United States Updates the Foreign Earned Income Exclusion
The Foreign Earned Income Exclusion increase to $132,900 for 2026 provides significant tax savings for American digital nomads living abroad.
United States Updates the Foreign Earned Income Exclusion
The IRS has adjusted the Foreign Earned Income Exclusion (FEIE) for the 2026 tax year, raising the maximum amount Americans can exclude from their federal income tax to $132,900. This reflects a notable inflation adjustment from the $130,000 limit set for 2025. For married couples who both qualify, the combined exclusion reaches $265,800, offering significant tax relief for those living and working abroad.
The exclusion applies specifically to earned income, such as salaries, professional fees, and self-employment earnings. It does not cover passive or "unearned" income like dividends, pensions, or Social Security benefits. While the FEIE can potentially zero out your U.S. income tax liability in low-tax jurisdictions, self-employed nomads should remember they generally still owe U.S. self-employment taxes for Social Security and Medicare.
Who is eligible
To claim this benefit, you must have a foreign tax home and pass one of two residency tests. The Physical Presence Test requires you to be physically present in a foreign country for at least 330 full days during any 12-month period. Alternatively, the Bona Fide Residence Test applies to those who are official residents of another country for an uninterrupted tax year.
Casual tourists and short-term travelers usually do not qualify because they lack a permanent foreign tax home. Under Revenue Procedure 2026-16, the IRS may waive these time requirements for individuals forced to leave a country due to war or civil unrest.
How to file
- Report your total worldwide income on Form 1040.
- File Form 2555 to calculate and claim your exclusion.
- If you qualify for only part of the year, you must prorate the $132,900 limit based on your qualifying days.
- Ensure your income is derived from services performed outside the U.S.; any work done while physically in the States is not excludable.
The deadline for 2025 returns is April 15, 2026, though expats receive an automatic filing extension to June 15. If you need more time to file your 2026 return next year, you can request an extension to October 15. Stay informed on the latest nomad news to ensure you are meeting your obligations.
Read our full United States guide for the complete picture.