Tax Planning
Maximizing the Foreign Earned Income Exclusion (FEIE) in 2026 under OBBBA
Understand how inflation adjustments under the One, Big, Beautiful Bill Act affect your FEIE strategy, especially if you're a U.S. expat planning your overseas income.
By NomadicTax Research Team • 5-8 min read • September 16, 2026
## What’s New for 2026 FEIE
Under the One, Big, Beautiful Bill Act (OBBBA), the **Foreign Earned Income Exclusion (FEIE)** for tax year 2026 has increased to **$132,900**, up from $130,000 in 2025—this helps U.S. citizens working abroad deduct more of their foreign-earned income when meeting specific requirements. ([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))
## Key FEIE Requirements: Bona Fide Residence vs. Physical Presence
- **Bona Fide Residence Test**: You must be a resident of another country for an uninterrupted period that includes a full tax year.
- **Physical Presence Test**: 330 full days outside the U.S. during 12 consecutive months.
Both tests help you claim the FEIE, but each has limits and risks—especially around moving in and out of the U.S.
## Other Related Foreign-Based Tax Obligations
- **Foreign Housing Exclusion/Deductible Amount**: Also adjusted for inflation—keep records of housing expenses abroad.
- **FBAR & FATCA**: If you have foreign financial accounts, you may need to file **FinCEN Form 114** (FBAR) and Form 8938 with IRS. These aren’t affected by FEIE thresholds but have separate fines if ignored.
## Tax Planning Tips for Expats in 2026
1. **Time your arrival/departure from U.S.** carefully—if you're near satisfying either the bona fide residence or physical presence test.
2. Keep detailed records of your foreign **pay slips, housing bills, and bank statements**—either test could require documentation.
3. If your income exceeds $132,900, prioritize deductions, housing costs, or qualifying business expenses to lower your taxable U.S. income.
4. Make sure to account for the **additional Medicare surtax** and higher social security contributions if applicable.
## Example Scenario
Janelle is a U.S. citizen who moved to Portugal on March 15, 2025. By July 4, 2026, she meets the bona fide residence test (because her residence includes all of 2026). She earns $150,000 in foreign income. Under FEIE, she can exclude **$132,900**. The remaining $17,100 is taxable by the U.S. She also deducts qualifying foreign housing costs. Meanwhile, because she holds a foreign bank account with $50,000 total, she files an FBAR by April 15.
## Actionable Moves Before December 31, 2026
- If you expect foreign income marginally over the exclusion limit, **accelerate income into an earlier year** if possible.
- Explore **tax treaties** between the U.S. and your country of residence to avoid double taxation.
- Consult a tax professional familiar with current IRS forms to ensure FBAR/FATCA compliance.
With inflation adjustments come new thresholds—and opportunities. Use the higher FEIE limit under OBBBA to optimize your U.S. tax liability while working abroad.