Digital Nomad
Digital Nomads and the Foreign Earned Income Exclusion in 2026: What to Know
With rising standards of living adjustments and tax changes from OBBB, this article explains how digital nomads can use the Foreign Earned Income Exclusion and stay compliant.
By NomadicTax Research Team • 5-8 min read • July 8, 2026
## Foreign Earned Income Exclusion (FEIE): The Basics
For U.S. citizens or resident aliens living and working abroad, **FEIE** allows **tax exclusion up to $132,900** of foreign earned income in tax year 2026, up from $130,000 in 2025. ([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))
### Requirements to Qualify
- Must have **tax home** in a foreign country.
- Must meet either the **Bona Fide Residence Test** (residency for full tax year abroad) or the **Physical Presence Test** (330 full days in any 12-month period).
- Foreign income must be **earned**, not investment or passive income.
## How OBBB Affects Digital Nomads
- The exclusion increased along with other inflation-adjusted items. ([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))
- OBBB also raised the standard deduction and income thresholds—lowering AGI for many nomads who take standard deduction. ([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))
## Other Considerations
- **Housing Exclusion/Deduction:** Eligible in addition to FEIE if you have qualifying foreign housing expenses.
- **FATCA & FBAR:** Still required to file **Report of Foreign Bank and Financial Accounts** if threshold exceeded, plus related forms.
## Example
Emily, a remote software engineer, spends 10 months in Thailand and earns $140,000 salary abroad in 2026.
- She qualifies under the Physical Presence Test.
- She may exclude up to **$132,900** under FEIE.
- She may also deduct housing costs above a base amount.
- Income above the exclusion limit (≈ $7,100) will be taxed like regular U.S. income.
## Action Plan for Digital Nomads
- Track **number of days abroad**, your residency status, arrival/departure dates.
- Maintain detailed records of lodging, utilities, rent, travel—if available—especially if claiming housing deduction.
- Use updated IRS inflation thresholds when calculating AGI vs income levels.
- File Form 2555 (FEIE) when preparing your return.
- Check whether you owe self-employment taxes; FEIE doesn’t exempt Social Security/Medicare obligations.
By staying informed of the 2026 increases and the implications of OBBB, digital nomads can optimize U.S. tax obligations and use FEIE and related deductions effectively while avoiding compliance pitfalls.