Five questions on plan for proposed change to US taxation of Americans living abroad
We answer queries about when it may come into effect, to whom it applies, and possible departure taxes
The US is the only country along with Eritrea to tax individuals based on citizenship regardless of residency
Evgenia Parajanian / Shutterstock
Proposed legislation is aiming to offer Americans living abroad the choice to opt out of the current citizenship-based taxation system.
The ‘Residence Based Taxation of Americans Abroad Act’ was brought forward by Illinois Republican representative Congressman Darin LaHood on December 18. It follows president-elect Trump’s promise to reduce taxes for Americans living outside of the USA.
The bill was intended to set the groundwork for a new version to be laid before the next Congress, which will be sworn in on January 3.
The US is the only country along with Eritrea to tax individuals’ worldwide income, based on citizenship and regardless of residency.
There are currently around 5 million Americans living abroad who could potentially be affected.
Read more: Moves to end automatic citizen-based taxation of Americans living abroad
Who will it apply to?
The bill proposes no longer requiring US citizens abroad to file income tax returns based on their citizenship, thus allowing them to be treated in the same way as non-US-resident foreign individuals for US tax purposes.
For this to apply, US citizens who are not residents of the US would elect to make a one-time choice to change their tax status to that of a ‘non-resident US citizen’, while meeting residency requirements in the country where they live.
They must also certify that they have complied with all US tax requirements for the last five years and in some cases, pay a ‘transition tax’.
This tax status will then last until the citizen chooses to become a resident for tax purposes again or becomes a US resident.
Does it apply worldwide?
Yes, it applies to all countries around the globe where US citizens are residents.
Read more: Money, inheritance, tax, pensions: What's new in France in 2025
If I am a US citizen living in France, will it exempt me from all US tax and tax declarations?
The bill proposes exempting US citizens from certain filing requirements such as the ‘FBAR’ declaration of foreign accounts. They would also be able to present their French banks with a certificate that would exempt them from the ‘Facta’ rules, which require foreign banks to provide information to the US tax authorities about their US customers.
The Americans concerned would also not have to automatically file an annual US tax return and declare worldwide income, as most Americans abroad currently must (those below certain low income thresholds are already exempt).
Note that, due to various allowances, many US citizens abroad do not currently pay any actual US tax on non-US income, but the filing itself can be a complex task.
This means Americans living in France would not have to declare their non-US income to the US tax authorities (but will have to declare it to the French tax authorities).
However, some kinds of income originating in the US, from a property for example, will still need to be declared in the US and tax on it potentially paid.
The bill is therefore seeking to lighten the administrative financial burden for Americans living abroad but will not change the situation for income generated on American soil, and does not change the provisions of the US-France double tax treaty.
Will there be a departure tax?
Yes, but it will only affect certain wealthy individuals and only under certain conditions.
There will in some cases be a ‘transition’ or ‘departure’ tax when people elect to become a non-resident for tax purposes.
It would be levied against certain of their assets as if they had been sold for a fair market value on the day before the election.
Individuals with a net worth below $13.99 million for 2025 will be exempt, as well those who have not been a US resident at any time since turning 25 years old or since March 28, 2010.
Others exempt include those who have been a tax resident in a foreign country for three of the previous five years and who can certify they have been in compliance with US tax requirements in the three years previous to the bill’s introduction.
Read more: Fines levied for failure to declare bank accounts held out of France
When will this act come into effect?
It is only at an early stage.
The bill as initially presented is expected to lay the groundwork and set the language for a new version which will be presented in the New Year and will be examined by the Senate and the House of Representatives. They are both currently in recess and the 119th Congress will be sworn in on January 3, 2025.
“Rep. LaHood is hopeful the bill can be considered in a reconciliation package next year,” stated Mr LaHood’s announcement of the bill on his website (the current version of the bill can also be found on that page).
It is as yet unclear how soon it could come into effect.
That being said, there will be a Republican majority in the next Congress so it is thought likely the bill will pass as Republicans are expected to support it.
