2026 IRS Changes for U.S. Expats: What’s New, What Matters, and How to Plan Ahead
The IRS has announced several important 2026 IRS changes for expats, including new income thresholds, bigger deductions, updates from the One Big Beautiful Bill Act, and shifts in international enforcement. If you’re an American living abroad, these updates affect two different tax years: the return you’ll file in 2026 for your 2025 income, and the planning decisions you should make now for 2026 income you’ll report in 2027.
This guide walks through seven key changes and trends (affecting both tax years) that matter most for Americans abroad.
Stop Guessing. Get Expert-Ready.
1. What’s Changing for 2026 Income
Most U.S. expats reduce or eliminate U.S. taxes using the Foreign Earned Income Exclusion (FEIE). This rule lets Americans abroad exclude a large amount of foreign salary or self-employment income from U.S. federal income tax if they meet residency requirements.
| Tax Year | FEIE (per person) | Standard Deduction (Married Filing Jointly) | Standard Deduction (Single) |
| 2025 Income (Filed in 2026) | $130,000 | $31,500 | $15,750 |
| 2026 Income (Filed in 2027) | $132,900 | $32,200 | $16,100 |
FEIE lets many Americans abroad exclude a large amount of foreign salary or self-employment income from U.S. federal income tax, if they meet residency or physical-presence requirements.
What this means in real life
For many expats in 2026, especially those in low-tax or no-tax countries:
- A single expat may owe no U.S. federal income tax on foreign earnings up to roughly $149,000 ($132,900 FEIE + $16,100 Standard Deduction) for 2026 income.
- A married couple where both spouses qualify could exclude substantially more.
Note: The FEIE only applies to earned income (like wages), not investment income, pensions, or rental income. You must still file to claim these benefits.
2. 2026 Numbers Do Not Apply to Your 2025 Return
This is one of the biggest sources of confusion. Even though the IRS announces 2026 updates early, your next tax return still uses 2025 numbers.
When you file in 2026 (for 2025 income)
You must use the 2025 Foreign Earned Income Exclusion ($130,000), the 2025 Standard Deduction, and the 2025 tax brackets. Using 2026 numbers on a 2025 return can cause errors, especially in DIY software.
When 2026 numbers do matter
The 2026 increases matter now for planning and strategic decision-making, such as:
- Setting your salary negotiation goals.
- Deciding whether to defer or accelerate bonuses.
- Determining optimal tax-advantaged savings contributions.
Think of 2026 numbers as a planning tool, not something you retroactively apply.
3. High Earners Must Re-Evaluate: The AMT/FEIE Conflict
If you are a U.S. citizen living abroad and your income is high (well above the exclusion limits), your tax planning gets complicated. The goal is to avoid paying tax to two different countries (double taxation).
You have two main tools the U.S. government offers, and you must choose between them or use them together strategically:
| Option | What it Does | Best for |
| Foreign Earned Income Exclusion (FEIE) | People in low-tax or no-tax countries (like the UAE or Singapore), since you have very little foreign tax to credit. | People in low-tax or no-tax countries (like the UAE or Singapore) since you have very little foreign tax to credit. |
| Foreign Tax Credit (FTC) | Gives you a dollar-for-dollar credit on your U.S. tax bill for income taxes you have already paid to your foreign country. | People in high-tax countries (like Germany, Canada, or most of Western Europe) since the foreign taxes you’ve paid will often eliminate your U.S. tax liability. |
You cannot use both the FEIE and the FTC on the same dollar of income. You must pick the one that saves you more money for that specific portion of your income.
The Risk: The Alternative Minimum Tax (AMT)
The AMT is a parallel tax system designed to ensure high earners pay a minimum amount of tax by ignoring or limiting certain tax breaks, and historically, one of the breaks it limits is the FEIE.
How it Works: You calculate your taxes the normal way, and then you calculate them again under the AMT rules. You have to pay the higher of the two amounts.
The Problem for Expats: The AMT is designed to ignore or limit certain tax breaks. Historically, one of the breaks it limits is the Foreign Earned Income Exclusion (FEIE).
