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:

What are we doing about it?

ACA is the only organization representing US citizens overseas that has advocated for the adoption of residence-based taxation (RBT), taxing income based on where it is earned, since its creation in 1978.  

  1. ACA’s side-by-side comparative 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.

  2. 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.

View our submissions to Congress about this issue and others here.

How can you help?

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 | | 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 ( ACA anticipates that the Overseas Americans Financial Access Act H.R.5799 - 117th Congress (2021-2022): Overseas Americans Financial Access Act | | Library of Congress will be reintroduced into Congress shortly.

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?

In this Section

The Child Tax Credit and Earned Income Credit

Currency Fluctuations and Phantom Gains

The Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credits Foreign Earned Income Exclusion (FEIE)

The 2017 Tax Cuts and Jobs Act (TCJA): Transition Tax and GILTI Regimes

The Net Investment Income Tax (NIIT)

The Pitfalls of Passive Foreign Investment Companies (PFIC)

US Passport Revocation

US Taxes Abroad (update for tax year 2023)

ACA/DEG Analysis of Revenue Effects of Residents-Based Taxation

US Businesses Overseas

ACA Explains "Tax Fairness for Americans Abroad (TFAA)" - Residency-based tax bill

CBT vs. RBT Comparative