What does Trump’s Tax Reform Plan Mean for US Expats?

expats tax reform

On 27th September 2017, the White House and Republican Congressional leaders released details of Trump’s proposed tax reform plan. So what do the new details mean for expats?

Based on what we know so far, the proposed reform herald both good and bad news for Americans living abroad.

The good news

There’s plenty of good news for expats contained in the proposals.

For a start, the simplification of income tax brackets combined with an increase in standard deductions most likely means that just about everyone will pay less personal income tax.

The proposed new tax brackets are 12%, 25%, and 35%, and while the lowest new bracket is higher than the current 10%, the increase in standard deductions should minimally offset this.

The plan talks about scrapping the current personal exemption and standard deduction which combined add up to just over $10,000, and replacing them with an increased standard deduction of $12,000 ($24,000 for married couples).

A simpler system with lower income tax rates benefits all Americans, however expats who pay higher rates of income tax abroad and who claim the Foreign Tax Credit will benefit in particular, as if they owe less tax to Uncle Sam, they will have more excess US tax credits than currently which they can carry forward for future use.

Many expats with businesses registered in the US will also benefit from the proposed change of only taxing US corporations’ profits earned within the US, rather than global profits.

“The proposal calls for a switch to a territorial system of taxation for businesses. The idea would be for U.S. companies to pay taxes on their profits to the U.S. only for amounts earned in the U.S.” – Forbes

So for Digital Nomads or expat entrepreneurs with a US registered business but foreign clients, their business profits will no longer be taxable in the US.

More good news for expats is that Trumps tax return plan proposals contain no mention of scrapping or changing the Foreign Earned Income Exclusion, as some had feared. Neither is there any suggestion at this stage that the Streamlined Procedure, the IRS amnesty program that allows expats who aren’t up to date with their US filing to catch up without facing any penalties, will be revoked, so expats in this situation should consider catching up by filing under the program at their earliest opportunity.

The bad news

It’s not all good news for expats though. Many had hoped that the Trump Tax Reform Plan would go further, and repeal either FATCA (the 2010 Foreign Account tax Compliance Act, which compels foreign banks to report their American account holders to the IRS) or even citizenship based taxation, which requires expats to file US taxes from abroad. Unfortunately, there’s no indication that either of these will happen.


On balance, while some will be disappointed that Trump’s Tax Reform Plan doesn’t go further, overall the plan bodes well for expats, in reducing income tax rates while leaving in place the exemptions that allow expats to avoid double taxation.

However at this stage very little is known still, including what the new personal income tax rates’ brackets will be, so a more detailed assessment isn’t yet possible.

And there are still the not unsubstantial hurdles of agreeing on the details, and getting the bill through Congress, which going by Trump’s experience so far (Trumpcare?), may not prove as easy as tax cuts should be.

So while not perfect, Trump’s Tax Reform Plan certainly looks net positive for expats, however at the moment it’s a question of wait and see until more details are announced, and a workable consensus looks realistic in Congress.

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