Could Congress End Double Taxation for Expats?

So close… and yet so far. That’s the status of the long-sought end of taxation on non-resident Americans.

The United States is one of the few countries that enforces citizenship-based taxation. Americans must pay taxes on their worldwide income, regardless of where they live. It’s a burden to non-resident Americans, who may face double taxation and complex reporting requirements in both their country of residence and the US.

To make things worse, efforts to enforce compliance on non-resident Americans have created reporting requirements that wreak havoc with expats’ financial affairs. Foreign banks are often unwilling to do business with Americans because of the reporting requirements the US government imposes on them.

The biggest obstacle to reform of offshore taxation is political. American expatriates come from many states and congressional districts. Their voter numbers in any one of them are inconsequential to office seekers—whilst cutting taxes on one class of Americans risks angering other voters.

Nevertheless, Republican congressman Darren LaHood of Illinois introduced the Residence-Based Taxation for Americans Abroad Act in late December 2024. The legislation expired on January 3rd when the new Congress took office, although he may reintroduce it.

Under LaHood’s bill, US citizens living abroad could elect non-resident status if they’ve complied with their tax obligations for the previous five years. US citizens born abroad would automatically receive the status until they move to the US.

Anyone electing non-resident status would also be exempted from reporting under the Foreign Bank Accounts Report (FBAR) and the Foreign Account Tax Compliance Act (FATCA).

Although the bill obviously appeals to expats, one important rationale is more mundane. US citizens living abroad typically pay little or no US tax under the various exemptions available to them, including the Foreign Tax Credit and the Foreign Earned Income Exclusion. But they are subject to complex rules and oppressive compliance obligations—which some analysts say cost more to enforce than the IRS receives in taxes from non-resident Americans.

There are some unsavory aspects to the bill, however. It provides for an “exit tax” on anyone electing non-resident status if their net worth exceeds $14 million. It would be levied on an individual’s net assets, even if they haven’t been liquidated. It’s effectively a tax on wealth.

Helpfully, anyone whose net worth falls below this would be exempt from the exit tax, those who can prove tax compliance for the previous three years, and anyone who hasn’t lived in the US since age 25 or after March 2010. Anyone who returns to the US within three years after claiming non-resident status would trigger the exit tax retrospectively, however.

As much as expats like yours truly would like to see this bill passed, it seems unlikely.

Although there are millions of Americans living abroad, they’re not considered an important constituency in Congress. If the bill passes, it will require a massive rewrite of the US tax code, as well as renegotiation of all US double tax treaties with other countries. Given Republican determination to defund the IRS as much as possible, that may be a bridge too far.

Cynics suggest the bill has been tabled so the Trump administration can say it’s trying to implement the president’s campaign promises to end taxation of foreign Americans… but that “politicians on Capitol Hill” killed it despite his best efforts. But in the end, it’ll all come down to the political calculations of those same politicians’ self-interest.