Taxation
What is the problem?
The United States uses citizenship-based taxation (CBT), rather than residence-based taxation (RBT), meaning US citizens are taxed on their worldwide income regardless of where they live and where the income was earned.
A US citizen living in London, or Toronto, or Tokyo, or Johannesburg, generally must file U.S. tax returns and pay U.S. tax, even if he or she has never lived in or traveled to the U.S. Taxation is not based on any physical presence test. The source of the income makes no difference either: income exclusively earned and additionally taxed abroad is also subject to U.S. reporting. Moreover, US citizens overseas are commonly taxed twice, for example on some types of investment income and certain retirement-savings vehicles.
In some cases, where an individual was born in the U.S. to foreign parents on a student or temporary work visa who then returned to their home country, those subject to the tax law and its penalties may not have been aware of their status as an American birthright citizen.
CBT is incompatible with the global economy of the 21st century where the tax policy of most industrialized nations is based on residency and not nationality. CBT works against US economic interests in terms of job creation and increasing exports. ACA tracks and advocates to correct some of the worst problems that CBT imposes on US citizens overseas with regard to:
- Child Tax Credit and Earned Income Credit
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2017 Tax Cuts and Jobs Act (TCJA): Transition Tax and GILTI Regimes
- US Businesses Overseas
Enacting RBT. What are we doing about it?
President-elect Trump has promised to address double taxation of U.S. citizens living and working overseas. On December 18, 2024, Congressman Darren LaHood introduced legislation, "Residence Based Taxation for Americans Abroad Act" (H.R.10468). The bill builds on Congressman Holding’s “Tax Fairness for Americans Abroad Act 2018,” and we’re pleased to note includes multiple features of ACA's RBT modeling of our Side-by-Side Analysis dated 2022 and studies.
To succeed, RBT legislation will require bipartisan and comprehensive advocacy. ACA, as a leading bipartisan advocate for U.S. citizens abroad, together with its research arm (America Citizens Abroad Global Foundation) and Political Action Committee (ACA-PAC), looks forward to working with the community of Americans abroad, coalitions like Residence-Based Taxation Coalition, the political parties, and all the other advocacy groups to enact RBT.
The new 2025 Congress, both new and old members, need educating on RBT. RBT legislation will most certainly be taken up in the discussion of the Tax Cuts and Jobs Act (TCJA) expiring provisions. Many of the members of the new Congress were not in office when TCJA was passed into law and will need to be educated on why RBT should be folded into new tax legislation in 2025.
ACA will work to continue to build bipartisan support for RBT. ACA has drafted a side-by-side comparative of current law and the new LaHood bill "Residence Based Taxation for Americans Abroad Act" as a starting point for discussions with the new 119th Congress. ACA's developmental work for RBT and our research studies will be essential for these discussions.
ACA is supporting these efforts with op-eds in major media outlets such as Fortune and Yahoo Finance How Trump can follow through on his campaign promise to stop double-taxing American expats | Fortune and American Expats Add to the U.S. Economy: Don't Double Tax Them | RealClearMarkets
ACA is regularly quoted in the press about its advocacy efforts for Residence-based taxation: ACA in the Press - American Citizens Abroad
ACA is regularly called upon on Capitol Hill for its expertise and knowledge in the subject of tax reform for US citizens living and working overseas.
ACA has developed and presented to Congress and all the tax writing committee a roadmap for Residence-based taxation (RBT):
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ACA’s RBT modeling side-by-side analysis showing how and where changes needed to be made to the current Citizenship-based taxation regime to make it Residence-based gives the Congress and tax writing committees a roadmap for RBT.
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ACA data and research by contractor District Economic Group (DEG) to provide data and revenue estimates for ACA’s side-by-side which includes critical baseline data on the asset composition and size of the overseas community, is vitally important to development of the legislative proposals for the Congress and tax writing committees.
- ACA's side-by-side analysis of current law and the new "Residence Based Taxation of Americans Abroad Act" introduced by Congressman LaHood along with a Technical Explanation of the bill.
View our submissions to Congress about this issue and others here.
How can you help?
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Donate to us or to the ACA Global Foundation to support our research and advocacy efforts
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Join ACA to gain access to membership benefits and support us
What have we achieved so far?
In 2014 we developed our side-by-side comparative or RBT roadmap which has been updated as tax policy has evolved over the years. ACA’s sister organization ACA Global Foundation produced two research studies to determine the size and make-up of the community of US citizens living and working overseas as well as, ran a cost analysis for ACA’s RBT roadmap which indicated that RBT can be made revenue-neutral (no cost the US Treasury) to implement.
Congressman Holding’s Tax Fairness for Americans Abroad Act of 2018 (TFAA) was a major step in the process for tax reform. Congressman Holding, a long supporter of tax reform for Americans overseas, introduced legislation in the 115th Congress in December 2018. His legislation proposed a residence-based approach to taxing Americans living and working overseas. This was the first time that legislation in support of American overseas taxpayers was introduced in the US Congress. ACA provided a technical explanation of the bill ACA Explains "Tax Fairness for Americans Abroad (TFAA)" - Residency-based tax bill
In 2022 three bills addressing the tax and compliance issues facing US citizens overseas were introduced in Congress; Congressman Beyer introduced the Tax Simplification for Americans Abroad Act (H.R.6057) and Congresswoman Maloney introduced the Commission on Americans Living Abroad Act (H.R.5800) and H.R.5799 - 117th Congress (2021-2022): Overseas Americans Financial Access Act | Congress.gov | Library of Congress Congresswoman Maloney is no longer in office however, Congresswoman Titus (D-NV), Chair of the Americans Abroad Caucus has reintroduced into the 118th Congress (2023) the Commission on Americans Living Abroad Act (H.R.2729) and Congressman Beyer has reintroduced the Tax Simplification for Americans Abroad Act (with additional refinements). ACA has provided a technical explanation of the bill aca-explanation-beyer-bill-2023-230914.pdf (americansabroad.org) Congresswoman Titus also introduced the Overseas American Financial Access Act H.R.8873 - 118th Congress (2023-2024): Overseas Americans Financial Access Act | Congress.gov | Library of Congress which provide safe harbour for FATCA filing for U.S. citizens overseas.
The National Taxpayer Advocate is Your Voice at the IRS and its organization, the Taxpayer Advocate Service (TAS) is an independent organization within the Internal Revenue Service (IRS). Its job is to ensure that every taxpayer is treated fairly and that you know and understand your rights. Alongside of TAS is the Taxpayer Advocate Panel (TAP) consisting of 75 volunteer members, including a representative for US citizens living and working overseas. The NTA has consistently highlighted the problems of US citizens overseas in their Annual Report to Congress.
Where can I find out more?
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ACA’s “US Taxes Abroad” published annually as a guide to filing taxes for overseas Americans
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View our Latest News section
- National Taxpayer Advocate
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Check out these U.S. government websites