Digital Nomad
Digital Nomads: How the Foreign Earned Income Exclusion Shift under OBBB Helps US Nomads Abroad
The One, Big, Beautiful Bill hikes the foreign earned income exclusion for 2026 — we show how US citizens working from abroad should plan based on the new thresholds.
By NomadicTax Research Team • 5-8 min read • July 3, 2026
## What Has Changed?
Under the **One, Big, Beautiful Bill (OBBB)**, the **Foreign Earned Income Exclusion (FEIE)** has increased for tax year 2026 to **$132,900**, up from **$130,000** in 2025. This means more income earned abroad may be excluded from U.S. taxation for qualifying individuals. ([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 impacts related thresholds and tax rates, including **inflation adjustments** to standard deduction, marginal tax brackets, and earned income tax credits — all important for nomads to understand their total tax profile. ([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))
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## Who Qualifies for FEIE?
To claim the FEIE, a digital nomad must:
- Be a U.S. citizen or resident alien,
- Have **foreign earned income**,
- Meet **either the “bona fide residence test”** or **“physical presence test”** (330 full days over a 12-month period outside the U.S.).
Covered items include wages, salaries, self-employment income earned abroad.
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## Actionable Planning Strategies
1. **Time your travel**: Ensure you meet the 330-day presence abroad or bona fide residence to claim FEIE. Partial years count; plan trips with departures/returns in sequence.
2. **Track living expenses abroad**: Exclusion doesn’t affect housing exclusion (“housing cost amounts in excess”). Know what qualifies.
3. **Monitor exchange rates & pay-dates**: Income is included in gross income based on **when earned**, not necessarily when paid. Foreign tax payments may offer credits.
4. **Withhold or estimated taxes**: Even with FEIE, self-employment and Medicare taxes apply abroad; estimated payments may be needed.
5. **State tax implications**: Some U.S. states don’t conform to FEIE standards; you may still owe state income tax; plan domicile/day count accordingly.
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## Example Scenario
A graphic designer from San Francisco works remotely from Lisbon for 9 months in 2026, earning **$150,000** (all foreign earned). If they meet the physical presence test, they can exclude **$132,900**, leaving **$17,100** subject to U.S. federal income tax. Add in applicable self-employment, state tax as relevant.
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## Common Traps
- Partial years or missing days causing failure to meet 330-day requirement.
- Not distinguishing between earned income and investment income.
- Ignoring that FEIE does *not* exclude self-employment Social Security / Medicare taxes.
- Overlooking that employer-benefits or home base expenses abroad may still carry U.S. tax implications.
**Bottom Line:** The higher FEIE threshold in 2026 strengthens tax planning for digital nomads, but strict eligibility rules apply. Know your travel, document carefully, and coordinate your foreign and U.S. tax obligations smartly.