When Congress reconvened this week, a long-simmering issue was notably absent from the top of the agenda: reforming how the United States taxes its citizens living abroad. The U.S. remains one of the only developed nations that taxes based on citizenship rather than residency, a policy that continues to burden millions of Americans overseas with complex filing requirements and, in some cases, double taxation.
The most recent legislative attempt to address this, the Residence-Based Taxation for Americans Abroad Act, was introduced last year by Rep. Darin LaHood (R-Ill.) but expired at the end of the 118th Congress. LaHood and Sen. Todd Young (R-Ind.) have been working on an updated version, but progress has been slowed by the challenge of obtaining a revenue estimate from the Joint Committee on Taxation. With the recess now over, advocates are urging lawmakers to prioritize the measure and fold it into the next reconciliation package.
The case for reform rests on a straightforward principle: taxes should follow economic activity. An American living in Germany, working there, and using German public services should primarily owe taxes to Germany. The current system, however, requires that same person to file annual U.S. tax returns, report foreign bank accounts, and navigate the Foreign Account Tax Compliance Act (FATCA), which forces foreign financial institutions to disclose American customers. The result is that many banks abroad simply refuse to serve U.S. citizens, turning routine financial tasks into bureaucratic nightmares.
These burdens are not limited to the wealthy. IRS data show that most people renouncing their citizenship in recent years have moderate incomes, with about two-thirds having a net worth below $1 million. Teachers, engineers, and dual citizens who have built ordinary lives overseas are disproportionately affected. The current system also creates a competitive disadvantage for American workers abroad, making them more expensive to hire and discouraging internationally mobile talent from maintaining ties to the U.S.
Proponents point to the 2017 tax reforms as a precedent. That legislation moved the U.S. away from taxing corporate profits earned worldwide, recognizing that doing so put American firms at a permanent disadvantage. The same logic, they argue, should apply to individuals. Residence-based taxation would not affect Americans living in the U.S., who would continue to pay taxes on worldwide income. It would simply draw a reasonable line between residents and nonresidents.
President Trump endorsed ending double taxation of Americans overseas during the 2024 campaign, and advocates see the reconciliation process as the most viable vehicle to turn that promise into policy. With lawmakers back in Washington, the pressure is on to bring the bill back to the table and finally align the U.S. with international norms.
As the debate continues, the human cost remains clear. Americans abroad are not asking for a free pass—they are asking for a system that recognizes where they actually live and work. The U.S. has long been an outlier; it is time to catch up.
