Peoria Standard

U.S. Representative Darin LaHood has introduced the Residence-Based Taxation for Americans Abroad Act, aiming to modernize the tax system for U.S. citizens living overseas. The bill proposes a shift from the current citizenship-based taxation system to a residence-based approach, which would allow Americans abroad to be taxed only on U.S.-sourced income.

Currently, the United States is unique among major countries in taxing its citizens regardless of their residency status. More than 5 million Americans live abroad, including "accidental Americans" who may not be aware of their dual citizenship status.

President-elect Trump has shown support for ending what he calls "the double taxation of overseas Americans." In October, he stated: “I support ending the double taxation of overseas Americans.”

Rep. LaHood emphasized that this issue affects citizens nationwide and is non-partisan. He said, “Americans choose to live and work abroad for a host of reasons, and that does not mean that they should be subject to more onerous tax and compliance burdens.”

Brandon Mitchener, Executive Director of Tax Fairness for Americans Abroad (TFFAA), expressed optimism about the bill's potential impact: “For the first time in our lifetimes, Americans abroad can see the light at the end of the long, dark tunnel that has cost them huge amounts in accounting fees."

The legislation allows U.S. citizens living abroad to elect non-resident status without renouncing citizenship. Electing individuals would pay taxes only on specific U.S.-sourced income and gains while being exempt from certain reporting requirements under FATCA.

To prevent abuse and ensure fiscal balance, an electing individual must comply with past tax obligations and may be required to pay a departure tax on deferred income unless they meet certain exceptions.

The introduction invites feedback from stakeholders before reintroduction in Congress next year.