As President Joe Biden takes office on January 20, 2021, US expats may be wondering what types of tax changes to expect from the new administration. Throughout his campaign for the presidency, Biden proposed tax reform to reverse some of the changes enacted as part of the 2017 Tax Cuts and Jobs Act passed by President Trump. Here’s what Biden’s tax plan could mean for American expats and corporations overseas.
Biden’s Individual Tax Plans for Expats
Biden has proposed raising income tax rates for top earners, increasing estate and gift tax rates, as well as bumping up the Child Tax Credit amount. Specifically, Biden’s plan includes:
- Reverting the highest income tax rate to 39.6% from 37%
- Increasing estate and gift tax from 40% to 45% and reducing the threshold for exemption from $11.58 million to $3.5 million
- Boosting the Child Tax Credit amount from $2,000 to $3,000 per eligible dependent and making the entire credit refundable (currently, only $1,400 is refundable).
- At the time these changes were proposed, expats parents hoped this would mean that they could use the Child Tax Credit to earn a refund of up to $3,000 per child. However, under the American Rescue Plan Act of 2021, the new refundable Child Tax Credit is only available to those who lived in the US for more than half of the year, which means that most expats aren’t eligible. Though, you can still qualify for the original Child Tax Credit of up to $2,000 per child—up to $1,400 of which is refundable (provided you haven’t already excluded all of your income using the FEIE).
- Enforcing the Foreign Account Tax Compliance Act (FATCA), which came into effect in 2010 while Biden served as Vice President
Biden’s Corporate Tax Plans: What Expat Business Owners Should Know
Along with these individual tax policy changes, President Biden’s tax plan includes increasing the corporate tax rate and expanding GILTI taxation. The proposed changes include:
- Increasing the corporate tax rate from 21% (reduced from 35% under the Tax Cuts and Jobs Act) to 28%
- Removing the 50% discount on Global Intangible Low Tax Income (GILTI), which has been available to foreign-registered firms that are owned by Americans and have an American parent company. GILTI, which was as introduced in 2017, imposes a tax rate of 21% on foreign-registered business. With the discount, some companies could qualify for a reduced tax rate of 10.5%. Removing this discount would effectively double the GILTI tax rate for these businesses.
What do Do Next to Stay Ahead of Tax Changes
Only time will tell if President Biden’s proposed tax plans will translate into law. In the meantime, you can take action to make keeping up with your expat tax filing requirements as pain-free as possible:
1. Get tax news to your inbox
To stay ahead of tax changes, subscribe to our expat tax newsletter. Every month, you’ll get the latest expat tax news, money-saving tips and tricks from our experts, and exclusive offers.
2. Make a plan to file your US expat tax return on time
The IRS will officially kick off tax season on Febuary 12, 2021. As soon as you receive the documentation needed to file your return, start the filing process to have an accountant review your situation and help you file ASAP. The sooner you file, the better you’ll feel!
3. If you haven’t filed in years (or ever!), now’s the time to get caught up
Many expats panic at the thought of being years behind on their taxes. Fortunately, the IRS offers a straight-forward way to get caught up using the Streamlined Filing Procedures. This program waives the penalties for expats whose lack of filing was non-willful (not intentional), making it a simpler and more cost-effective way to become compliant—no matter how far you’re behind!
Have questions about your tax situation? Not sure what you need to file? The experts at Greenback are standing by to help with all your expat tax needs. Contact us today to get your questions answered.