What the 2026 Update Means for Digital Nomads
The IRS has increased the Foreign Earned Income Exclusion (FEIE) for tax year 2026 to $132,900, up from $130,000 in 2025. This makes it more beneficial for U.S. citizens and resident aliens living abroad to exclude a greater portion of foreign-earned income. (irs.gov)
Eligibility Criteria: Two Tests to Know
- Bona Fide Residence Test: You reside in a foreign country for an entire tax year and establish a home there. Interruptions may occur, but your intention to stay matters.
- Physical Presence Test: You must be present abroad 310 full days during 12 consecutive months. Any career or travel plan helps toward this threshold.
What You Can Exclude Beyond Income
- Housing Exclusion: If you pay for housing abroad, you can exclude a portion, as long as it falls within IRS limits based on location.
- Tax Credits: Consider the foreign tax credit to offset double taxation, especially if your foreign country taxes income not otherwise excludable.
Examples & Strategies for 2026
| Scenario | Best Route | Outcome |
|---|---|---|
| Nomad in Berlin earning $140,000 abroad | Use FEIE to exclude $132,900; pay U.S. tax on remainder $7,100 | Big savings |
| Nomad in Manila with $80,000 income, high foreign tax paid | Minor U.S. tax via foreign tax credit; maybe FEIE partially useful | Edge case |
Actions You Should Take Now
- Track your travel meticulously so you satisfy the physical presence test or document bona fide residence.
- Keep housing cost records if you plan to claim the housing exclusion—rent, utilities, lease terms.
- Monitor changes in foreign tax treaties—some may eliminate or reduce U.S. obligations.
- File disclosures accurately—omit exclusions or credits can lead to penalties.
Bottom line: In 2026, digital nomads have stronger levers than ever to reduce U.S. tax liability. Take advantage of these rules by planning travel, housing, and residency with intention.