Digital Nomad
Living Abroad? How the Foreign Earned Income Exclusion Changed for 2026
If you're a digital nomad or expatriate, the Foreign Earned Income Exclusion (FEIE) is increasing in 2026 — here’s what every U.S. citizen living overseas needs to know to reduce tax liabilities properly.
By NomadicTax Research Team • 5-8 min read • November 19, 2025
## What the Foreign Earned Income Exclusion (FEIE) Will Be in 2026
For tax year **2026**, the IRS has raised the maximum amount that qualified U.S. taxpayers abroad can exclude from income under the FEIE to **$132,900**, up from $130,000 in 2025. This adjustment reflects inflation changes under the One, Big, Beautiful Bill Act. ([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))
## Who Qualifies as a Digital Nomad or Expatriate for FEIE
To use FEIE, you must satisfy both:
- A **tax home** in a foreign country; and
- Either the **bona fide residence test** or the **physical presence test**.
- *Bona fide residence*: maintaining long-term residence in a foreign country over an entire tax year.
- *Physical presence*: physically outside the U.S. for at least **330 full days** in a 12-month period.
Other eligibility requirements include proper time abroad and maintaining foreign housing (if applicable), filing Form 2555, and ensuring foreign income qualifies.
## How the 2026 Increase Affects Tax Planning
- If you were near the previous FEIE cap ($130,000), this $2,900 bump means you can now exclude more earned income — less likely to have to pay U.S. tax on income up to that amount.
- For those with fluctuating income, this cushion aids planning — especially when negotiations or contracts vary unexpectedly.
- The exclusion applies to “wages, salaries, professional fees, or other amounts earned abroad.” Passive income (interest, dividends, etc.) isn’t covered.
## Real-World Example
Suppose **Bella**, a U.S. citizen living in Lisbon, earns $135,000 from remote software consulting in 2026. She qualifies using the physical presence test. She can use FEIE to exclude $132,900 of her earned income — only $2,100 remains taxable in the U.S. (plus any applicable deductions or credits).
If she earns $125,000, she’d benefit fully under the exclusion and pay no U.S. federal tax on that part of her income (federal tax, not state).
## Things to Watch Out For
- Monitor *MAGI thresholds* for other deductions; claiming FEIE might not reduce other thresholds, but ensures basic exclusion.
- Be cautious about dual residency, foreign tax credits, and total tax treaties.
- Keep detailed travel logs, salary records, contracts, and Form 2555 well-documented.
## Action Steps for Digital Nomads
- Estimate your 2026 income early in your planning; consider delaying contracts or front-loading vs back-loading income.
- Use FEIE in tandem with foreign housing exclusion (if applicable) to maximize tax savings.
- Stay aware of IRS deadlines: Form 2555 must accompany your return.
By using FEIE optimally, expats and nomads can significantly reduce U.S. tax burdens — the increased cap for 2026 helps more people benefit.