One Big Beautiful Bill Act: 7 Tax Changes Every US Expat Must Know in 2026

As a senior US-Canada cross-border tax writer and Enrolled Agent here at Zenith Financial Advisors, I have spent the last year dissecting the most monumental shift in the US tax code in nearly a decade. Today is June 7, 2026, and we are now fully operating under the realities of the One Big Beautiful Bill Act (OBBB). Signed into law on July 4, 2025, by President Trump, the OBBB represents the largest piece of tax legislation since the 2017 Tax Cuts and Jobs Act (TCJA). While domestic taxpayers have been focused on standard deduction increases and tip exemptions, the implications for the estimated 9 million Americans living abroad—particularly those residing in Canada—are profound, complex, and in some cases, completely game-changing.

For US expats, the legislative drafting process of the OBBB was a rollercoaster. Early drafts contained provisions that would have fundamentally dismantled the traditional expat tax framework, threatening to double-tax Americans abroad and penalize cross-border financial flows. Fortunately, aggressive lobbying and international negotiations mitigated the worst of these threats, though new compliance hurdles have emerged. In this definitive guide, we will explore the 7 critical tax changes every US expat must know for the 2026 tax year, complete with specific dollar amounts, IRS form updates, and strategic cross-border implications.

1. The Foreign Earned Income Exclusion (FEIE) is Preserved—and Increased to $132,900

Let us start with the best news: The Foreign Earned Income Exclusion (FEIE) survived. During the initial drafting phases of the One Big Beautiful Bill Act in early 2025, there were credible threats from congressional committees to severely curtail or outright repeal the FEIE to offset domestic tax cuts. For decades, the FEIE has been the bedrock of expat tax planning, allowing Americans working overseas to exclude a significant portion of their foreign-source earned income from US federal income tax.

Not only did the FEIE survive the legislative chopping block, but it has also been adjusted for inflation. For the 2026 tax year, the maximum exclusion amount under Section 911 has increased to $132,900 per qualifying individual (up from $130,000 in 2025). If you are married and both spouses work abroad and meet either the Bona Fide Residence Test or the Physical Presence Test, you can collectively exclude up to $265,800 of foreign earned income.

What you need to know for 2026:

• Form 2555 Remains Unchanged: The mechanics of claiming the exclusion remain exactly the same. You will continue to file IRS Form 2555 alongside your Form 1040.
• Housing Exclusion: The base housing amount and maximum housing expenses are also tied to this new $132,900 figure, meaning the base housing amount for 2026 is $21,264 (16% of the FEIE), and the standard maximum housing expense limit is $39,870 (30% of the FEIE), subject to geographic adjustments.
• US-Canada Strategy: While the preservation of the FEIE is a relief, most of our clients living in Canada actually prefer to utilize the Foreign Tax Credit (FTC) rather than the FEIE. Because Canadian marginal tax rates are generally higher than US rates, claiming the FTC usually eliminates US tax liability while generating carryover credits. However, for Americans in low-tax jurisdictions (like the UAE or Singapore), the preservation of the $132,900 FEIE is a massive victory.

For a comprehensive breakdown of all available exclusions, check out our complete list of expat tax credits and deductions for 2026.

2. Section 899 "Revenge Tax" Removed: A Massive Win for Expats

If there is one bullet US expats dodged in the OBBB, it was the dreaded Section 899. Dubbed by tax professionals as the "Revenge Tax," Section 899 was a proposed retaliatory measure aimed at foreign nations that had implemented Digital Services Taxes (DSTs) on American tech giants.

The original text of Section 899 proposed a draconian 5% to 20% surtax on income connected to countries with "discriminatory" tax regimes. This included major expat hubs such as Canada (which enacted its DST in 2024), the UK, France, Italy, Spain, and Australia. Worse still, the provision threatened to make Foreign Tax Credits (FTCs) partially or fully unusable for income sourced in those countries. If enacted, an American living in Toronto or London could have faced a 5% surtax on all US-source income (like dividends, IRA distributions, or remote US wages) and lost the ability to offset US taxes with Canadian or British taxes paid.

