In late 2018 Congressman George Holding, US Representative from North Carolina, introduced a bill called the Tax Fairness for Americans Abroad Act of 2018 just before the Congressional holiday recess. The bill, also known as, H.R. 7358. This bill allows certain U.S. citizens who are residents of foreign countries to elect to use an alternative tax exclusion for foreign source income, which expands the foreign source income that may be excluded from gross income for tax purposes.
What is the Tax Fairness for Americans Abroad Act?
Referred to the House Committee on Ways and Means and actioned by the House of Representatives, the TFFAAA bill was presented to the 115th Congress, which is no longer in operation. Now, for the bill to be reconsidered, it will need to be reintroduced with a Democrat as a cosigner.
To help get a bipartisan bill under consideration, the Republicans Overseas group has been looking for interested parties to reach out to Democratic members of Congress. There is hope that with increased support with ensure the legislation is passed.
How does this impact Americans Abroad?
Before we get ahead of ourselves, it’s important to note that the proposed bill does not change the current tax system. Greencard holders will remain US personas and subject to taxation under the current laws. Instead, the proposed TFFAA bill looks to amend existing laws by way of adding Sec. 911A. Amending the current tax code so that non-resident citizens can elect to be considered as “qualified non-resident citizens”, it will mean that they only have their US source income taxed; excluding all foreign source income from taxation.
How to Qualify as a Nonresident Citizen?
Qualification under TFFAAA is similar to criteria set out for physical presence tests for Foreign Earned Income Exclusion. These are as follows:
- Be a US citizen
- Have a “tax home” in a foreign country
- Be fully compliant for the prior 3 taxable years
- Meet the other requirements of either the bona fide residence or physical presence test for the taxable year
- Federal employees may not apply
What does this mean for expats?
In our view, right now, not a lot. It would be getting your hopes up too much to suggest this is likely to become law. The US generally needs to balance its books so revenue raising measures would be needed to ease the tax burden of expats overseas. Without a direct representative in Congress, while there has been excellent and extensive lobbying, it is hard to see this gaining the necessary traction.
That said, should the bill get through Congress, it would be good news for some expats, though it only looks to immediately benefit a small number of people living abroad. If you’re a US person living overseas with no US sourced income, then the introduction of TFFAAA would be good news.
For more information on the Tax Fairness for Americans Abroad Act speak to one of advisors today on 020 7183 2251.
