Americans living and working abroad are unofficial ambassadors for our country. They bring a spirit of pride, ingenuity, and optimism to the work that they do. They come from all walks of life and every industry in America. They are small business owners, teachers, students, retirees, and entrepreneurs whose contributions benefit both their host countries and the United States.
Unfortunately, Americans abroad are some of the only foreign nationals in the world who are subject to double taxation on their income, a distinction the U.S. shares with Eritrea, one of the least developed nations on earth. President Trump rightly raised this issue during his 2024 campaign. He said then that the tax treatment of Americans abroad needs to change.
Indeed, moving to a residence-based tax system is essential to ensure parity and certainty for American citizens and the U.S. businesses that employ them across the globe. During the first year of his second term, President Trump has pushed for trade parity, which has had significant impacts on the U.S. and global economy. It’s time to fight for individual tax parity for Americans abroad.
Under the tax code, Americans living abroad are subject to double taxation on their income. This means they must pay taxes in the country they reside and U.S. federal income taxes. This double taxation is both unjust, unnecessary, and reduces opportunities for U.S. business. When Americans are located overseas, they are more likely to purchase goods and services from Americans in America.
A recent survey of Americans living abroad conducted by American Citizens Abroad revealed the real-life impacts of this flawed tax policy. Other impacts of the double taxation regime include challenges related to retirement and financial planning, reduced savings, and difficulty in advancing in their careers. Unsurprisingly, nearly 90 percent of those surveyed said they are negatively affected by this unfair structure and would like to see a change away from citizenship-based taxation to residency-based taxation.
Under the current system, citizenship-based taxation (or double taxation) has multiple negative impacts on Americans and our economy. Double taxation imposes undue financial burdens on millions of ordinary Americans living abroad. Many Americans living and working abroad face banking restrictions, including the risk of being debanked over potential compliance risks.
This is a completely avoidable situation, and one that forces Americans to navigate mind-numbingly complex reporting requirements. While that may create business for accountants and lawyers, it does nothing but create headaches for Americans abroad who are just trying to live their lives.
It is time for common sense reforms that would restore a much-needed and much-deserved sense of fairness for U.S. citizens living abroad. The U.S. government should be working to find ways to support our fellow citizens no matter where they live, not hamper them with burdensome paperwork and taxation rules.
Marylouise Serrato is Executive Director of American Citizens Abroad. ACA is a Washington, D.C. based non-profit advocacy organization representing the policy concerns of its members and the 5.2 million U.S. citizens living abroad to the U.S.
Read Full Article »