Digital Nomad
Maximizing the Foreign Earned Income Exclusion & Housing Exclusion in 2026: Real Tips for Digital Nomads
Inflation adjustments made for tax year 2026 increase FEIE and housing limits—key changes digital nomads should build into their tax planning now.
By NomadicTax Research Team • 5-8 min read • August 14, 2026
## What’s New for 2026
- The **foreign earned income exclusion (FEIE)**—the amount U.S. citizens or resident aliens working abroad can exclude—rises to **$132,900** for tax year 2026, up from $130,000 in 2025. ([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))
- The foreign housing exclusion or deduction limit increases accordingly, with the **base housing amount** set at **$21,264** (about 16% of FEIE) and a maximum housing expense limit of **$39,870** (30% of FEIE) for an entire qualified period. Geographic variations may adjust this based on local housing cost indices. ([irs.gov](https://www.irs.gov/irb/2026-17_IRB?utm_source=openai))
## Who Qualifies & How It Works
To claim FEIE (and housing exclusion/deduction), you need to satisfy:
- A **tax home** in a foreign country
- Either the **bona fide residence test** or the **physical presence test** under IRC § 911
Once qualified, you exclude your foreign earned income up to the FEIE cap; then separately figure any eligible housing costs—either excluding or deducting based on whether the employer provided or reimbursed housing. If only part of the year qualifies, limits are prorated by days in the period. ([irs.gov](https://www.irs.gov/individuals/international-taxpayers/figuring-the-foreign-earned-income-exclusion?utm_source=openai))
## Practical Tips for Digital Nomads
- **Track qualifying days**: Physical presence (330 full days in 12 months) or bona fide residence matters—missing a few days affects your exclusion eligibility. Use a calendar.
- **Choose the right test**: Bona fide vs physical presence—each has advantages depending on your travel and residence plans.
- **Housing cost documentation**: Keep detailed records of eligible housing expenses—rent, utilities, internet (if integral), insurance—anything allowed under your location’s adjusted limit.
- **Employer reimbursements**: If your employer pays housing benefits, understand whether those are excludable or countable under these rules. Also, some benefits still need to be reported even if excluded.
- **Plan thresholds & state impacts**: Excluded or deducted foreign income still affects federal AGI modifications (e.g., for Net Investment Income Tax) and may not reduce certain state obligations or affect state income tax—many states do not recognize FEIE. Always check your state’s rules.
## Example: Moving from Lisbon
> **Carlos**, U.S. citizen, moves to Lisbon in January 2026. He earns €120,000 (~$130,000 depending on exchange), has housing costs €20,000. He meets physical presence test.
> FEIE exclusion: eliminates up to $132,900 of foreign earned income (i.e., all of Carlos’s salary is excluded).
> Housing exclusion: subtract base housing amount ($21,264) from actual eligible housing expenses, up to location-adjusted limit—if Lisbon adjustment allows full 30%, he may be able to exclude his €20,000 (~$22,000) minus the base for Lisbon days.
## State Tax & FBAR Considerations
- **State taxes**: Most states **don’t allow FEIE**—so excluded earnings federally might still be taxed at the state level.
- **FBAR / FATCA**: Having financial accounts abroad still triggers reporting obligations even if income is excluded. FEIE doesn’t eliminate requirement to file FinCEN Form 114 for foreign bank accounts over reporting threshold.
**Bottom line:** For digital nomads, 2026’s inflation adjustments offer more tax savings. Get eligible, document well, understand overlapping federal, state, and foreign‐account reporting obligations to maximize benefit without risk.