Digital Nomad
Digital Nomads & Foreign Earned Income Exclusion: Key Changes and Moves You Should Know
For Americans working abroad, the foreign earned income exclusion continues to shift—plus relief for those displaced by adverse conditions. If you're a nomad, this is essential reading.
By NomadicTax Research Team • 5 min read • November 19, 2025
## Updated Foreign Earned Income Exclusion for TY 2026
The exclusion amount increases to **$132,900** for tax year 2026 (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))
This means U.S. citizens or resident aliens who live abroad and meet either the **bona fide residence test** or **physical presence test**, or are **forced to leave a foreign country** due to war, civil unrest, or similar adverse conditions, can exclude up to this higher amount. Note: special waivers are granted under Rev. Proc 2025-17 for time-requirement failures for zones including Ukraine, Iraq, Haiti, and Bangladesh for tax year 2024. ([irs.gov](https://www.irs.gov/irb/2025-13_IRB?utm_source=openai))
## What Digital Nomads Should Do
- **Track your foreign income carefully**: Earnings in local currency, housing allowances, bonuses—all need inclusion, then subtraction via exclusion if qualified. The new higher limit means less U.S. tax exposure.
- **Stay aware of test dates**: Bona fide residence is stricter; physical presence requires 330 full days in any 12-month span. If you leave affected zones, special waivers may apply. Keep diary, travel logs.
- **Housing cost differences**: While exclusion of foreign earned income doesn’t include housing exclusion here, inflation adjustments and cost-of-living variances may affect tax burden in your state of filing.
## Example Life Moves
- María, a software contractor, lives in Lisbon. In 2026 she earns **€140,000**, converted to USD the equivalent of **$140,000**. If she meets the physical presence test, she can exclude **$132,900**, meaning only $7,100 taxable in the U.S.
- Jamal used to live in Ukraine until 2024, then relocated because of conflict. For 2024, he qualifies for a time-requirement waiver under Rev. Proc 2025-17, allowing him to meet the exclusion even though he couldn’t fulfill residence requirements. ([irs.gov](https://www.irs.gov/irb/2025-13_IRB?utm_source=openai))
## Things to Watch Out
- Even with exclusion, **self-employment tax** still applies on foreign earned income. Exclusion does not exempt that.
- Foreign housing costs may still be taxable if they exceed CLAC (cost of living allowances) unless housing exclusion rules apply.
- Filing deadlines: an overseas resident may get an automatic 2-month extension to file, but interest accrues on taxes due by original deadline.
The rising exclusion threshold is good news for nomads—pair it with strong record-keeping and awareness of your country of residence and test eligibility to maximize benefit with minimal stress.