Trump’s 2025 Tax Policies: What U.S. Expats Need to Know and How to Prepare

President Trump’s massive tax overhaul just became reality, and here’s the essential news for Americans abroad: your tax burden will decrease significantly. The House passed Trump’s “One Big Beautiful Bill Act” by a vote of 218-214 early Thursday morning, sending the legislation to the president’s desk for signature before the July 4 deadline.

This landmark legislation permanently extends the 2017 tax cuts, increases the Foreign Earned Income Exclusion to $130,000 for 2025, and delivers on Trump’s campaign promise to provide the largest tax cuts in history. Most importantly for expats: the bill creates substantial new tax relief while maintaining existing protections.

Headlines at a Glance

• Foreign Earned Income Exclusion rises to $130,000 for 2025 – final and locked in.
• Trump’s pledge to end double taxation for Americans abroad gains momentum for future legislation.
• Permanent extension of 2017 tax cuts prevents rates from jumping to 39.6%
• Section 899 surtax could add 5-15% on foreign persons in countries with digital services taxes starting in 2027
• All Tax Cuts and Jobs Act provisions are now permanent – no more December 31, 2025, expiration cliff

What Just Happened in Congress?

After a marathon overnight session featuring a record-breaking 8.5-hour speech by House Minority Leader Hakeem Jeffries, Republicans successfully passed the Senate version of the bill with only two GOP defections. The legislation now heads directly to President Trump, who is expected to sign it within 24 hours.

The Congressional Budget Office estimates this will create $2.4 trillion in tax cuts over the next decade, making it the most extensive tax reduction package in American history. For expats, this means more money stays in their pockets, not less.

What’s Already Locked In for 2025?

Several provisions take effect immediately for your 2025 tax year:

• Foreign Earned Income Exclusion: $130,000 per person (up from $126,500). Married couples where both spouses qualify can exclude up to $260,000 of combined income.
• Foreign Housing Exclusion: Base amount rises to $20,800, with the general cap at $39,000. High-cost cities have even higher limits.
• Standard Deduction: $15,000 (single), $30,000 (joint), $22,500 (head of household).

These increases happen automatically and require no action from you. They provide immediate protection against inflation and reduce your taxable income.

Will This New Law Increase My Taxes?

No. The legislation specifically reduces tax burdens across all income levels. The Tax Policy Center confirms that households will see their taxes reduced by $2,900 on average. For expats specifically, the bill includes multiple provisions that lower your U.S. tax liability:

• Permanent rate protection: Prevents your top tax rate from jumping from 37% to 39.6%
• New deductions: No taxes on tips (up to $25,000 deduction) and overtime pay (up to $12,500 deduction) through 2028
• Enhanced Child Tax Credit: Permanently increased to $2,200 (up from $2,000)
• SALT deduction expansion: State and local tax deduction cap rises to $40,000 from $10,000, particularly helping expats with U.S. rental properties

What’s in the Final Legislation?

Tax Provisions Made Permanent:

• Individual tax rates: 10%, 12%, 22%, 24%, 32%, 35%, and 37% (prevents jump to 39.6%)
• Nearly doubled standard deduction: $15,000 (single), $30,000 (joint), $22,500 (head of household)
• Child Tax Credit: $2,200 per child (increased from $2,000)
• 20% deduction for qualified business income (Section 199A)

New Temporary Provisions (2025-2028):

• No taxes on tips: Up to $25,000 deduction for tip income
• No taxes on overtime: Up to $12,500 deduction for overtime pay
• Senior citizen bonus: An Additional $6,000 standard deduction for those 65+
• “Trump Accounts”: Tax-free savings accounts allowing $5,000 annual contributions per child

Enhanced Deductions:

• State and Local Tax (SALT) cap: Increased to $40,000 (was $10,000)
• Gift tax exclusion: $19,000 annually
• Estate tax exemption: $13.99 million per person

How Does This Affect My Foreign Tax Credits?

Your Foreign Tax Credit becomes even more valuable. Lower U.S. tax rates make you less likely to owe additional U.S. taxes after applying foreign tax credits. The permanent extension of the 2017 provisions means this tax relief continues indefinitely, providing long-term planning certainty.

Due to the higher FEIE and robust foreign tax credits, many expats will owe little to no U.S. taxes. This legislation strengthens that position.

What About the Section 899 Provision I’ve Heard About?

Section 899 affects foreign persons in countries with digital services taxes but does not directly apply to U.S. citizens or green card holders. You’re specifically excluded from the “applicable person” definition.

However, it could indirectly affect you if:

• Your non-U.S. spouse has significant U.S. investments
• You own assets through foreign companies in targeted countries
• You’re involved with foreign trusts in certain jurisdictions

The provision implements a 5-15% surtax starting in 2027 on foreign persons from countries like the UK, Canada, France, Italy, Spain, and Australia. Treasury will publish the official country list.

How Section 899 Could Affect You:

Scenario	Will the surtax apply?	Why
You’re a U.S. citizen living abroad	No, not directly	U.S. citizens are excluded from “applicable person” definition
Your non-U.S. spouse has U.S. investments	Yes, potentially	Higher withholding rates apply to foreign persons
You own U.S. property through a foreign company	The company could pay more	Withholding on dividends and rental income increases

Countries Most Likely to Be Listed:

• Digital services taxes: Canada, France, Italy, Spain, Austria, Turkey, UK
• OECD Pillar 2 adopters: UK, Australia, Japan, EU member states (except Estonia, Latvia, Lithuania, Malta, Slovakia)

Surtax Implementation:

• 2027: 5% additional tax begins
• 2028: Increases to 10%
• 2029: Reaches 15% maximum
• Treaty override: Can supersede existing tax treaty benefits

When Do These Changes Take Effect?

