What’s New for FEIE and Housing Exclusion in 2026
- For tax year 2026, the maximum foreign earned income exclusion (FEIE) has been adjusted for inflation and is now $132,900 per qualifying individual. (irs.gov)
- The limit for foreign housing expenses under the exclusion is also up: the cap is $39,870 for 2026. (irs.gov)
Who Qualifies & How It Works
To claim FEIE, you must meet all of the following:
- Be a U.S. citizen or resident alien whose tax home is in a foreign country
- Satisfy either the bona fide residence test or the physical presence test (330 full days in any 12-month span) (irs.gov)
If married and both spouses qualify separately, each can claim up to the full exclusion, meaning potentially double the benefit. (irs.gov)
FBAR & Foreign Income Reporting Still Apply
Even if your foreign earned income is excluded, you must still report your worldwide income on your Form 1040.
- The FEIE does not reduce your obligation to report non-excluded income.
- FBAR (FinCEN Form 114) filings are still required if your aggregate foreign financial accounts exceed $10,000. (irs.gov)
Strategic Tips & Common Pitfalls
| Strategy | Why It Matters |
|---|---|
| Keep meticulous travel logs | To support either the physical presence or bona fide residence test. One miscounted day can disqualify you. |
| Understand revocation rules | Once you choose FEIE, or FEIE+housing exclusion, those remain for that year unless revoking properly. Certain credits like EITC and child tax credit may be lost with that choice. (irs.gov) |
| Watch the housing cap | Different countries may adjust calculations of "foreign housing expenses" differently—be precise about what qualifies. |
| Consider timing of foreign income | Income earned in one tax year but paid in another may affect exclusion limits and FBAR triggers. |
Practical Example
Suppose Jane and Mark are a U.S. married couple, each working abroad and meeting the physical presence test:
- Jane earns $200,000; Mark earns $80,000 in foreign earned income.
- FEIE for 2026 is $132,900 each. Jane excludes $132,900; Mark excludes all $80,000 since it’s below the max.
- Jane then also calculates foreign housing exclusion/deduction up to the cap; Mark may have housing costs too.
- Even if all income is excluded, if they own foreign bank accounts exceeding $10,000 total, FBAR applies.
Action Items for Expats
- Read latest IRS instructions for Form 2555 and Publication 54 to see if any country-specific or rule-specific updates apply. (irs.gov)
- Maintain evidence of tax home and presence abroad—leases, travel tickets, foreign research.
- Document any revocations if you move back, or change eligibility: attach statements to your returns.
- Plan withholding or estimated tax payments carefully—don’t assume exclusion means no U.S. liability.
FEIE continues to be a valuable tool for U.S. taxpayers abroad in 2026—but only if you obey the rules, understand limits, and maintain your documentation.