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Now’s The Time – Start Taxing Americans Abroad Like Other Countries Tax Their Citizens
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The United States taxes on the basis of citizenship. This means it taxes American citizens on their worldwide income regardless where they live. An American 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 does not live in or travel 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, Americans abroad 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 not been aware of their status as an American birthright citizen.
This is not the worldwide norm. The United States and, arguably, the small African country of Eritrea are the outliers in taxation based on citizenship regardless of residency.
SWITCHING FROM THE CURRENT CITIZENSHIP-BASED TAXATION (CBT) APPROACH TO RESIDENCY-BASED TAXATION (RBT) CAN STILL BE ACCOMPLISHED.
What can the Community do? American citizens overseas need to get behind a well-conceived proposal, which is revenue neutral – it doesn’t cost the Treasury anything in lost revenue – and addresses the potential for tax abuse and evasion. This work has been done and the analysis was prepared by District Economics Group (DEG), a Washington, DC-based economic consulting group, and crowd-funded by American Citizens Abroad Global Foundation (ACAGF). Work began in late May 2017 and was completed in early November of 2017. DEG has constructed a baseline picture of publicly available data and has analyzed the revenue effects of ACA's “vanilla” approach to RBT. ACA is sharing this work with Administraitve and Congressional offices. Write your Representatives in Congress and let them know about ACA's work on RBT.
Will Congress take this step? Yes, Although H.R. 1 has passed and does not include tax reform for Americans overseas, there are strong indications that Congress will soon return to the subject of tax law changes to make corrections in what was done and to address issues that were postponed. ACA has already highlighted some of the areas of the new law that adversely affect Americans overseas in its recent update, TAX REFORM BILL AND AMERICANS ABROAD: WHAT HAPPENED? WHAT'S. There are champions in the House, Senate and in the Leadership that want to see tax reform for Americans overseas enacted. This is why ACA has called on Congress to hold hearings on the subject and review every aspect of tax reform for Americans overseas, the background, the workings of existing law, the numbers, the real-life stories, all need to be aired, and now’s the time to do it. In this manner, Congress will have all the elements it needs to write and pass legislation. https://www.americansabroad.org/news/aca-calls-on-congress-to-hold-hearings-on-taxation-of-americans-abroad/
How can you help? Donate! ACAGF is continuing to raise funds to support ACA's advocacy work in Washington, DC. It is important for ACA to keep the focus on RBT and build on the work that has been done to raise awareness for RBT and testify at hearings. ACA's advocacy work is critical and so is your support. Your donation to the fundraising is tax deductible. For individuals with access to a corporate donation-matching program, please consider asking your employer to amplify your contribution. Visit ACAGF’s website and donate today
Have questions about ACA’s “vanilla” approach? See Frequently Asked Questions for answers.