What's Happening?
The One Big Beautiful Bill Act (OBBB), signed into law on July 4, 2025, introduces significant changes to tax provisions affecting U.S. expats. Key elements include an increase in the Foreign Earned Income Exclusion (FEIE) limit to approximately $130,000 for 2025 earnings, allowing more foreign-earned income to be tax-excluded. The preservation of the Foreign Tax Credit (FTC) ensures expats can avoid double taxation. Additionally, a new 1% remittance tax will apply to certain money transfers from U.S. accounts to foreign recipients starting January 1, 2026. The Child Tax Credit has been expanded to $2,500 through tax years 2025-2028, with tightened eligibility requirements. The Tax Cuts and Jobs Act (TCJA) tax rates are now permanent, providing expats with more predictability in tax planning.
Why It's Important?
These changes have substantial implications for U.S. expats, impacting their tax liabilities and planning strategies. The increased FEIE limit allows expats to exclude more of their foreign income from U.S. taxation, potentially reducing their overall tax burden. The preservation of the FTC is crucial for avoiding double taxation, a significant concern for expats. The introduction of the remittance tax may affect how expats transfer money abroad, necessitating careful planning to minimize tax liabilities. The expanded Child Tax Credit offers financial relief to families, although stricter eligibility requirements may pose challenges for mixed-status households. The permanence of TCJA tax rates provides stability in tax planning, allowing expats to make informed financial decisions.
What's Next?
Expats will need to adjust their tax filing strategies to comply with the new provisions of the OBBB. This includes monitoring foreign income closely to maximize the benefits of the increased FEIE limit and planning remittances to avoid the new tax. Families must ensure compliance with the tightened Child Tax Credit requirements, particularly regarding Social Security Numbers for qualifying children. Expats should consult tax professionals to navigate these changes effectively and avoid common pitfalls, such as under-reporting or overlooking new deduction rules.
Beyond the Headlines
The OBBB's impact extends beyond immediate tax changes, potentially influencing long-term financial planning for expats. The remittance tax may alter how expats manage their finances, encouraging the use of exempt transfer methods. The increased FEIE limit and preserved FTC could enhance the attractiveness of foreign employment opportunities for U.S. citizens, potentially affecting global mobility trends. The tightened Child Tax Credit requirements may prompt discussions on immigration and citizenship policies, particularly for mixed-status families.
