Digital Nomad
Maximizing the Foreign Earned Income Exclusion in 2026
Foreign earned income exclusion and housing limits have shifted upward—making it key for expats and nomads to adjust planning accordingly.
By NomadicTax Research Team • 6 min read • August 30, 2026
## What’s New for 2026
For tax year **2025 and going into 2026**, the foreign earned income exclusion (FEIE) limit has increased to **$132,900** per qualifying person (an increase from $130,000).([irs.gov](https://www.irs.gov/individuals/international-taxpayers/figuring-the-foreign-earned-income-exclusion?utm_source=openai)) The **foreign housing expenses limit**, tied to the FEIE, has also increased—for example, the general cap on housing exclusion or deduction is now **$39,870**. The base housing (minimum non-excludable portion) is **$21,264**.([irs.gov](https://www.irs.gov/irb/2026-17_IRB?utm_source=openai))
## Qualifying Tests: Bona Fide Residence vs. Physical Presence
- **Bona fide residence test**: Must be a U.S. citizen or resident who is a citizen or national of a country with which the U.S. has a tax treaty in effect, and reside abroad for an entire tax year without unreasonable interruptions.([irs.gov](https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion-bona-fide-residence-test?utm_source=openai))
- **Physical presence test**: Requires being physically outside the U.S. for at least **330 full days** during any 12-month period. You can establish a qualifying 12-month span that maximizes exclusion.([irs.gov](https://www.irs.gov/publications/p54?utm_source=openai))
## Applying FEIE & Housing: Common Scenarios
**Scenario A – Solo Nomad**: You work remotely in France, with $150,000 in foreign earned income. Using FEIE ($132,900), you exclude that part; allocate housing costs proportionally. Remaining income above the exclusion gets taxed, plus deduction for self-employment tax where applicable.
**Scenario B – Married Couple Both Working Abroad**: If both spouses meet the test, each can claim FEIE—so they could exclude up to twice the annual amount ($132,900 × 2). Housing limits are less straightforward; each spouse’s housing expenses may be separately limited.
## Tips to Maximize Benefits & Stay Compliant
- Keep detailed travel logs, housing leases, utilities bills, and proof of foreign tax home to substantiate claims.
- If working in multiple locations (countries or cities), make sure your housing exclusion/deduction properly reflects geographic limits. Use the IRS tables from Notice 2026-25.([irs.gov](https://www.irs.gov/irb/2026-17_IRB?utm_source=openai))
- If you receive payment for work performed abroad but paid after year-end, carefully allocate income to the year earned.
- Be aware: taking FEIE or housing exclusion may affect your eligibility for other credits (e.g. earned income credit, child tax credit).([irs.gov](https://www.irs.gov/publications/p54?utm_source=openai))
## Integration with FBAR & Foreign Accounts
The FEIE does **not impact your obligation to file FBAR (FinCEN Form 114)** if you have foreign financial accounts over threshold regardless of whether income is excluded or taxed. Always report required foreign accounts even if income isn’t included in taxable income.
Foreign Tax Credit: FEIE can reduce foreign taxed income, limiting your ability to use Foreign Tax Credit for taxes paid on excluded income. Plan to ensure credits are not wasted.
## Actionable Steps for 2026
- Estimate your FEIE and housing exclusion right after year-end; adjust your withholding or estimated payments accordingly.
- If you expect to exceed the FEIE, prepare for additional tax and maintain good records so you’re ready.
- Plan international travel and work assignments to maximize bona fide or physical presence test.
- Consult Publication 54 and Instructions for Form 2555 to stay updated on geographic limits and documentation.([irs.gov](https://www.irs.gov/instructions/i2555?utm_source=openai))