Digital Nomad
Digital Nomads & the Foreign Earned Income Exclusion: What’s New Post-OBBB
The OBBB raised the foreign earned income exclusion for tax year 2026 to $132,900 and made changes that impact digital nomads. Learn how to plan foreign income reporting, housing exclusions, and eligibility.
By NomadicTax Research Team • 5-8 min read • November 17, 2025
## Overview of Foreign Earned Income Exclusion Changes
For tax year 2026, the Foreign Earned Income Exclusion (FEIE) increased to **$132,900**, up from $130,000 in 2025. This allows qualifying U.S. citizens/residents living abroad or working remotely abroad to exclude more income from U.S. taxation. ([stayexempt.irs.gov](https://www.stayexempt.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill?utm_source=openai)) This is especially relevant for digital nomads and remote workers.
## Who Qualifies for FEIE?
You must meet one of the following tests:
- **Bona Fide Residence Test**: You must be a citizen or resident of the U.S., and live in a foreign country for an uninterrupted period that includes a full tax year.
- **Physical Presence Test**: You must be present in a foreign country for at least 330 full days during any 12-month period.
You must also **elect** the exclusion using IRS Form 2555, and provide evidence of foreign residence or foreign employer/business.
## What’s New in 2026 for Digital Nomads
- **Higher exclusion amount** gives more leeway—especially if you're earning around the upper limit of previous exclusion.
- **Housing Exclusion/Percentage**: The foreign housing amount may also be adjusted for inflation; changes in standard deduction and credits may indirectly affect net tax liability.
- **Record keeping pressures**: With higher benefits come greater scrutiny. You’ll need good documentation of your days outside the U.S., residence, housing expenses, travel.
## Planning Tips for Digital Nomads
- Time your travel to maximize the **Physical Presence Test**, ensuring you meet the 330-day rule without falling afoul of U.S. trips.
- Keep detailed records: passports, tickets, lodging, leases or bills.
- Understand dual-tax treaties: exclusion doesn’t cover foreign payroll taxes; foreign tax credit may still apply for those.
- Beware of **self-employment** income: SE tax often still applies even if income excluded under FEIE; look into deductions for foreign self-employed professionals.
## Example
*Lisa*, a graphic designer, works remotely from Lisbon for 11 months in 2026, making $140,000 FEL (Foreign Earned Income). Qualifies under Physical Presence Test. She can elect FEIE to exclude $132,900. The remaining $7,100 is taxable in U.S. She also pays Portuguese social security; some may be eligible for credits under totalization treaties. Her effective U.S. tax drops significantly compared to pre-OBBB levels.
## Key Caveats
- **Housing costs** are only partly excluded; there’s a base amount above which excess is adjusted. Keep invoices and proof of residence.
- **State taxes**: FEIE doesn’t avoid state tax obligations in many states—residency rules still apply.
- **Logistics with income types**: Dividends, capital gains, crypto etc. are not covered by FEIE.
## Takeaway
The 2026 increase in FEIE makes living and working abroad more tax-efficient for many digital nomads. Pair that with planning, documentation, and professional advice to ensure full benefit while staying compliant.