Digital Nomad
Maximizing Credits If You’re a Digital Nomad Under New IRS Rules
Learn how recent U.S. tax changes affect digital nomads—foreign earned income exclusion, entity setup, and energy credits—as well as how to remain compliant while working across borders.
By NomadicTax Research Team • 5-8 min read • February 19, 2026
## What’s New for Digital Nomads in 2026
If you’re working remotely across borders—or planning to—or maintain homes or bank accounts in multiple countries, here’s what’s changed:
- **Foreign Earned Income Exclusion increased**: For tax year 2026, exclusion threshold is $132,900 (up from $130,000).([eitc.irs.gov](https://www.eitc.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill?utm_source=openai))
- **Clean energy and fuel credits tightening**: Restrictions on feedstock origin and materials assistance from foreign entities may impact work involving renewable energy in remote locations.([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-proposed-regulations-on-the-clean-fuel-production-credit-under-the-one-big-beautiful-bill?utm_source=openai))
- **Inflation-indexed deductions and standard deduction growth**: This shifts the income level at which tax advantages of forming an entity (or claiming itemized deductions) kick in.([eitc.irs.gov](https://www.eitc.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill?utm_source=openai))
## Considerations for Entity Setup Overseas or Partial Remote Work
For digital nomads, business structure and location matter:
- **Foreign corporations vs. U.S. LLC**: If you perform services abroad, you may be taxed on your U.S. entity earnings; foreign entity might reduce U.S. tax, but create foreign tax and compliance obligations.
- **Claim the Foreign Earned Income Exclusion (FEIE)** if you meet bona fide residence or physical presence test; only available to individuals—not business pass-throughs. Ensure foreign taxes and U.S. self-employment tax are considered.([eitc.irs.gov](https://www.eitc.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill?utm_source=openai))
- **Deduction of travel and living expenses**: These remain subject to strict rules; home country tax laws and treaty provisions may limit deductions.
## Action Plan for Digital Nomads
1. **Track your time abroad** meticulously to qualify for FEIE if applicable.
2. Plan income recognition to make use of higher exclusion threshold in 2026.
3. Monitor supply chains and materials if involved in clean energy or production-related work—ensure compliance with feedstock origin rules.([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-proposed-regulations-on-the-clean-fuel-production-credit-under-the-one-big-beautiful-bill?utm_source=openai))
4. Keep copies of foreign tax returns, treaties, and records to avoid U.S. double taxation.
5. Consult with cross-border tax specialist for entity structure—LLC, S-corp, or C-corp depending on where income is sourced and clients located.
## Example Scenario
_A web developer works remotely from Mexico, earns $150,000 USD, invests in clean energy projects._
- They might exclude $132,900 of foreign earned income in 2026, but pay U.S. tax on the remainder.
- If they invest in clean fuel feedstocks sourced from Mexico, they must ensure those feedstocks comply with the U.S./Mexico/Canada origin rule to claim Section 45Z credits.([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-proposed-regulations-on-the-clean-fuel-production-credit-under-the-one-big-beautiful-bill?utm_source=openai))
- If their entity supplies components, ensure these are not made by a prohibited foreign entity or assisted by one under Sections 45X/45Y/48E.([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-guidance-for-certain-energy-tax-credits-regarding-material-assistance-provided-by-prohibited-foreign-entities-under-the-one-big-beautiful-bill?utm_source=openai))