In recent months, US lawmakers have been actively working on what’s being called the “One Big, Beautiful Bill”, a sweeping piece of legislation aimed at overhauling the US tax system and government spending. While much of the attention surrounding the bill focuses on domestic issues, its implications for Americans living abroad could be significant.
For the estimated 9 million US citizens living overseas, US tax obligations don’t go away just because they live in another country. The United States is one of only a few countries that taxes its citizens regardless of where they live. If this new bill becomes law, it could reshape how American expats handle everything from tax reporting to retirement planning.
What is the “One Big, Beautiful Bill”?
The phrase “One Big, Beautiful Bill” has been used informally to describe a comprehensive legislative package that aims to combine various proposals related to tax reform, government funding, infrastructure, and economic policy into one major piece of legislation. While the name itself is more political branding than official terminology, the bill is expected to include provisions that could impact individuals and businesses at home and abroad.
Lawmakers have discussed including the following elements:
- Changes to federal income tax brackets
- Adjustments to capital gains and corporate tax rates
- New reporting requirements for foreign assets
- Possible moves toward residency-based taxation
- Expansions or eliminations of certain tax credits
- Changes to the IRS’s enforcement powers
While the final language of the bill is still being debated, American expats should pay close attention to how these elements might affect their tax obligations.
1. Residency-Based Taxation (RBT) – A Long-Awaited Change?
One of the most discussed proposals in the expat community is the potential shift from citizenship-based taxation (CBT) to residency-based taxation (RBT). Under the current system, US citizens must file annual tax returns with the IRS regardless of where they live. Even if they owe nothing (thanks to the Foreign Earned Income Exclusion or Foreign Tax Credit), they still need to file.
Advocates for RBT argue that this system is outdated, overly complex, and punishes Americans who live and work abroad. Under RBT, only individuals residing in the US would be subject to US taxation — similar to how most countries operate.
If the One Big, Beautiful Bill includes RBT provisions, this could be a game-changer for Americans abroad, potentially eliminating the need for annual US tax filings (unless they have US-sourced income).
However, RBT proposals have faced political and administrative hurdles in the past. Expats should monitor whether this version of the bill includes serious movement on this front and, if so, what conditions might apply (such as income thresholds, anti-abuse provisions, or asset disclosures).
2. Changes to the Foreign Earned Income Exclusion (FEIE)
For now, the Foreign Earned Income Exclusion (FEIE) allows Americans abroad to exclude up to $126,500 (2024 limit, adjusted annually) of foreign-earned income from US taxation if they meet the physical presence or bona fide residence test. This provision is essential for many expats in lower-tax or moderate-tax countries.
If the new bill reduces or eliminates the FEIE, or introduces income caps or phaseouts, it could increase the tax burden on many Americans living abroad. Conversely, if RBT is implemented, the FEIE may become less relevant.
Still, until such a shift is confirmed, any changes to the FEIE will have immediate effects on thousands of expats’ tax bills and should be closely monitored.
3. Increased IRS Enforcement and Reporting Requirements
Another element of the proposed legislation is increased funding for IRS enforcement. This could mean more audits and stricter oversight, including for Americans with offshore income, foreign bank accounts, and international investments.
For expats, this could involve:
- Stricter FBAR enforcement (Report of Foreign Bank and Financial Accounts)
- More scrutiny of FATCA compliance (Foreign Account Tax Compliance Act)
- Enhanced reporting of foreign trusts and companies (Forms 5471, 8865, etc.)
The IRS has already increased its focus on international compliance in recent years. If the bill boosts IRS resources further, expats should ensure they are in full compliance — especially those with complex financial arrangements abroad.
4. Capital Gains and Passive Foreign Investment Companies (PFICs)
If the bill raises capital gains tax rates, as some proposals suggest, this could affect expats who own property or investments abroad. For example, Americans who sell real estate in another country may owe higher US capital gains taxes even if they paid tax abroad, especially if foreign tax credits do not fully offset US tax.
Expats should also be cautious about PFIC rules. Many foreign mutual funds, pensions, or insurance products are considered PFICs under US law and are subject to complex and often punitive tax treatment. Any changes in how PFICs are taxed or reported under the new bill could further complicate compliance.
5. Corporate and Self-Employment Tax Changes for Americans Abroad
Expats who are self-employed or own foreign businesses should also review the bill’s potential impact on:
- Self-employment taxes: US self-employed expats must still pay US Social Security and Medicare taxes unless exempted by a totalization agreement.
- GILTI (Global Intangible Low-Taxed Income) and Subpart F: Americans who own 10% or more of foreign corporations may be subject to these international anti-deferral rules. Adjustments to GILTI thresholds or calculations could affect how much tax is due.
- Reporting thresholds: Changes to thresholds for filing Forms 5471, 8858, or 8865 may affect who needs to file and what details must be disclosed.
If you run a business overseas or freelance internationally, it’s critical to get ahead of these changes. Work with a tax professional who understands both US and local rules.
6. Retirement and Pension Accounts
Many expats contribute to local retirement accounts, pensions, savings schemes, or government-mandated plans. Unfortunately, the IRS doesn’t automatically treat these accounts the same as US retirement plans, and tax deferral isn’t guaranteed.
If the One Big, Beautiful Bill includes new rules around foreign pension recognition, this could help streamline compliance. But if new taxes are introduced on overseas investments, this could hurt Americans with retirement savings abroad.
Expats should also pay attention to any changes in IRA or 401(k) contribution rules, especially if they split time between countries or earn a mix of US and foreign income.
7. Streamlined Filing and Amnesty Programs
The IRS currently offers programs like the Streamlined Filing Compliance Procedures for Americans who are behind on their taxes or FBARs. These programs allow for penalty-free catch-up filings if the taxpayer’s non-compliance was non-willful.
If the bill includes broader tax reform, it’s unclear whether these programs will remain, expand, or be phased out. Anyone behind on filings should consider coming forward before potential changes take effect.
What Should Expats Do Now?
While we wait for the final version of the bill, here’s how Americans living abroad can prepare:
- Stay informed – Follow updates from trustworthy sources, including expat-focused tax professionals and official government announcements.
- Evaluate your current compliance – Make sure you’re caught up on your US filings and reporting obligations.
- Work with a tax advisor – US tax law is complex, especially for those with foreign income or assets.
- Don’t assume you’re exempt – Even if you pay foreign taxes, that doesn’t mean you’re off the hook with the IRS.
- Plan ahead – If you’re thinking of selling a property, retiring abroad, or starting a business, consider how new rules might affect you.
The One Big, Beautiful Bill could bring long-overdue tax reforms, including ones that benefit Americans overseas. But it could also introduce new complexities and enforcement measures that make tax compliance even more important.
Whether you’re hoping for a shift to residency-based taxation or just trying to stay ahead of changing rules, it’s essential to stay engaged and proactive. For Americans living abroad, every change to the US tax code has the potential to affect your financial life in meaningful ways.
