Digital Nomad
Digital Nomads & Foreign Income: Navigating the Foreign Earned Income Exclusion Post-OBBB
Recent inflation adjustments and tax law changes affect how digital nomads can benefit from the Foreign Earned Income Exclusion—timing and residency tests matter now more than ever.
By NomadicTax Research Team • 5-8 min read • November 17, 2025
## What Is the Foreign Earned Income Exclusion (FEIE)?
The FEIE under IRC section 911 allows qualified U.S. citizens/residents living abroad to exclude up to a certain amount of foreign earned income if they meet either the **bona-fide residence** or **physical presence** test. ([irs.gov](https://www.irs.gov/irb/2025-13_IRB?utm_source=openai))
## Key Updates That Matter in 2025-2026
- The FEIE exemption amount for **tax year 2025** is **$130,000**, and will increase to **$132,900 for 2026**, reflecting inflation adjustments under the One, Big, Beautiful Bill. ([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))
- Revenue Procedure 2025-17 adds countries (Ukraine, Iraq, Haiti, Bangladesh) for which the **minimum time requirements** under the bona-fide residence or physical presence test are **waived** due to adverse conditions—so nomads in these areas may qualify even with shortened stays. ([irs.gov](https://www.irs.gov/irb/2025-13_IRB?utm_source=openai))
## Strategic Planning for Digital Nomads
### Residency & Time Tests
- **Physical presence test**: Being abroad at least **330 full days** during any 12-month period. Standard requirement remains unless waived. Use travel records and lodging receipts to substantiate. ([irs.gov](https://www.irs.gov/irb/2025-13_IRB?utm_source=openai))
- **Bona-fide residence test**: More subjective. Must establish a tax home abroad and intent to live there for an uninterrupted full tax year. Waivers under RP 2025-17 may modify the time requirements if you’re forced out due to unrest. ([irs.gov](https://www.irs.gov/irb/2025-13_IRB?utm_source=openai))
### Income ceiling and qualification limits
- For **2025**, cap is **$130,000**, rising to **$132,900** in 2026. Nomads earning above this may only partially exclude, depending on when income is earned. ([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))
- Not all income qualifies: Must be “earned”—no exclusion for investment income, dividends or capital gains. Protect your documentation.
## Example: Planning Your Nomadic Move
- *Aisha*, a software developer, relocates to Lisbon in March 2025 and works remotely for a U.S. employer. She stays abroad through February 2026, satisfying the physical presence test. Her foreign earned income is $150,000. She can exclude up to $130,000 for 2025, but the remaining $20,000 is taxable. For 2026, with $132,900 excluded, planning to shift income streams or timing may mitigate U.S. tax burden.
## Practical Tips for Nomads
- Track your travel, lodging, and employment contracts carefully.
- Note your U.S. “tax home” (if you return often, or have strong ties stateside, this can affect eligibility).
- Understand waivers; if forced to leave a country due to unrest, you may still meet tests under RP 2025-17. ([irs.gov](https://www.irs.gov/irb/2025-13_IRB?utm_source=openai))
- Coordinate with tax professionals familiar with both U.S. and international tax treaty issues.
**Bottom line**: The FEIE remains powerful—but you must monitor income thresholds, test requirements, and plan around the recent inflation adjustments to maximize benefit.