Trump Tax Reform Bill Makes Little Difference To US Expats

US expats who were hoping a miracle as part of the Trump tax reform would ease FATCA’s pressure on their lives are now deeply disappointed.

US citizens living and working overseas were hoping against hope that continuing calls by US expat organisations representing both sides of the political divide might result in an easing of the hated FATCA disclosure laws and the USA government’s commitment to double taxation. Now that the Trump reform is out there and has been examined, tax lawyers are muttering about ‘smoke and mirrors’ and Americans overseas are not happy bunnies.

For the nine million or so US citizens living overseas, the much-touted ‘reform’ will make very little difference to either their regulatory burden or the tax bill itself. The first point to note is a change in the way inflation will be calculated, with the use of the ‘regular consumer price index’ now replaced by the so-called ‘chained consumer price index’. As with so many former norms since the beginning of the Trump presidency, the earlier method of calculation has now been consigned to the White House rubbish bin.

The result of the change for US expats overseas is that the Foreign Earned Income Exclusion will be calculated via a lower inflation rate, resulting in a higher tax bill. It’s a small change for now, but as the cost of living increases, so will expats’ tax contributions to the US of A’s taxman. Another, more major, change involves tax brackets, with the majority being widened, thus placing a good number of expats in a lower tax rate bracket.

The standard deduction has increased by almost 100 per cent, and the individual mandate and moving deduction are now in the same White House rubbish bin as the regular consumer price index. US citizens operating overseas businesses are expected to be worse off due to a reform of corporate taxation, and any untaxed profits reintroduced into the USA will be subject to a one-off 15.5 per cent repatriation tax.

The seriously bad news is that FATCA is still up and running in spite of Republican pledges about its repeal. FBAR is to remain part of the annual filing, along with even more forms for detailing offshore financial holdings. The $100,000 earnings offset will still be allowed by FEIE, as will the IRS’s setting off of income tax already paid overseas, using the dollar-by-dollar basis.