Digital Nomad
Digital Nomads & OBBB: What U.S. Expats Need to Know in 2025-2026
Digital nomads face changing U.S. rules under OBBB — new deductions, exclusions, and inflation adjustments may alter your U.S. tax liabilities while abroad.
By NomadicTax Research Team • 5-8 min read • November 22, 2025
## Understanding U.S. Tax Obligations from Abroad
If you’re a U.S. citizen or resident living abroad (a “digital nomad”), you remain subject to U.S. federal income tax on your worldwide income. Important existing tools include the **Foreign Earned Income Exclusion**, **Foreign Tax Credit**, and overseas reporting like **FBAR** and **Form 8938**.
## What’s Affecting Expats Under OBBB for 2025-2026
Here’s what changed recently that matters if you’re abroad:
- **Foreign Earned Income Exclusion (FEIE):** For tax year 2026 the FEIE increased to **$132,900** (from $130,000 in 2025), thanks to inflation adjustments under OBBB. ([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))
- **Higher standard deductions and credit amounts** make it more likely you’ll use standard deduction when filing U.S. returns; this can simplify filing if itemizing overseas expenses is less effective. ([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))
- **No tax on qualified tips or qualified overtime**, with new deductions allowed for both; depending on your employment setup abroad, this could matter for U.S. source income or if you still maintain U.S. payroll ties. ([irs.gov](https://www.irs.gov/forms-pubs/how-to-update-withholding-to-account-for-tax-law-changes-for-2025?utm_source=openai))
## Strategies to Optimize Tax Position Abroad
- **Track overseas housing costs**, foreign income and foreign taxes carefully. Use FEIE and foreign housing exclusion if qualifying under bona fide residence or physical presence tests.
- **Consider timing income**: accelerating or deferring income between 2025 and 2026 may alter benefit from higher exclusion or deduction thresholds.
- **Evaluate whether itemizing overseas expenses** vs. using standard deduction is beneficial given the raised standard deduction.
- **Keep good records** of tips, overtime, any U.S. vehicle loan interest (if maintaining vehicle usage), even abroad, in case of U.S. filings.
## Example
Maria, a software engineer, lives in Spain and earns $140,000 from remote work. She meets the physical presence test. Using the 2026 FEIE of $132,900, she excludes most income. Additional foreign housing cost deduction further lowers taxable income. With an increased standard deduction, other deductions (state taxes, charitable contributions) are less attractive unless they greatly exceed the standard amount.
## Challenges to Watch For
- Gathering documentation for overseas expenses or foreign taxes can be harder.
- Currency fluctuations and timing of income: you might hit higher U.S. tax brackets sooner.
- Reporting and compliance items like FBAR don’t change with OBBB — these remain mandatory.
## Final Thoughts
OBBB’s changes are positive for many expats, especially those near previous thresholds. Take stock of your income, deductions, and where you can leverage the expanded exclusions or deductions. As always, consulting with a cross-border tax specialist is critical to avoid pitfalls.