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Exa: openpr.com
Exa: openpr.com
Bali Zero handles visas, company setup, tax and property compliance in Indonesia. Ask us directly on WhatsApp.
Chat with Bali Zero on WhatsAppThe Internal Revenue Service has announced an upward adjustment to the Foreign Earned Income Exclusion limit for the 2026 tax year, continuing the ann
The Internal Revenue Service has announced an upward adjustment to the Foreign Earned Income Exclusion limit for the 2026 tax year, continuing the annual inflation-linked indexing that has characterized this provision in recent years. The FEIE, governed by Section 911 of the Internal Revenue Code, is one of the primary mechanisms by which the United States — one of only two countries that taxes its citizens on worldwide income regardless of residence — provides relief to Americans living abroad.
The exclusion allows qualifying US taxpayers to exclude a set dollar amount of foreign-earned income from their US federal taxable income. To qualify, an individual must have a tax home in a foreign country and meet either the bona fide residence test, which requires established residency in a foreign country for an uninterrupted period spanning an entire tax year, or the physical presence test, which requires the individual to be present in a foreign country for at least 330 full days in any 12-month period.
The annual inflation adjustment mechanism, introduced as part of the Tax Cuts and Jobs Act of 2017 and maintained in subsequent legislation, ties FEIE increases to the Consumer Price Index. This means the exclusion grows modestly each year, but does not necessarily keep pace with real earnings growth in high-cost expatriate markets or with the dollar's purchasing power shifts in foreign economies.
Beyond the earned income exclusion itself, US expats may also claim the Foreign Housing Exclusion or Foreign Housing Deduction, which allow additional exclusions for housing expenses that exceed a base amount calculated as a percentage of the FEIE limit. The 2026 adjustment to the FEIE cap will therefore also ripple through to the housing exclusion calculations, potentially offering additional relief.
It is important to note that the FEIE applies exclusively to earned income — wages, salaries, professional fees, and self-employment income derived from services performed in a foreign country. Passive income such as dividends, interest, capital gains, rental income, and pension distributions are not eligible for the exclusion and remain subject to standard US tax rules, including potential obligations under the Foreign Account Tax Compliance Act (FATCA) and Report of Foreign Bank and Financial Accounts (FBAR) requirements.
For Bali Zero clients — particularly the growing cohort of American digital nomads, remote workers, and small business owners who have chosen Bali as their base — this adjustment is a meaningful, if i
ncremental, piece of good news. The FEIE is frequently the single largest tax lever available to US expats, and a higher ceiling translates directly into a lower US tax bill for those who qualify.
Wh
at many American expats in Bali underestimate, however, is the complexity that sits beneath this seemingly straightforward exclusion. Indonesia does not have a comprehensive tax treaty with the United States, which means there is no formal framework for resolving conflicts between the two countries' tax claims. Americans in Bali must navigate both Indonesian tax obligations — which can apply after 183 days of presence in a calendar year — and their continuing US filing requirements simultaneously.
At Bali Zero, we consistently advise clients to treat the FEIE as a starting point for planning, not a finish line. Proper structuring of income type, business entity selection, and residency documentation all determine whether the exclusion can be fully utilized. A higher limit is only valuable if the underlying eligibility is airtight.
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