroad.
Example: Remote Worker in Spain
Maria is a U.S. citizen living in Barcelona. In 2026 she earns $130,000 from her remote job. She qualifies for FEIE of $132,900, so all her foreign earned income is excluded, leaving zero taxable income from salary in U.S. after applying standard deduction for single filer ($16,100). She also rents an apartment and keeps travel logs to preserve eligibility.
If Maria contributed $6,500 to an IRA and also had $30,000 of QBI-eligible freelance income, she could claim QBI deduction on that amount, further reducing tax owed, assuming she meets income thresholds.
Bottom line: The inflation adjustments and deductions make 2026 a favorable year for nomads. Use FEIE, QBI, standard deduction, and maximize retirement plan contributions while maintaining compliance through detailed records.