Key Facts to Know (2026):

• FEIE (Foreign Earned Income Exclusion) 2026: ~USD $130,000 (indexed annually)

• Housing exclusion: additional (varies by city, up to substantial amounts)

• Physical Presence Test: 330 full days outside US in 12-month period

• Bona Fide Residence Test: established tax residence in foreign country for full calendar year

• US citizenship-based tax: applies regardless of where you live

• US filing threshold: typically $12,950+ income triggers filing

• FBAR filing threshold: $10K+ in foreign accounts, aggregate

• Form 8938 threshold: varies ($200K+ abroad for unmarried, $600K+ for married abroad)

• Puerto Rico Act 60 individual investor: 0% on qualifying capital gains post-relocation

• US expatriation exit tax: applies to “covered expatriates” (>$2M net worth or specified income)

The Uncomfortable Truth

The United States is one of only two countries in the world that taxes its citizens on worldwide income regardless of where they live (the other being Eritrea). This means:

If you’re a US citizen and you nomad-tour Southeast Asia for five years, earning $200K per year, you still owe US tax on that income. Your Thai/Balinese/Portuguese lifestyle doesn’t change that. And there’s no statute of limitations for the IRS to prosecute if you didn’t file tax returns, they can come for you decades after the fact… but there is interest accumulating.

What Actually Reduces US Tax for Nomads

Foreign Earned Income Exclusion (FEIE). Excludes ~$130K (2026) of foreign-earned income from US tax. Requires:   Physical Presence Test (330 full days outside US in 12 months), OR   Bona Fide Residence Test (established foreign residence for calendar year).

For most nomads, FEIE is the primary tool. Above the exclusion limit, you owe US tax.

Foreign Tax Credit (FTC). If you pay foreign tax on the same income, you get a credit (not deduction) against US tax. For nomads in low-tax countries, this doesn’t help much. For nomads in high-tax countries, it can eliminate US liability on doubly-taxed income.

Housing exclusion. Additional exclusion for housing costs abroad (subject to caps).

Puerto Rico Act 60. Not a “nomad” solution but a genuine option: become bona fide Puerto Rico resident and access 0% on qualifying capital gains and 4% corporate tax on qualifying services. Requires real relocation.

What Doesn’t Work

(I) Renouncing US citizenship. Possible but expensive:

• $2,350 State Department fee

• Exit tax on unrealised gains (if “covered expatriate”)   

• Loss of US market/business access issues   

• Permanent decision - you’ll never get back that blue passport, it’s not a reversible decision.

• Not to be done lightly

(II) Ignoring the obligation. IRS + FATCA + information exchange makes hiding foreign income increasingly impossible. Penalties for non-compliance can be severe.

What US Nomads Should Actually Do

• File US taxes annually. Even from Bali. Even at $30K income.

• Use FEIE properly. Track your physical presence to satisfy 330-day rule.

• File FBAR annually if foreign accounts >$10K. Non-filing penalties are severe.

• File Form 8938 if thresholds met. Same reporting logic.

• Get proper US tax advice for nomads. Standard US CPAs often miss nomad-specific issues.

• Consider PR Act 60 seriously if you’re a high-earner willing to relocate genuinely. It’s the closest thing to “legal escape” for US citizens. Only consider renunciation with full understanding of consequences.

The Emotional Reality

Many US nomads discover the CBT (citizenship-based taxation) reality years into their nomad life. The realisation that their tax obligations follow them everywhere is disorienting. If the IRS acts to rectify it before you do, they won’t have mercy.

The best answer isn’t denial or evasion — it’s clear-eyed planning around the reality and confrontation of any genuine mistakes.