American Citizens Abroad, an advocacy group, is working to ensure a provision to move the U.S. to a residence-based tax system ends up in the Trump tax bill, according to Mary Serrato, the group's executive director.
In other words, Americans living abroad would only pay U.S. taxes on U.S.-sourced income.
Under the current citizenship-based system, U.S. expats must report and pay federal taxes on all income, though credits and exclusions for foreign income are available.
The House approved the tax package, known as the One Big Beautiful Bill Act, by a 215-214 vote on May 22. The bill is now being considered by the Senate.
“We continue to meet with Senate offices and receive positive feedback,” Serrato said in a statement.
ACA and Americans for Tax Reform — a group that fights tax increases and supports shrinking the government — teamed up in May to advocate for the end of double taxation on Americans living abroad. "The goal is to replace the current citizenship-based taxation (CBT) system with residence-based taxation (RBT)," the groups said. "The U.S. is one of only two countries in the world to use CBT, which taxes citizens on worldwide income, regardless of where they live or earn."
(The other is Eritrea.)
A 10% Chance
But a residency-based tax "is not a big focus for legislators at this point," according to Jeff Bush of The Washington Update. "There will be numerous provisions like this considered in the Senate" or when the bill is reconciled during conference.
"Currently, I would rate it [a residency-based tax provision] at a 10% chance of being included in the final bill," Bush added.
How RBT Would Work
Under a residence-based taxation system, U.S. citizens residing overseas, in general, would be taxed as non-resident aliens — on U.S.-sourced income only — according to ACA.
In the lobbying group's framework, "long-term residents abroad would be 'grandfathered,' meaning they would be automatically eligible for RBT," ACA stated. "They would not be subject to any form of 'transition tax' or 'departure fee.' A 'long-term resident abroad' is anyone who has resided abroad for at least 3 years prior to date of enactment of RBT."
Those who are not long-term foreign residents "would have to have resided abroad for the most recent 5 taxable years" to be exempt from those levies, ACA continued. "Relatively wealthy individuals in this category might be subject to a 'transition tax'," and "a one-time user fee ($2,350) would be charged."
In early June, Americans from overseas will head to Capitol Hill "to explain the challenges" of the current double taxation policies.
“We are confident we can pass legislation that moves the U.S. to a residency-based taxation system that can be revenue neutral and tight against abuse before the next elections,” Serrato said.
ACA’s model projecting the revenue impact of moving to a residency-based taxation system shows it could be done without adding to the federal deficit.
“We are being vigilant across the board on these tax bills. We are also working to analyze and mitigate any negative impacts of provisions like the new remittance taxes for international funds transfers by Americans” in the House tax bill, Serrato said. “There is likely to be one or two more bills ... that will have major implications for our members.”
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