What’s New for the FEIE in Tax Year 2026
The Foreign Earned Income Exclusion (FEIE) allows U.S. citizens or residents living abroad to exclude up to $132,900 of foreign earned income in tax year 2026, up from $130,000 in 2025. (irs.gov) This inflation adjustment ensures FEIE keeps pace with rising global living costs.
Eligibility Criteria
You qualify for FEIE if you meet one of two tests:
- Bona Fide Residence Test: you reside in a foreign country for a full tax year.
- Physical Presence Test: you spend at least 330 full days outside the U.S. in any 12-month period.
Note: You must maintain a tax home in a foreign country. A tax home is where the majority of your business/location of work is. If none exists, U.S. tax home rules apply.
Filing Requirements & Forms
- File Form 2555 with your U.S. individual income tax return (Form 1040).
- Report your foreign earned income and housing costs (if you claim housing exclusion or deduction).
- Also, disclose any financial accounts overseas if required (see FBAR requirements under FinCEN Form 114 if aggregate foreign financial accounts exceed $10,000 at any point during the year).
Interaction with Other U.S. Tax Rules
- Even with FEIE, other parts of your U.S. return still apply: self-employment tax, certain investment income, and Social Security reporting are not waived by the exclusion.
- FEIE reduces taxable income, but does not affect the Foreign Tax Credit—you may use both strategically to avoid double taxation.
Practical Tips for Digital Nomads & Expats
- Plan your travel or stays to hit the 330-day threshold when possible. Short trips back to the U.S. during your 12-month window need to be documented.
- Maintain records: passport stamps, travel itineraries, housing contracts to substantiate residency or physical presence.
- Monitor exchange rates and income type: only foreign earned income qualifies, not dividends or portfolio income.
- Consult a U.S. tax professional if you have complex income sources—e.g., freelancing, remote work, or working for foreign governments—because additional obligations like treaty benefits or nonresident alien rules may apply.
Example Scenario
Alice, a software consultant, lives in Medellín, Colombia. She spends 11 months abroad in 2026, with one month visiting family in the U.S. She made $120,000 in consulting fees from foreign clients and paid $30,000 for housing. Since she meets the Physical Presence Test and has a tax home abroad, she excludes the full $120,000 under FEIE, and may also claim a housing exclusion for part of the $30,000, significantly reducing her U.S. taxable income.
Bottom line: For U.S. expats and nomadic workers, 2026 offers increased FEIE benefits—but only if you structure your time, record-keeping, and residency carefully. It’s one tool among many to minimize U.S. tax outcomes abroad.