Why it Matters Now: A recent change in the law has moved the AMT application date for high-income filers earlier. This means that:
- Some expats who rely heavily on the FEIE to wipe out their U.S. tax bill may now find themselves unexpectedly owing tax under the AMT system.
- The Foreign Tax Credit (FTC) generally works better with the AMT rules than the FEIE does, making it a safer strategy for high earners.
The Modeling Imperative
If you earn well above the exclusion limit (especially if you receive stock compensation or business income), you must run the full tax calculation multiple ways (or “model your options”) to find the lowest liability. This modeling must explicitly check your tax liability under the AMT rules for all three strategies:
- Strategy A: Using the FEIE alone.
- Strategy B: Using the FTC alone.
- Strategy C: Using a strategic combination of the two.
AMT Thresholds: For 2026, the AMT applies to single filers with income approaching $500,000 and married couples filing jointly with income approaching $1,000,000.
Stop Guessing Your Tax Strategy.
4. Bigger Child Tax Credit, But a Clear FEIE/FTC Catch
The Child Tax Credit (CTC) was temporarily increased to $2,200 per qualifying child (with a refundable portion up to $1,700), which is great news, but there’s a catch for many expats.
The Earned Income Trap
The Child Tax Credit has two parts: a non-refundable portion (reduces tax owed) and a refundable portion (the Additional Child Tax Credit, or ACTC, which the IRS can pay to you even if you owe $0 tax).
- The Problem: The refundable ACTC is tied to earned income that the IRS can “see” on your return.
- FEIE’s Impact: When you use the Foreign Earned Income Exclusion (FEIE), you remove that earned income from your U.S. tax calculation. This often eliminates the income necessary to unlock the refundable credit. You must have at least $2,200 of non-excluded earned income to qualify for the refundable credit.
- FTC’s Advantage: If you skip the exclusion and use the Foreign Tax Credit (FTC) instead, your foreign income stays on the return. The FTC then offsets your tax, but the earned income remains visible, allowing you to claim the refundable ACTC.
For many families in high-tax countries, skipping the FEIE allows them to owe $0 in tax and receive a refundable credit payment. This difference in strategy can be worth thousands of dollars.
5. New 1% Federal Remittance Tax: What Expats Should Know
Starting January 1, 2026, the U.S. will charge a new 1% federal fee on certain international remittances (money sent from the U.S. to another country).
This change has been widely referred to as a “remittance tax,” but the details matter. Most expats won’t be affected at all if they use the right transfer methods.
What the New Fee Actually Applies To
The fee only applies when the money is:
- Sent from the U.S., and
- Funded using physical payment methods like cash, money orders, or cashier’s checks.
What’s Exempt (The Easy Way to Avoid It)
The fee does not apply to electronically funded remittances, including:
- Bank-to-bank transfers
- Wire transfers
- Transfers funded by debit or credit cards
- App-based transfers that pull funds directly from a bank account
Why This Signals Broader Scrutiny
While the fee itself is a small transaction cost (and easily avoidable), it represents a significant shift in U.S. policy toward monitoring cross-border money flows.
- Targeting the Untraceable: The fee explicitly targets cash-based transfers because they are the least traceable form of money movement. These methods carry a higher risk for money laundering, illicit financing, and large, unreported transactions.
- Encouraging Digital Trails: By exempting bank-to-bank and digital transfers, the government is effectively incentivizing the use of formal, documented financial channels.
- Supporting AI Enforcement: This policy works hand in hand with the new IRS AI initiatives (Section 6). Every digital, bank-funded transfer leaves a clear, auditable trail that the IRS’s automated systems can easily cross-reference against your reported income and foreign account forms.
This new fee is a transaction-level fee, not part of your income tax return. For most expats, the solution is simple: use electronic funding methods. This change also reinforces a larger trend of the U.S. government increasing scrutiny of non-digital, cross-border money movements.
6. Heightened IRS Enforcement, Data Matching, and AI Use
The single biggest operational change for the IRS is a massive technological upgrade using Artificial Intelligence (AI), machine learning, and advanced data analytics to find non-compliance.
