Tax Fairness for Americans Abroad Act: What It Means for Expats in 2025
According to IRS data from 2016-2021, nearly two out of three expats who file owe $0 in US taxes. In December 2024, Congressman Darin LaHood introduced new legislation that could eliminate the tax burden entirely for millions of Americans living overseas, building on the original Tax Fairness for Americans Abroad Act of 2018.
The Tax Fairness for Americans Abroad Act proposes a shift from the current citizenship-based taxation system to residence-based taxation, allowing qualifying Americans abroad to elect non-resident status and pay U.S. taxes only on their U.S.-sourced income. President-elect Trump has stated his support for “ending the double taxation of overseas Americans,” giving this legislation unprecedented momentum.
The bottom line: While the original 2018 bill stalled, the 2024 version has better prospects for passage, especially as part of broader tax reform when the Tax Cuts and Jobs Act provisions expire in 2025. For now, most expats can already achieve zero tax liability using the Foreign Earned Income Exclusion (increased to $130,000 for 2025) and Foreign Tax Credit.
What the Tax Fairness for Americans Abroad Act Would Change
The current U.S. tax system requires American citizens to report and pay taxes on their worldwide income, regardless of where they live. This makes the United States one of only two countries (along with Eritrea) that tax based on citizenship rather than residence.
Key Provisions of the Proposed Legislation
The new “Residence Based Taxation for Americans Abroad Act” (H.R.10468) would allow U.S. citizens residing abroad to elect to be treated as non-residents for U.S. tax purposes. Under this system:
What you’d gain:
- Pay U.S. taxes only on U.S.-source income (like a non-citizen would)
- Relief from burdensome FBAR and FATCA reporting requirements
- End to foreign financial institution discrimination against Americans
- Elimination of complex dual tax compliance
What you’d need to qualify:
- Net worth below the estate tax exclusion amount ($12.99 million for 2025)
- Foreign tax residency for three of the past five years with proof of U.S. tax compliance, OR
- Not resided in the U.S. since turning 25 or since FATCA’s enactment in 2010
The cost: A one-time departure tax on unrealized gains, treating assets as if sold at fair market value when making the election.
Why This Matters More Than Ever in 2025
Several factors make 2025 a pivotal year for expat tax reform:
Political Momentum
For the first time, a sitting president has explicitly supported ending double taxation for overseas Americans. This represents a massive shift in political will that expat advocates have been working toward for decades.
Legislative Opportunity
Key provisions from the Tax Cuts and Jobs Act will expire on December 31, 2025, creating an opportunity for the residence-based tax bill to be included in larger tax legislation. This could dramatically improve its chances of passage.
Growing Expat Population
More Americans are living and working abroad than ever before, creating a larger constituency demanding tax fairness. The compliance burden has only grown heavier with increased FATCA enforcement and reporting requirements.
Current Protections Still Available
While waiting for potential legislative relief, Americans abroad can still significantly reduce or eliminate their U.S. tax liability using existing provisions:
Foreign Earned Income Exclusion (FEIE)
For 2025, you can exclude up to $130,000 of foreign earned income from U.S. taxation if you meet either:
- Physical Presence Test: 330 days abroad in any 12-month period
- Bona Fide Residence Test: Full-year foreign tax residency
Real example: Sarah works for a tech company in Berlin, earning $95,000 annually. Using the FEIE via Form 2555, she excludes her entire salary from U.S. taxation, owing $0 in federal income tax.
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Foreign Tax Credit (FTC)
Claim a dollar-for-dollar credit for foreign income taxes paid. This is often better than the FEIE for expats in high-tax countries.
For example, Mark lives in France, earning $120,000 and paying $35,000 in French income tax. He can use the Foreign Tax Credit to offset his entire U.S. tax liability, typically owing $0.
Combined Strategy
Many expats use both protections on different types of income. Exclude earned income with the FEIE and use the FTC for investment income or amounts above the exclusion limit.
What Happens Next
Short-Term Reality
The new bill is currently under review for refinements and must be “scored” for revenue impact before reintroduction in the new Congress. This process typically takes several months.
2025 Action Items
Expat advocacy groups continue working with Congress to:
- Educate new members who weren’t in office when the original bill was proposed
- Demonstrate that residence-based taxation can be revenue-neutral
- Build bipartisan support for inclusion in broader tax reform
Your Role
The strength of expat voices matters. Organizations like American Citizens Abroad and Tax Fairness for Americans Abroad continue advocating, but they need constituent support to demonstrate the scope of this issue.
Common Misconceptions About the Act
- “It would let Americans avoid all U.S. taxes.” False. The bill only affects Americans who elect non-resident status and establishes clear qualification criteria. It also includes a departure tax to prevent abuse.
- “It would hurt U.S. tax revenue significantly” Research demonstrates that residence-based taxation legislation can be made revenue neutral, particularly when considering compliance costs and the economic benefits of Americans abroad.
- “It’s the same as renouncing citizenship.” Not at all. This would be a tax election only, with no impact on citizenship, passport rights, or immigration status.
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Planning for Both Scenarios
Savvy expats are preparing for both possibilities:
If the bill passes:
- Gather documentation of foreign tax residency
- Prepare asset valuations for potential departure tax calculations
- Understand the election timeline and requirements
If the current system continues:
- Maximize use of FEIE and Foreign Tax Credit
- Maintain an excellent record-keeping for foreign income and taxes
- Consider streamlined procedures if you are behind on filing
Peace of Mind in Uncertain Times
The prospect of tax reform brings hope, but it also creates uncertainty. Expats need confidence that their current situation is handled correctly while these changes develop.
No matter how the legislation evolves, you still need to file compliant returns under the current system. The IRS doesn’t pause enforcement while Congress debates reform.
Getting Started Today
Whether tax reform passes or not, Americans abroad need expert guidance to:
- Determine the best strategy between FEIE and Foreign Tax Credit
- Ensure full compliance with current requirements
- Prepare for potential changes ahead
- Achieve peace of mind about their tax situation
The Tax Fairness for Americans Abroad Act represents hope for fundamental change, but your tax obligations continue under current law. Don’t let uncertainty about future legislation prevent you from acting on your current situation.
Are you behind on taxes? Don’t panic. The Streamlined Filing Procedures offer penalty-free catch-up options. But move fast if the IRS contacts you first; this door closes.
No matter how late, messy, or complex your return may be, we can help. Knowing that your taxes were done right will give you peace of mind.
Contact us, and one of our customer champions will gladly help. If you need specific advice on your tax situation, you can also click below to get a consultation with one of our expat tax experts.
Disclaimer: This article is for informational purposes only and should not be considered tax advice. Tax laws are complex and subject to change. Always consult with a qualified tax professional regarding your specific situation.
