Foreign Earned Income Exclusion (FEIE) for US Digital Nomads

The Foreign Earned Income Exclusion is referenced throughout the US Citizens tax guide and several of its country-specific spotlights as the main tool US citizens use to reduce the impact of citizenship-based taxation while living abroad. This page covers the mechanism itself in more depth.

FEIE lets a qualifying US citizen exclude a set amount of foreign-earned income from US federal tax each year. Confirmed for the 2026 tax year: the cap is $132,900 per qualifying person, up from $130,000 for 2025 — the IRS adjusts this annually for inflation. It only applies to earned income (wages, self-employment income) — not to passive income like investment returns or rental income, which is a commonly missed distinction.

Qualifying requires passing one of two tests: the Physical Presence Test (330 full days outside the US in a 12-month period) or the Bona Fide Residence Test (a more holistic assessment of genuine residency abroad, generally requiring a full tax year). The Physical Presence Test is more mechanical and easier to self-assess; the Bona Fide Residence Test involves more judgment and is worth reviewing with a professional if you're relying on it specifically.

FEIE and the Foreign Tax Credit (mentioned throughout the Nationalities country spotlights) are generally alternatives, not additive — which one benefits you more depends heavily on whether you're paying meaningful tax in your host country already. See the US Citizens and the UAE and US Citizens and Portugal spotlights for how this plays out differently in a no-tax destination versus one with its own real tax system.