What This Means
The IRS is no longer relying on manual or random audits. Its computer systems automatically risk-score every return, prioritizing those that stand out.
- Data Matching: The AI is highly effective at comparing the information you reported (or didn’t report) with the vast amounts of third-party data it receives from banks, foreign governments (via FATCA), and employers.
- Focus on Non-Filers: The IRS is explicitly focusing on identifying Americans who should be filing but aren’t, even if they would ultimately owe $\text{\$0}$ tax.
- Cross-Border Exposure: Expats are uniquely exposed because:
- Foreign Account Data is Transparent: AI can instantly cross-reference your foreign bank data against your tax returns and FBARs (FinCEN Form 114) and Form 8938.
- Missing Forms are Easy to Detect: Failure to file required informational forms (like the FBAR or Form 8938) is easier for a computer to flag than subtle income underreporting, and these carry very high penalties.
The Takeaway: The expectation of “invisibility” for expats with complex returns is outdated. Compliance (filing correctly, completely, and on time) is now mandatory, even when no tax is owed.
7. The Clock Is Ticking on Catch-Up Programs (Streamlined Procedures)
If you are currently behind on your U.S. tax filing obligations, the increasing AI scrutiny outlined above has created an urgent need to act.
Streamlined Filing Compliance Procedures are an established IRS program that allows U.S. taxpayers living abroad (who meet a non-residency test) to catch up penalty-free if their failure to file was non-willful (accidental, not intentional).
Why the Urgency Has Changed
The program itself is not new, but the risk profile around it has:
- The Bottom Line: Waiting is no longer a safe strategy. The window for proactive correction is rapidly closing as the IRS automation becomes fully operational.
- Voluntary vs. Enforcement: Streamlined Procedures are designed for taxpayers who come forward voluntarily.
- Loss of Eligibility: If the IRS (via its new AI systems) contacts you first regarding non-compliance, especially about missing FBARs or Form 8938, you can lose your eligibility for the penalty-free Streamlined program and face more severe consequences.
Final Takeaway: Plan for Opportunity, File with Urgency
The tax landscape for U.S. expats in 2026 is defined by a clear duality: more opportunity for tax reduction coupled with zero tolerance for non-compliance.
The Opportunity: Maximize Your Exclusions
The good news is that inflation adjustments have made the primary expat benefits, like the Foreign Earned Income Exclusion (FEIE) and the Standard Deduction, more valuable than ever. For many, properly claiming these benefits means paying $0 in U.S. federal income tax on a significant portion of their foreign earnings.
However, for high earners and families, choosing the right strategy (FEIE vs. FTC) is no longer a simple matter of guesswork. The risk of the Alternative Minimum Tax (AMT) and the impact on the Child Tax Credit necessitate proactive planning and financial modeling well before you file.
The Urgency: Compliance is Now Non-Negotiable
The single biggest operational shift is the IRS’s adoption of AI and advanced data matching. This is the end of the “invisibility myth” for Americans abroad.
- The IRS is no longer relying on luck or random audits. They are actively cross-referencing your filings with foreign bank data (FATCA/FBAR), making missing informational forms easy to detect.
- This urgency extends to non-filers. If you are behind on your tax or FBAR obligations, the window to proactively utilize penalty-free programs like the Streamlined Procedures is closing rapidly. Voluntary correction is always the safest and least expensive option.
The bottom line for 2026 is this: Do not assume that what worked in previous years will work now. Take advantage of the rising exclusions, but be meticulous and precise in your filings. The government’s systems have upgraded, and your compliance strategy must upgrade with them.
Need Help?
While you have an automatic extension to file your 2025 return (for 2025 income) until June 15, 2026, proper planning for your 2026 income must start now. If you are a high earner or have complex foreign assets, consulting an expat tax specialist is the most reliable way to navigate these changes and secure your financial peace of mind. Book a consultation today.
Don’t Let AI Flag Your Return.
Who doesn’t love a tax break? Download our easy-to-use excel calculator to get an estimate of how the foreign earned income exclusion can save you money.
"*" indicates required fields
