Living and working outside the United States as an American can be hard when dealing with taxes. The IRS taxes your money from all over the world. But in 2026, things have changed a lot because of the One Big Beautiful Bill Act (OBBBA). This new law makes some tax rules better for people living abroad. Now there are higher amounts you can exclude from taxes, and other helpful changes.
If you are a digital nomad in a place like Bali or an executive in London, this simple guide will help you use the new 2026 tax rules. You can protect more of your foreign income from U.S. taxes. Let’s look at the main ways to save money on taxes in 2026.
The 2026 Exclusions & Deductions: New “Inflation Shields”
The OBBBA law links many tax relief amounts to inflation. This means the numbers go up each year to match rising costs. In 2026, these higher amounts act like bigger shields for your foreign income. Here are the key numbers every expat needs to know.
Foreign Earned Income Exclusion (FEIE)
For the 2026 tax year, you can exclude up to $132,900 of your foreign salary from U.S. federal income tax. This is a big increase from past years because of inflation adjustments. If you and your spouse both work abroad and both qualify, you can exclude a combined total of $265,800 tax-free. This is one of the best ways for expats to lower their U.S. tax bill. Many people use this to pay little or no U.S. income tax on their foreign earnings.
To claim this, you must meet tests like living abroad for most of the year. You file Form 2555 with your tax return. Remember, this exclusion is not automatic. You have to claim it.
Foreign Housing Exclusion/Deduction
You can also exclude or deduct costs for housing abroad, like rent, utilities, and insurance. The base amount for 2026 is about $21,264 (this is 16% of the FEIE amount). But if you live in expensive cities like Hong Kong, London, or Zurich, you get higher limits through “High-Cost Locality Adjustments.” This can let you exclude much more money for housing. It helps a lot if rent is high where you live.
Standard Deduction 2026
The standard deduction is a simple amount you subtract from your income before calculating tax. For 2026, it is $16,100 for single people and $32,200 for married couples filing jointly. This is higher than before because of inflation. After using FEIE, this deduction can wipe out any remaining taxable income for many expats.
Senior Bonus Deduction
Here is a new helpful rule from OBBBA in 2026! If you are 65 years old or older, you get an extra $6,000 deduction. This is on top of the regular standard deduction. It is great for retired expats who still get some income. You can claim this if you are a U.S. citizen or resident alien and meet the age rule.
Estate Tax Exemption
The OBBBA made the estate tax exemption permanent at $15 million per person. Before, people worried it would drop to about $7 million. Now there is no sunset, so your estate is safe up to $15 million without big taxes. This is good news for expats planning their future.
These higher exclusions and deductions make 2026 a better year for expats. You can keep more of your money.
Also Read: Australia Foreign Employee Tax Rules Explained 2026
Strategic “Shield” Selection: FEIE vs. FTC
As an expat, you have two main ways to avoid paying tax twice on the same income. You pick one to reduce or eliminate U.S. tax after paying taxes in your host country.
Foreign Tax Credit (FTC) – Form 1116
The FTC gives you a credit for taxes you paid to the foreign country. It is a dollar-for-dollar reduction of your U.S. tax. In 2026, OBBBA made FTC stronger. The old “haircut” rule limited how much foreign tax you could use. Now you can use up to 90% of foreign taxes to offset U.S. tax. This is better than the old 80% limit.
Many expats in high-tax countries like the UK or Germany find FTC better. It can zero out your U.S. tax and sometimes leave extra credits to use later.
The “FEIE vs. FTC” Switch
FEIE is easy and popular. But sometimes switching to FTC is smarter. Here are two common reasons:
- High-Tax Countries — If foreign taxes are high, FTC can remove your U.S. tax completely and give carryover credits.
- The Child Tax Credit Trap — In 2026, the Child Tax Credit is $2,200 per child, with $1,700 refundable. If you use FEIE to make your income zero, you might lose the refundable part. Using FTC keeps some income showing, so you can get the refund from the IRS. This can mean extra money back in your pocket.
Think carefully about your situation. Many families with kids save more by using FTC instead of FEIE in 2026.
Compliance & Reporting: The New AI Era
You only get these tax breaks if you follow the rules. In 2026, the IRS uses AI to check information faster. They match data from foreign banks and other sources.
- FBAR (FinCEN Form 114) If your foreign bank accounts total more than $10,000 at any time in 2026, you must report them. This rule stays the same. File by the deadline to avoid big penalties.
- FATCA (Form 8938) This form is for higher-value foreign assets, like over $200,000 for single expats living abroad. The IRS now uses AI to cross-check this with bank data.
- Electronic Remittance Fee (1%) From January 1, 2026, there is a new 1% tax on some physical money transfers like cash or money orders. But most bank wires and electronic transfers are free from this fee. Use electronic methods to avoid the extra cost.
Stay compliant to keep your tax relief safe.
Specialized Relief Tips for 2026
Here are some other helpful rules in 2026.
- Tax-Free Tips & Overtime — Some service workers can exclude up to $25,000 in tip income under new OBBBA rules. Overtime pay may also get special treatment.
- NCTI (Formerly GILTI) — If you own a foreign business, the old GILTI rule is now called Net CFC Tested Income (NCTI). The rate is about 12.6%, but you can use 90% foreign tax credits. This makes it easier, especially with the high-tax exception.
- Tax Treaty “Tie-Breaker” Rules — Check tax treaties between the U.S. and your country. They can stop double tax on pensions or Social Security.
2026 Pro-Tip: “FTC-CTC Optimization” If you have children, run your taxes both ways (FEIE and FTC). Many expat families get a $1,700 refund per child by choosing FTC. The IRS sends you this money even while living abroad.
Would you like me to draft a “2026 Expat Tax Calendar” or a “Step-by-Step Guide to the OBBBA Senior Deduction” for your planning?
Disclaimer: This article is for informational and educational purposes only. Readers should check details from trusted sources like the Internal Revenue Service (IRS) before making financial or legal decisions. Tax rules can be complex, so talk to a tax professional for your personal situation.