Foreign Earned Income Exclusion (FEIE) updates for 2026
- The FEIE limit rises to $132,900 for tax year 2026, up from about $130,000 in 2025. This means a digital nomad earning under that amount may qualify to exclude all foreign earned income from US federal taxation. (irs.gov)
- Under Publication 54, nomads can also claim housing exclusion or deduction depending on employer-provided or self-employed status and if they meet either the bona fide residence test or physical presence test. (irs.gov)
FBAR & related procedural changes affecting nomads
- The IRS has issued interim guidance revising IRM 4.26.17, which addresses statutes of limitations for FBAR (Report of Foreign Bank and Financial Accounts) assessments. Preparation is underway for updated procedures involving digital communication tools for FBAR filers and related third parties. (irs.gov)
- Reminder: For FBAR, if you’re a US person with foreign financial accounts with aggregate value exceeding $10,000 anytime during the year, you must file FinCEN Form 114—even if you had no income from those accounts. Deadline is April 15, automatically extended to October 15. (irs.gov)
Practical examples and planning strategies
- Example: You live and work abroad physically present 330 days in a foreign country for 2026, earning $130,000 from foreign sources plus $20,000 in allowable housing expenses. You could potentially exclude $132,900 in foreign earned income—reducing your US taxable income drastically.
- Another: You hold foreign bank accounts totaling $50,000 at one point during the year, but none of that is taxable income. You must still file FBAR; failure to do so can result in steep penalties.
Tips for staying compliant as a nomad
- Keep a detailed calendar of travel to track physical presence or bona fide residency test.
- Maintain receipts and documentation for housing expenses.
- Prepare foreign income and housing elections properly—two independent elections may be needed (one for earned income, one for housing).
- Monitor deadlines—both tax return April 15, estimated tax, and FBAR—keeping in mind automatic extensions.
- Stay alert for updates in IRS guidance related to IRM 4.26.17 and any changes effective for digital communication regarding FBAR.
Digital nomads: with FEIE rising and procedures for FBAR evolving, 2026 offers opportunities—but also new compliance demands. Plan ahead to make the most of exclusions while avoiding penalties.