US representative Darin LaHood, a Republican from Illinois, last week submitted a bill to Congress which would offer Americans living abroad an elective residency-based income tax system.
The bill - Residence-Based Taxation for Americans Abroad - would amend the US tax code to establish elective residence-based taxation, with the goal of being included in a larger tax package, expected to be passed in 2025, at the start of President-Elect Donald Trump's second term.
The bill comes just a few months after Trump announced his support for "ending double taxation for overseas Americans" in an October campaign video.
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The proposed legislation aims to allow Americans abroad to opt for recognition as 'nonresident citizens' via a certificate of non-residency, which would make it so their foreign income is only subject to tax in the country they live, while US-sourced income would still be subject to US taxes.
It would also address issues Americans abroad encounter with banking, due to FATCA (legislation passed in 2010 to combat money laundering), according to a press release from Representative LaHood's office.
The United States is currently among a handful of countries to operate a system of citizenship-based taxation, which requires all Americans to file a yearly income tax form, regardless of where they live.
While many do not end up being taxed in both the US and their country of residence, thanks to mitigating measures such as foreign-earned income exclusion, foreign tax credits, and bilateral tax treaties - ensuring correct filing can be costly and time-consuming.
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Who could opt for residence-based taxation?
Under the bill, there would be a few conditions to qualify, such as demonstrating US tax compliance for the five years prior. As it is intended to be for Americans wishing to live abroad long-term, if the person returns to the US within three years, then it would be reversed entirely, leaving them subject to taxation for that period.
The bill also sets up a mechanism for a 'departure tax', to avoid abuse. There are exceptions - for example, people whose net worth is below $13.61 million (as of 2024), or who have lived outside of the US for three of the last five years, or who have not been resident since March 2010 or since turning 25 years old, would not be subject to the tax.
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