Digital Nomad
Digital Nomads & the U.S. Tax Code: What’s New in 2025-26
Work abroad or travel heavy? These recent updates affect digital nomads—everything from foreign earned income exclusion to residency tests and HSA eligibility.
By NomadicTax Research Team • 5-8 min read • March 1, 2026
## Digital Nomads Under U.S. Tax Law: Key Rules and Recent Updates
As of late 2025 and early 2026, U.S. tax law defines or clarifies several rules especially relevant to people living abroad or traveling frequently.
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## Foreign Earned Income Exclusion & Residency Tests
- **Substantial Presence Test / Green Card Test** remain central. But Publication 519 (revised recently) clarifies the “first-year choice” for calendar-year 2025: if you meet certain presence thresholds (31 consecutive days in 2025 and 75% of days until year-end), you may elect to be treated as a U.S. **resident for part of 2025**. ([irs.gov](https://www.irs.gov/publications/p519?utm_source=openai))
- This election determines whether foreign income, housing exclusion, etc., are available. Good audit documentation is essential.
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## Foreign Income & Digital Assets Reporting
- As with all taxpayers, digital nomads must report income from **cryptocurrency, stablecoins, NFTs**, etc. Form 1040 requires answering the digital-asset question; transactions must be reported. ([irs.gov](https://www.irs.gov/newsroom/prepare-to-file-in-2026-get-ready-for-tax-season-with-key-updates-essential-tips?utm_source=openai))
- Be careful: Marketplace-provided income (Form 1099-K) may have new lower thresholds. Many online platforms now issue 1099-K for smaller amounts depending on number of transactions and amounts.
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## Health Savings Accounts & Other Benefits Now More Accessible
- **Notice 2026-5** greatly expands who can participate in HSAs. For nomads who maintain U.S. coverage arrangements (HDHP eligibility), contributions offer tax-free growth and withdrawals (for qualified medical costs) even if abroad. ([irs.gov](https://www.irs.gov/irb/2026-02_IRB?utm_source=openai))
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## Tax Home & Deductions for Housing Abroad
- To claim the **Foreign Earned Income Exclusion** (FEIE) or foreign housing exclusion/deduction, you must have a **tax home in a foreign country** and meet either the bona fide residence test or the physical presence test. These requirements and exceptions (e.g. war, civil unrest) are reiterated in current IRS guidance. ([eitc.irs.gov](https://www.eitc.irs.gov/instructions/i2555?utm_source=openai))
- Keep detailed records of travel, location, housing costs, posture with employer, and whether foreign coverage qualifies.
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## Example: Applying the Changes
_Jamie_ is a software engineer living in Bali for most of 2025, with travel through neighboring countries. She earns $120,000 from U.S. clients and maintains private health insurance that qualifies as HDHP when in the U.S.
- Jamie meets the physical presence test over **330 days abroad**. She claims the FEIE for 2025, excludes a portion of housing costs.
- Using the new HSA eligibility rules, she opens an HSA in the U.S.; contributes the maximum while in U.S. HDHP periods, earning tax-free benefits.
- She tracks all digital asset transactions for compliance and reports them.
- Being mindful of FORM 1040’s digital asset question and new thresholds helps avoid late-filing or missing penalties.
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## Practical Nomad Planning Tips
- Maintain **consistent documentation**: passport stamps, lease agreements, proof of foreign HDHP if moving in and out of the U.S.
- Regularly assess whether you should be treated as a U.S. resident part of the year using the first-year choice (as clarified in Pub. 519) to optimize benefits.
- If eligible, maximize HSA contributions—funds grow tax-free and are useful even when abroad with acceptable medical expenses (with receipts).
- Monitor changing thresholds for marketplace‐income reporting (Form 1099-K) even from side gigs. Small transfers aren’t always benign.
Digital nomads with awareness of these developments can better structure income, residency, and deductions to minimize tax liability while staying compliant with evolving U.S. tax rules.