The One Big Beautiful Bill Act brings significant implications for US citizens living abroad (expats) and non-resident aliens with US-source income, with effects varying dramatically between permanent and temporary provisions.
Permanent changes affecting expats
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Foreign Earned Income Exclusion enhancement: The Foreign Earned Income Exclusion (FEIE) rises to $130,000 for 2025, which expats will report in 2026 for income earned in 2025. This permanent increase provides long-term planning certainty for Americans abroad.
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Estate tax relief: The permanent increase in the estate tax exemption to $15 million particularly benefits wealthy expats who may have been considering renunciation to avoid US estate taxes on foreign assets.
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TCJA rate extensions: The TCJA rates (10%–37%) are now permanent instead of expiring in 2025, providing certainty and generally keeping rates lower than they would have been under pre-2017 law.
Temporary changes with mixed impact
The SALT deduction changes clarify that foreign property taxes remain nondeductible as part of the SALT deduction. While the new legislation made significant changes to the SALT deduction, it did not reverse the disallowance of foreign real property tax deductions. Therefore, foreign property taxes for personal use, such as a vacation home, remain nondeductible on your US tax return. However, Americans abroad who still file US state returns can now deduct more of their state taxes, potentially reducing their overall US tax burden.
Child Tax Credit complications arise with changes that, while increasing the maximum credit from $2,000 to $2,500 per qualifying child for 2025–2028, impose new restrictions requiring qualifying children to have US Social Security Numbers (SSN), and parents need valid SSNs to claim the refundable portion. US expats with children who are dual citizens but don't have SSNs — or those in mixed-status households — could lose access to the credit entirely.
New burdens and concerns
Remittance tax impact
The final law imposes a 1% tax on remittances (down from the originally proposed 3.5%), which will impact Americans abroad who don't use bank accounts, credit cards, or debit cards to move money abroad. This creates extra ID-verification and reporting hurdles for American citizens and financial institutions, with a cumbersome process for recouping erroneously collected tax.
Business owner challenges
For business owners abroad claiming the Section 962 election, the final bill locks in the 49.2% GILTI deduction for an effective US tax rate of 10.67% for Controlled Foreign Corporation income, though claiming this election greatly complicates tax filing.
Eliminated threats
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Section 899 "Revenge Tax" Removed: The problematic Section 899 surtax was removed from the final bill, demonstrating a commitment to avoiding punitive treatment of Americans abroad.
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Enhanced Informational Reporting Requirements: The final bill eliminated provisions for lowering thresholds for FATCA and FBAR disclosures, potentially triggering more filing requirements for expats who previously didn't meet the thresholds. If the proposals were enacted, it would also mean acceleration of filing deadlines, shorter extension periods for international forms, and increased penalties for noncompliance.
Planning implications for expats
Immediate actions needed
Most expats will find their overall tax burden decreases significantly with the higher FEIE and new deductions. For 2025 planning, calculating how these changes benefit specific situations is crucial.
Long-term considerations
Despite some improvements, the legislation creates a complex landscape where permanent provisions generally benefit expats through higher exclusions and lower rates, while temporary provisions offer mixed results with some benefits offset by increased compliance burdens and eligibility restrictions.
Final takeaways for the United States’ expats
For Americans living abroad, the legislation presents a mixed bag: permanent improvements like higher foreign earned income exclusions and estate tax relief provide meaningful benefits, while new compliance burdens and temporary provisions with restrictive eligibility criteria create additional complexity.
As these changes take effect throughout 2025 and beyond, all taxpayers – but especially expats navigating the complexities of dual tax obligations – are advised to work closely with tax professionals to optimize their strategies and take full advantage of both the permanent structural changes and the limited-time opportunities provided by this landmark legislation.
The full impact of this comprehensive reform will unfold over the coming years, making it essential for individuals and businesses to stay informed about implementation details and potential future modifications.
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FAQ
Will the 1% remittance tax affect normal bank or card transfers abroad?
The levy targets money moved outside formal banking channels, so standard bank wires, credit, or debit transfers remain unaffected.
How does electing Section 962 change my GILTI tax on a foreign corporation?
Making the election locks in a 49.2% GILTI deduction, resulting in an effective US tax rate of about 10.67% on that income.
