WASHINGTON, D.C. - The United States should switch to residence-based taxation to reduce tax challenges for Americans living abroad, according to a report released Thursday from the National Taxpayers Union Foundation (NTUF).
The report comes as former President Donald Trump expressed support for eliminating citizenship-based taxation.
“The United States is the only major country to use citizenship-based taxation, levying income taxes on individuals that may not live in nor earn any income in the U.S,” according to the report written by Debbie Jennings, NTUF’s Policy Manager. “This system contrasts with residence-based taxation (RBT), which is used by the rest of the world and operates on the principle that only residents in a country should be subject to its income taxes.”
While citizenship-based taxation has long been an injustice to Americans living abroad, the Foreign Account Tax Compliance Act (FATCA) of 2010 made the system immensely more burdensome for these Americans by imposing reporting requirements on U.S. citizens abroad and their banks.
A recent proposal from the group Tax Fairness for Americans Abroad suggests how to transition the United States to an RBT system. The plan would allow citizens abroad to elect to terminate U.S. tax residency while maintaining citizenship, provide relief from burdensome filing requirements, and preserve taxation of U.S.-sourced income.
Furthermore, several pieces of legislation have been introduced to deal with tax issues for Americans abroad. The various bills would establish a commission to study the issue, exempt individuals from FATCA reporting if they reside in the same country as their foreign financial institution, and exempt citizens abroad from filing requirements if they owe no U.S. income tax.
NTUF Policy Manager Debbie Jennings writes:
The increase of individual mobility after the COVID-19 pandemic and the upcoming tax reform debate of 2025 present an opportunity to fix problems that are as old as the tax code itself. Shifting the U.S. tax code away from a citizenship-based system towards a residence-based system would sensibly align the country with the rest of the world and ease the immense tax burdens imposed on expats.
For more information on residence-based taxation, or to speak with NTUF Policy Manager Debbie Jennings, please contact NTUF Vice President of Marketing Rachel Harden at rharden@ntu.org.
National Taxpayers Union Foundation (NTUF) provides crucial, impactful research and analysis showing Americans how they are affected by taxes, government spending, and regulations.
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