Big IRS Changes Coming in 2026: What Expats Need to Know Now
With 2026 tax season approaching, U.S. expats face several IRS updates that could significantly affect how they file and report foreign income. From increased thresholds to enhanced enforcement and global reporting changes, understanding what’s new will help you avoid penalties and make informed decisions before year-end. Here’s what every expat should expect for the 2026 tax year.
1. Higher Foreign Earned Income Exclusion
The IRS adjusts the FEIE annually for inflation, and in 2026, the exclusion amount is projected to increase again. Although the final number will be announced closer to January, expats can expect a higher threshold than the 2025 limit of $130,000. This increase benefits those working in high-salary roles abroad, potentially shielding more income from U.S. taxation.
2. Updates to Foreign Tax Credit Rules
Countries around the world continue to update their tax treaties and digital commerce rules. The IRS is responding by refining how the Foreign Tax Credit applies to foreign-source income. Expats who pay taxes in countries with high-income tax rates may benefit, but those in low-tax jurisdictions should carefully review their eligibility to avoid unexpected liabilities.
3. Expanded IRS-International Data Sharing
Global enforcement continues to strengthen through FATCA agreements and new cross-border reporting initiatives. The IRS now receives more frequent data from foreign banks and financial institutions. Expats with undisclosed accounts or missed filings should consider catching up through IRS-approved programs before enforcement becomes more aggressive in 2026.
4. Increased Scrutiny for Green Card Holders
Green card holders living abroad may face enhanced compliance checks as the IRS and USCIS continue to cross-reference residency, tax filings, and immigration status. Filing incorrectly or skipping returns can jeopardize long-term immigration plans. Green card holders should take extra care to file complete and accurate returns each year.
5. Changes to Standard Deductions and Tax Brackets
Inflation adjustments for 2026 will also increase standard deductions and shift tax brackets upward. These changes may benefit expats with U.S.-based income or those receiving Social Security, pensions, or investment earnings.
6. Revised FATCA Reporting Thresholds
The IRS is reviewing FATCA asset thresholds, which could affect expats holding foreign investments, pensions, or business interests. Any change may expand reporting obligations for those previously exempt.
7. Crypto and Digital Asset Reporting
The IRS will continue rolling out new reporting requirements for digital assets held on foreign exchanges or decentralized platforms. Expats trading cryptocurrency abroad must stay aware of updated forms and disclosure rules.
8. How to Prepare Now
To stay ahead of these changes, expats should review their foreign income, investment portfolios, and account balances before year-end. Working with an experienced expat tax professional can ensure compliance and help you take advantage of new tax-saving opportunities for 2026.
At Expatriate Tax Returns, our CPAs and IRS Enrolled Agents stay up to date on every change affecting U.S. taxpayers overseas — so you can file with confidence from anywhere in the world.
