Foreign Earned Income Exclusion (FEIE) Updates for 2026
The IRS raised the Foreign Earned Income Exclusion amount for tax year 2026 to $132,900, up from $130,000 for 2025. This is part of broader inflation adjustments under the One, Big, Beautiful Bill. (irs.gov)
What That Means for Nomads
- Online content creators, remote workers, and entrepreneurs abroad may now exclude up to $132,900 of foreign earned income from U.S. taxation, assuming bona fide residence or physical presence requirements are met.
- If you're close to previous thresholds, the increase gives breathing room and might reduce combined U.S. and foreign tax liability.
Qualifying Requirements
- Must meet either the physical presence test (330 full days abroad in a 12-month period) or the bona fide residence test.
- You must have a tax home abroad, not merely travel; the government defines tax home based on regular or principal place of business.
- Foreign earned income includes wages, salaries, self-employment income earned for personal services performed outside the U.S. It does not include passive income like dividends, interest, or capital gains.
Interaction With Other Tax Provisions
- Even though your earned income (up to FEIE limit) may be excluded, self-employment tax and Social Security/Medicare obligations will still apply to that income.
- For entrepreneurs abroad, home country tax credits or treaties may reduce overall rate when bringing exclusion benefits home.
Example Strategy
- Suppose you live in Lisbon all year, earn $130,000 from remote work in 2026 plus $10,000 in consultant income from U.S. clients. Exclude $132,900, pay U.S. tax on the $7,100 excess (plus take into account deductions or credits).
- Document your work locations, travel days, maintain proof of residence or ties abroad.
Action Items for Digital Nomads
- Calculate whether it’s better to exclude income or take foreign tax credit; sometimes paying taxes overseas creates credits exceeding the U.S. tax liability for excess amounts.
- Keep precise travel logs and residence documentation; audits often examine physical presence or bona fide residence closely.
- Monitor inflation adjustments, which could shift exclusion or income phase-out thresholds year to year.