Digital Nomad
How Digital Nomads Must Navigate the Foreign Earned Income Exclusion After the One, Big, Beautiful Bill
Recent changes under the One, Big, Beautiful Bill unlock new thresholds but bring complexity for nomads – here’s how to maximize benefits without missteps.
By NomadicTax Research Team • 5-8 min read • February 26, 2026
## What Has Changed for the Foreign Earned Income Exclusion (FEIE)
The One, Big, Beautiful Bill (OBBB) raised the **Foreign Earned Income Exclusion** to **$132,900** for tax year 2026 (up from $130,000 in 2025), allowing those living abroad to exclude more income from U.S. taxation. ([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))
**Key points:**
- Applies to U.S. citizens or resident aliens whose tax home is abroad and meet either the **bona fide residence test** or **physical presence test**.
- You must file Form 2555 with your U.S. federal tax return.
- Any income over the FEIE threshold is still taxable when combined with foreign tax credits, if applicable.
## How to Determine Your Eligibility as a Nomad
| Test | Requirements | Tip for Digital Nomads |
|------|--------------|--------------------------|
| **Bona fide residence test** | Must be a bona fide resident of a foreign country for an **entire taxable year**. | If you move mid-year, you may still pass this test if your intent to stay is full-year and you establish residency quickly. |
| **Physical presence test** | At least **330 full days** in a foreign country in any rolling 12–month period. | Track travel precisely. Even a few days’ excess in the U.S. can disqualify. |
## Strategic Planning Tips for Nomads
- **Time your move carefully.** Aim to move before March 31 or as early in the year as possible if wanting to claim 330 days in the first year.
- **Use overlapping exclusions or treaties.** Foreign tax credits can pair with FEIE—if your foreign country taxes income that exceeds your FEIE, you can offset U.S. liability via claims on Form 1116.
- **Maintain detailed travel logs.** Make sure to document entry/exit dates, and retain any supporting evidence like boarding passes, lodging receipts, and work contracts abroad.
## Potential Pitfalls to Watch For
- **Self-employment income subject to other U.S. taxes.** Even excluded income is still subject to self-employment taxes unless excluded by treaty.
- **Inconsistent tax home.** If you move back to the U.S. or your intent changes, the FEIE may no longer apply.
- **Overlooking requirement for valid SSN or ITIN.** Many credits require valid taxpayer IDs issued on or before filing due date (including extensions). OBBB tightened these rules. ([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))
## Example Scenario
Suppose **Casey**, a freelance software developer, is a U.S. citizen who starts working remotely from Spain on **January 20, 2025**, and spends **340 full days** abroad during the 12‐month period ending January 19, 2026. Casey also earns **$135,000** from abroad. Casey:
- Meets the physical presence test;
- Can claim FEIE for $132,900;
- Files Form 2555;
- Uses foreign tax credit for foreign taxes paid on the remaining **$2,100**, plus any additional income beyond FEIE if they exceed threshold.
## Actionable Checklist Before Filing
- Confirm your period abroad and which eligibility test applies;
- Gather documents: passports, visas, contracts, logs;
- File Form 2555 along with your 1040;
- Check deadlines for claiming foreign tax credits, if needed;
- Consider consulting a tax professional if your situation involves mixed income, frequent travel, or treaty issues.
**Bottom line:** The FEIE increase under OBBB offers serious benefits for digital nomads. With accurate documentation and attention to eligibility tests, nomads can substantially reduce their U.S. tax liability.