The Resolution: Thanks to a last-minute G7 agreement reached just weeks before the July 4, 2025 signing, Section 899 was completely REMOVED from the final bill. This is arguably the biggest story for Americans in Canada. The removal means that the traditional FTC mechanism continues to work normally. Americans with US ties living in DST-enacting countries will not be subjected to retaliatory double taxation.

To understand how to properly leverage your foreign taxes paid against your US tax liability, read our updated 2026 Foreign Tax Credit Guide (Form 1116).

3. The New 1% Remittance Excise Tax (Section 4475)

While expats escaped Section 899, they did not escape unscathed. Effective January 1, 2026, Section 4475 of the Internal Revenue Code imposes a new 1% excise tax on certain outbound money transfers from the United States to foreign countries. This is one of the most controversial revenue-raising provisions of the OBBB.

The legislative intent behind the 1% remittance tax is to target cash-funded or physical-instrument remittances often used by undocumented workers or in informal economies. However, the statutory language is broad enough that it directly impacts US expats, cross-border workers, and immigrants sending money home from US accounts.

How the Remittance Tax Works:

• The Rate: 1% of the principal amount transferred.
• Who Pays: The sender bears the economic cost of the tax. The money transfer provider (e.g., Western Union, MoneyGram, and certain fintech platforms) is required to collect the tax at the point of transaction and remit it to the IRS.
• What is Targeted: Cash-funded transfers, physical money orders, and certain third-party peer-to-peer international transfers.

Crucial Exemptions for Expats: Fortunately, standard banking channels used by most professional expats are exempt. You will NOT pay the 1% tax on:

1. Transfers funded via US-issued debit or credit cards.
2. Standard ACH transfers.
3. Wire transfers between bank accounts that are in the sender's exact name (e.g., wiring money from your US Chase account to your Canadian TD account, provided both are in your name).

Cross-Border Impact: If you are a cross-border commuter or an American living in Canada who routinely moves money across the border to pay a foreign mortgage, support family members, or fund foreign investments, you must audit your transfer methods immediately. Using third-party remittance services to send money to an account not in your name could trigger the 1%. Always use direct bank-to-bank wire transfers between your own accounts to utilize the safe harbor exemption.

For a deep dive into compliance and avoidance strategies, visit our detailed post: The New 1% Remittance Tax: What Expats Need to Know in 2026.

4. Child Tax Credit Increased to $2,200

The OBBB temporarily raised the Child Tax Credit (CTC) to provide additional relief to working families. For 2026, the maximum CTC is $2,200 per qualifying child under the age of 17 (up from $2,000 under the TCJA). Furthermore, the refundable portion of the credit—known as the Additional Child Tax Credit (ACTC)—has been increased to a maximum of $1,700 per child.

The Catch for US Expats: While the headline number is fantastic, expats must navigate complex rules to actually see this money. The CTC is available to US expats who meet the standard filing requirements, but the refundable portion (the ACTC) is strictly contingent upon having US-source earned income or utilizing specific tax strategies.

• The FEIE Restriction: By law, if you claim the Foreign Earned Income Exclusion (Form 2555), you are legally barred from claiming the refundable portion of the Child Tax Credit. You can use the non-refundable portion to reduce your US tax liability to zero, but you will not receive a refund check from the IRS.
• The FTC Advantage: If you instead choose to revoke the FEIE and use the Foreign Tax Credit (Form 1116) to offset your US taxes, you are eligible for the refundable ACTC. However, to get the refund, you must have earned income. For expats living in Canada, this often means relying on the FTC is the superior strategy for families with children, provided they understand the nuances of earned income sourcing.

If you are unsure whether the FEIE or FTC is better for your family's situation, it is time to speak with a professional. Book a consultation with our Enrolled Agents today to optimize your 2026 tax strategy.