New bills set out to end dual taxation for Americans abroad, increase benefits

A U.S. politician has introduced a groundbreaking bill to eliminate the double taxation burden faced by millions of Americans living abroad. Separately, the U.S. Senate has passed a bill ensuring that Americans overseas—particularly retirees or those nearing retirement age—can claim their full Social Security benefits.

The Residence-Based Taxation for Americans Abroad Act, if enacted, would allow U.S. expatriates to pay taxes only in the country where they reside, except for income earned from U.S. sources.

Proposed by Representative Darin LaHood of the Republican Party, this legislation represents a major change in U.S. tax policy. It offers expatriates the option to adopt residence-based taxation, a system already used by most countries. Under the act, Americans living abroad would no longer need to pay U.S. taxes unless they earn income from within the U.S.

Speaking to Expats.cz this morning, Brandon Mitchener, executive director of Tax Fairness for Americans Abroad (TFFAA), praised the proposal. He stated: “This act would free millions of Americans from having to pay costly expat tax advisers just to prove they owe no U.S. taxes.” He also noted: “The bill would stop foreign financial institutions from discriminating against Americans living overseas.”

In a TFFAA press release, Mitchener added: “For the first time in our lifetimes, Americans abroad can see hope after years of high accounting fees, strained relationships, and the inability to live normal lives.”

If passed, the legislation would provide relief to Americans born abroad or those who have lived overseas since 2010 or after turning 25. Future expatriates would qualify for residence-based taxation after a transition period. However, high-net-worth individuals would face a "departure tax" to prevent tax evasion.

Expats earning U.S.-source income, such as from real estate, investments, or retirement accounts, would still need to pay U.S. taxes on that income. The proposal must undergo further review in Congress and is not yet law. The upcoming changes in the House and Senate could influence the bill’s outcome.

Separately, the U.S. Senate this week repealed the Windfall Elimination Provision, a rule that can reduce the Social Security benefits of certain workers who receive a pension from a job where they did not pay Social Security taxes.

According to the Democrats Abroad association, this means that Americans will receive the full amount of Social Security benefits they are entitled to, and their payments will increase.

This will benefit Americans abroad who: worked in both social security-covered and non-covered jobs (such as a U.S. government employee who moved into the private sector); receive a foreign pension; or Americans who are retired or nearing retirement, and living abroad.