What the One, Big, Beautiful Bill Means for Digital Nomads
The One, Big, Beautiful Bill (OBBB) introduces a range of tax policy shifts in the U.S. that affect anyone earning income abroad, especially digital nomads. Notable adjustments include:
- The Foreign Earned Income Exclusion (FEIE) has increased to $132,900 for the tax year 2026, up from $130,000 in 2025. (irs.gov)
- Standard deductions and tax brackets have been indexed upward due to inflation. For instance, Single filers now receive a standard deduction of $16,100 in 2026. (irs.gov)
These changes matter because many digital nomads rely on FEIE and deductions to reduce their U.S. tax obligations while working globally.
Residency and Foreign Income: Key Compliance Traps
Here are some areas to watch carefully:
- Substantial Presence Test (SPT): Spending more than 183 days in the U.S. across a rolling three-year span triggers U.S. tax residency. Avoid accidentally becoming resident by tracking your days.
- Foreign Housing Exclusion and Foreign Housing Deduction: If you qualify for the FEIE, you may also claim deductions related to housing costs—but these must meet IRS definitions and happen in a qualified location. Misreporting can trigger audits.
- FBAR and FATCA Reporting: Holding foreign financial accounts requires filing foreign bank account reports or FATCA forms if thresholds are met, regardless of FEIE eligibility.
Actionable Strategies for Digital Nomads
| Strategy | Purpose | When to Use It |
|---|---|---|
| Timeline multiple visits | Prevent triggering the Substantial Presence Test | If traveling back to U.S. frequently |
| Maintain detailed housing expense logs | Back up foreign housing claims | Especially rental or accommodation-related costs |
| Use digital tools or tax advisors familiar with OBBB | Catch changes like indexing and new credits | Before filing U.S. returns |
| Stay compliant with FBAR/FATCA | Avoid steep penalties | Always, if holding foreign accounts |
Example Scenario
Imagine you’re a U.S. citizen living in Lisbon. In 2025, your global income is $140,000. You qualify for FEIE ($130,000) and housing costs of $20,000. In 2026, because FEIE increased to $132,900:
- You exclude the first $132,900.
- You deduct your housing costs minus the FEIE base allowance (e.g. FEIE base = 16% of FEIE).
- Properly filing this can reduce your taxable income significantly—potentially saving thousands depending on your tax bracket.
Monitor These Global Policy Changes Too
- U.S.: Changes to electronic furnishing of 1099-DA statements, which could affect reporting if you have crypto gains. (irs.gov)
- Canada: CRA's 2026–27 plan includes automatic tax filing for ~1 million people and pre-filled returns by 2028, reducing hassle for low-income individuals. (canada.ca)
- UK: Removal of voluntary Class 2 National Insurance payments for expats from April 2026; eligibility for Class 3 contributions will require 10 years’ residency or contributions. (gov.uk)
Final Takeaways
- Use the higher FEIE and increased standard deductions to your advantage.
- Track days, income, and location carefully.
- Get local advice—this stuff is complex and penalties can be steep.
- Monitor policy changes in other jurisdictions where you may have tax obligations.
Stay alert, stay compliant—and don’t let opportunity slip through due to avoidable mistakes.