Tax Planning
Maximizing the Foreign Earned Income Exclusion Under the One, Big, Beautiful Bill
With 2026 inflation adjustments and law changes under the One, Big, Beautiful Bill, this article helps U.S. expats and digital nomads reduce their taxable income via strategic planning around the Foreign Earned Income Exclusion and related deductions.
By NomadicTax Research Team • 5-8 min read • February 23, 2026
## Understanding the One, Big, Beautiful Bill & Inflation Adjustments
In October 2025, the IRS issued Revenue Procedure 2025-32, which updated more than 60 tax provisions for **tax year 2026**, including those affecting expats and foreign income earners under the newly enacted **One, Big, Beautiful Bill (OBBB)**. ([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 among these are:
- The **Foreign Earned Income Exclusion (FEIE)** is increased to **$132,900** for 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))
- Standard deduction, AMT exemption, estate tax thresholds, and marginal rates have all been raised to reflect inflation under the OBBB ([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))
## How Expats & Nomads Can Leverage These Changes
| Strategy | Description | Example |
|---|---|---|
| **FEIE Election Timing** | Use the FEIE by meeting either the **bona fide residence test** or **physical presence test**. Ensure travel logs and foreign home expenses are documented. |
| **Deducting Foreign Housing Costs** | For those qualifying under FEIE, housing costs over a base amount can also be excluded. This is more beneficial with higher thresholds due to inflation adjustments. |
| **Adjust Withholdings Early in the Calendar Year** | If returning to the U.S. mid-year or switching tax home, estimate income carefully to avoid over- or under-withholding. |
## Compliance Considerations & Pitfalls to Avoid
- **Maintain rigorous travel documentation** (dates, destinations) to satisfy physical presence test.
- Recognize the difference between FEIE and foreign tax credits—FEIE excludes income, while credit reduces U.S. tax liability on income taxed abroad.
- Be aware of **joint filing** implications; if you file jointly with someone who doesn’t qualify for FEIE, you may lose the exclusion.
## Action Plan
1. **Assess if you meet FEIE eligibility** by projecting your overseas time toward the physical presence test (330 full days in a 12-month window).
2. **Estimate your foreign housing expenses** and compare with base amounts to maximize deductions.
3. **Review travel schedules and tax home** before the end of the year to see if closing a tax home or relocating helps.
4. **Consider consulting a cross-border tax professional**, especially for changes under OBBB and FEIE calculations.
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With the FEIE limit raised to **$132,900** in 2026—and other inflation-based adjustments—expats and digital nomads have **fresh opportunities** to reduce U.S. taxable income. Planning ahead and keeping accurate records will ensure you fully benefit from these changes.