Congressman George Holding, US Representative from North Carolina, has introduced a bill called the “Tax Fairness for Americans Abroad Act of 2018,” just before the Congressional holiday recess. The bill, also known as H.R. 7358, would exempt foreign income earned by US expats from taxation. This is huge news for all Americans living abroad; let’s find out what the bill would mean.
What Does the Tax Fairness for Americans Abroad Act Have in Store?
Getting the attention of lawmakers has long been a struggle for American expats. Though there are over nine million expats currently living abroad, their votes are dispersed across the US and their interests have not been prioritized, to say the least. Our 2018 annual survey found that expats feel abandoned by their representatives and resent having to pay taxes without proper representation. So, the fact that a bill has finally been introduced is amazing news!
The bill would add Section 911A to the Internal Revenue Code, reading, “in the case of a qualified nonresident citizen, there shall be excluded from the gross income of such individual, and exempt from taxation under this subtitle, for any taxable year – (1) the foreign earned income of such individual, and (2) the foreign unearned income of such individual.” To qualify as a nonresident citizen would mean not making the election described in Section 911 for the tax year in question (i.e., the Foreign Earned Income Exclusion), and instead elects to use 911A. The definition of nonresident citizen as stated in the bill is a US citizen who has a tax home in a foreign country and has been tax compliant for the past three years – all the more reason to become compliant today! And they define foreign earned income as any income generated outside the US, and unearned foreign income as the sale of personal property during your tenure as a nonresident citizen.
What Would Change for Americans Abroad?
So, what does this mean, exactly? Expats would no longer have foreign income taxed by the US; only US income would be subject to US tax. It would essentially end the citizenship-based taxation model the US currently uses, and move to a residence-based taxation model that the rest of the world – minus Eritrea – uses. Presently, Americans living abroad must annually file a Federal Tax Return whether or not they owe taxes, and this reporting requirement, would be eliminated. Though some are disappointed that, given the lateness of this bill’s introduction, it may not be given the consideration it deserves, overall, expats can rejoice that their issue has been brought to the table for discussion.
Update: We continue to monitor the status of the Tax Fairness for Americans Living Abroad Act. As of February 27, 2019, there has not been reported progress, but we will continue to update you as news on this becomes available.
Are You Ready for Residence-Based Taxation?
It’s worth restating: if enacted, this bill would mandate that to avoid taxation, expats have been tax compliant for the past three years. So, get started with Greenback today! We’ve helped over 8,750 expats around the world become compliant without any anxiety or hassle. We’d love to help you, too.