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Congressman Holding (Republican-North Carolina), a member of the influential House Ways & Means Committee, today introduced a tax bill that is a critical first step toward transitioning from the current citizenship-based taxation system to a system that provides residence-based taxation for individuals – sometimes referred to as territorial tax for individuals. By taking this first step toward ending the onerous burdens of citizenship-based taxation, Americans will become more competitive in the international job market and free to pursue opportunities around the world. Compliancy costs and the burden of exposure to double taxation will be significantly reduced, and tax fairness will be restored for US citizens living and working overseas.

Under the Tax Fairness for Americans Abroad Act nonresident US citizens, who make an election to be taxed as a qualified nonresident citizen, will exclude from income, and therefore be exempt from taxation on, their foreign source income. All nonresident US citizens, however, will remain subject to tax on any US source income.  

The basic principle of the bill mirrors the thinking behind ACA’s residency-based taxation (RBT) approach, that is, separating foreign-source and US-source income and excluding from US taxation specified foreign-source income earned when a US citizen is a qualified resident abroad. As can be seen in the bill language, the toggle switch determining whether an individual is taxable on US income – and not on foreign income – is residency.  

 

Full report on the bill and ACA efforts found here.