• Immediate: Trump signs the bill (expected within 24 hours)
• 2025 Tax Year: Higher FEIE limits, overtime and tip deductions available, permanent rate extensions begin
• 2026: File your 2025 return claiming the $130,000 FEIE and new deductions
• 2027: Section 899 provisions potentially begin for non-U.S. persons

Key Dates for Your Planning

• July 4, 2025: Trump signs the legislation into law
• December 31, 2025: Previous TCJA expiration date (now extended permanently)
• April 15, 2026: File your 2025 return claiming the $130,000 FEIE and new deductions
• 2027: First possible RBT elections (if reintroduced and passed)
• 2027-2029: Section 899 surtax phases in for targeted countries

What About Trump’s Promise to End Double Taxation?

This remains a priority for future legislation. Trump’s campaign commitment to eliminate double taxation for Americans abroad represents the first time a president has publicly supported this reform. The Residence-Based Taxation for Americans Abroad Act needs reintroduction, but advocacy groups report strong bipartisan support.

According to recent surveys, the current legislation creates momentum for even bigger reforms, with 92.7% of expats supporting residence-based taxation.

What This Means for Future Expat Tax Reform

The Congressional Budget Office estimates this legislation will cost $2.4 trillion over 10 years, but it creates the political foundation for even more expat-friendly policies. Trump’s commitment to ending double taxation for Americans abroad now has legislative momentum behind it.

Industry groups are already calling this a stepping stone toward comprehensive expat tax reform. The American Chamber of Commerce abroad noted that “this bill demonstrates unprecedented political support for Americans overseas.”

How Will This Affect My 2025 Tax Filing?

Your tax situation improves in multiple ways:

• Higher exclusions: The $130,000 FEIE means you can exclude more foreign-earned income than ever before
• New deductions: Significant deductions are available for tip and overtime income
• Continued credits: Full Foreign Tax Credit availability with even better results due to lower U.S. rates
• Predictable rules: Permanent extension eliminates uncertainty about expiring provisions

What Should I Do Right Now?

Take these three immediate steps:

1. Document your residence carefully. Maintain bank statements, utility bills, and local tax returns. Future residence-based taxation proposals will require solid proof of foreign residence.

2. Review international structures. If you have foreign corporations, trusts, or business interests in potential Section 899 countries, consider consulting with a tax professional about optimization opportunities.

3. Plan your 2025 income strategically. With higher FEIE limits and new deductions available, you might benefit from timing income, bonuses, or other payments.

Smart Planning Moves for 2025

• Income Timing: To take advantage of the higher $130,000 FEIE immediately, consider accelerating bonuses or consulting payments into 2025.
• Investment Structure Review: If you have foreign corporations or trusts in potential Section 899 countries, evaluate whether restructuring could reduce future complications.
• Documentation Priorities: Keep proof of foreign residence current. Future residence-based taxation proposals require solid documentation, including bank statements, utility bills, and local tax returns.
• Estate Planning: With the permanent $13.99 million estate exemption, consider whether larger gifts or trust funding make sense for your family.

How Does This Compare to My Current Tax Situation?

Most expats will see either no change or a significant reduction in their U.S. tax liability. The legislation extends provisions you already benefit from while adding new exclusions and deductions. Foreign tax credits remain fully available, and lower U.S. rates mean better results from those credits.

The White House estimates that workers benefiting from the new deductions could see up to $2,000 in annual federal tax savings, on top of existing expat benefits.

What About State Tax Implications?

The expanded SALT deduction cap helps expats who pay state taxes on rental property income or other state-source income. The increase from $10,000 to $40,000 provides substantial relief for those with continuing state tax obligations.

Common Questions About the New Law

Do I still need to file U.S. tax returns?

U.S. citizens must still file annual returns regardless of where they live. However, the higher FEIE and enhanced deductions mean you’re less likely to owe U.S. taxes.

Will my foreign bank accounts be affected?

The legislation doesn’t change FATCA or FBAR reporting requirements. However, if residence-based taxation is eventually enacted, you could be removed from FATCA definitions.

How does this affect my retirement planning?

The permanent nature of these tax cuts provides better long-term planning certainty. Consider how the higher FEIE and enhanced deductions might affect your retirement location and timing decisions.

What if I live in a high-tax country?

Your Foreign Tax Credit becomes even more valuable with lower U.S. rates. You’re likely to owe little or no additional U.S. tax.

What’s My Next Step?

If you haven’t filed your 2024 taxes yet, complete them under current rules. The new provisions apply to your 2025 tax year.

For 2025 planning, calculate how the higher FEIE and new deductions benefit your specific situation. Most expats will find their overall tax burden decreases significantly.

If you have complex international arrangements, especially in countries that might appear on the Section 899 list, consider a consultation to optimize your structure under the new rules.

The bottom line: This legislation represents the most expat-friendly tax changes in decades. The higher FEIE alone means many Americans abroad will exclude more income than ever. Your tax situation improves substantially with permanent rate reductions and new deductions.

Trump’s broader commitment to ending double taxation remains alive, with stronger political momentum than before. This bill creates a foundation for more favorable treatment of Americans living abroad.

Ready to feel confident about your next move? Contact us, and one of our customer champions will gladly help. If you need specific advice on your tax situation, click below to get a consultation with one of our expat tax experts.

This analysis reflects the legislation passed by Congress on July 3, 2025. Individual tax situations vary by circumstances and country of residence. Consider consulting with qualified expat tax professionals for personalized guidance on your specific situation.