2026 Expat Tax Updates: New FEIE Limits & The AMT Trap

2026 Expat Tax Updates: New Limits, New Fees, and the “AMT Trap”

As we move into the 2026 tax season, the landscape for Americans abroad and U.S. residents with foreign assets has shifted significantly. With the One Big Beautiful Bill Act (OBBBA) now fully in effect, several key thresholds have been adjusted for inflation, and new enforcement tools have been deployed.

At KKCA, we are seeing three major trends that every expat needs to monitor to avoid unexpected tax bills this year.

1. The 2026 Inflation Wins: FEIE & Standard Deduction

The IRS has released the updated exclusion amounts for the 2025 tax year (which you file in early 2026). These increases offer a significant “tax raise” for those living in low-tax jurisdictions.

• Foreign Earned Income Exclusion (FEIE): Increased to $130,000 per person (up from $126,500). A married couple can now exclude up to $260,000 of foreign salary.
• Standard Deduction: Increased to $15,750 for single filers and $31,500 for married couples filing jointly.
• The “Zero-Tax” Sweet Spot: For a single expat, you can now earn roughly $145,750 in foreign wages before owing a single cent in U.S. federal income tax.

2. The “AMT Trap” for High Earners

While the FEIE is higher, a hidden danger has emerged: the Alternative Minimum Tax (AMT).

• The Problem: The AMT system does not recognize the Foreign Earned Income Exclusion in the same way the regular tax system does.
• The Result: We are seeing “High Earners” (those making $200k+) who use the FEIE to wipe out their regular tax suddenly being hit with an AMT bill.
• The KKCA Strategy: In many cases, switching from the FEIE to the Foreign Tax Credit (FTC) is a safer and more effective strategy for 2026, as the FTC interacts more favorably with AMT rules.

3. The 1% Federal Remittance Fee

A major provision of the OBBBA that began on January 1, 2026, is the new 1% federal fee on certain international money transfers.

• What’s Taxed: Personal remittances sent from U.S. bank accounts to foreign individuals or entities.
• What’s Exempt: Most business-to-business transfers, educational payments, and transfers between your own accounts (though you must verify this with your bank’s compliance team).
• The Impact: If you are sending $50,000 home to family in India or the UK, expect a $500 fee deducted at the source.

4. Heightened AI Data Matching

In 2026, the IRS has officially integrated AI-driven data matching for Form 8938 (FATCA) and FBAR filings.

• Real-Time Audits: The IRS is now cross-referencing the “Highest Balance” reported on your FBAR with the interest/dividends on your 1040 in real-time.
• Discrepancy Notices: If your foreign bank in Singapore or Switzerland reports a balance that you omitted, an automated notice will be generated within weeks of filing.

5. Your 2026 Compliance Checklist

To navigate these changes, make sure you have:

1. Exact Travel Logs: To prove you qualify for the $130,000 FEIE via the Physical Presence Test.
2. Digital Asset Records: Tracking every crypto trade under the new 1099-DA rules.
3. Entity Health Check: Ensuring your foreign corporation is ready for the new NCTI (Net CFC Tested Income) tax rates.

Why Choose KKCA for 2026?

The “old way” of filing expat taxes—simply checking a few boxes—is no longer enough in the OBBBA era. We provide:

• AMT Simulation: We run your numbers through both regular and AMT systems to find the lowest liability.
• Remittance Planning: Advising on the most cost-effective ways to move capital globally under the new fee structures.
• AI-Ready Filings: Ensuring your FBARs and 1040s match the data the IRS already has.

Looking for personalized tax services about your specific tax situation, please contact us. We are here to help you with your specific tax matters.

Disclaimer

This blog is intended for informational purposes only and does not constitute legal or tax advice. Please consult a qualified U.S. CPA or tax attorney for guidance specific to your situation.