Digital Nomad
The Basics of Foreign Earned Income Exclusion in 2026: What Expats and Digital Nomads Need to Know
With the Foreign Earned Income Exclusion rising and new housing cost limits in place, U.S. expats and nomads have fresh rules to navigate for 2026. Here's how to maximize tax savings.
By NomadicTax Research Team • 6 min read • August 28, 2026
## What Is the Foreign Earned Income Exclusion (FEIE)?
The **FEIE** is a tool that lets U.S. citizens and resident aliens working abroad exclude up to a certain amount of foreign earned income from U.S. taxable income—provided they meet one of two tests: the **bona fide residence** or the **physical presence test**. ([irs.gov](https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion?utm_source=openai))
## Updated Amounts for Tax Year 2026
- Maximum FEIE: **$132,900** per qualifying person, up from $130,000 in 2025. ([irs.gov](https://www.irs.gov/individuals/international-taxpayers/figuring-the-foreign-earned-income-exclusion?utm_source=openai))
- Housing cost limit (base housing amount): approximately **$21,264** (16% of FEIE) assuming full year abroad. ([irs.gov](https://www.irs.gov/irb/2026-17_IRB?utm_source=openai))
- Maximum housing expenses eligible for exclusion: about **$39,870**, typically 30% of FEIE when living abroad for full taxable year. ([irs.gov](https://www.irs.gov/irb/2026-17_IRB?utm_source=openai))
## Qualifying Tests Explained
| Test | Requirements |
|-------|---------------|
| **Bona Fide Residence Test** | Must establish a residence in a foreign country for an **uninterrupted period that includes an entire tax year**, with clear intention to remain. ([irs.gov](https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion-bona-fide-residence-test?utm_source=openai)) |
| **Physical Presence Test** | Be physically present in foreign countries for **330 full days** during a **12-month period**. ([irs.gov](https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion?utm_source=openai)) |
Both tests require setting and maintaining a **tax home** outside the U.S. ([irs.gov](https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion?utm_source=openai))
## Strategy Tips for Digital Nomads
- Plan your travel “absences” carefully—don’t cluster many U.S. visits unless necessary, to maintain bona fide residence or physical presence.
- Document your time abroad (passport stamps, flight logs) and maintain strong ties to your foreign tax home (housing, community, etc.).
- Calculate housing carefully—keep receipts for eligible expenses like rent, utilities, etc., but disallow items that the U.S. doesn’t count (e.g. lavish amenities or personal travel).
- If married, both spouses can claim FEIE separately if both qualify under either test. ([irs.gov](https://www.irs.gov/individuals/international-taxpayers/figuring-the-foreign-earned-income-exclusion?utm_source=openai))
## Limitations and Overlaps
- You can **exclude FEIE and claim Housing Exclusion or Deduction**, but you **can’t** also use foreign taxes paid on excluded income to claim the Foreign Tax Credit. ([irs.gov](https://www.irs.gov/publications/p54?utm_source=openai))
- Excluded income still counts when determining thresholds for credits/deductions, even if it is not included in taxable income. ([irs.gov](https://www.irs.gov/individuals/international-taxpayers/foreign-earned-income-exclusion?utm_source=openai))
- Revoking FEIE election can be done, but might require IRS approval depending on timing. ([irs.gov](https://www.irs.gov/publications/p54?utm_source=openai))
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FEIE remains a powerful benefit for U.S. taxpayers living abroad. With the changes in 2026, especially for housing limits and thresholds, smart planning can yield significant tax savings. If unsure, consult an international tax specialist to help map your individual circumstances.