With the global pandemic hit the global economy and after the change in the US government, Americans living abroad may wonder how the US election will impact expats and taxes. With the win of Democratic Party; with Joe Biden winning the race one can expect to have certain change in the expat rules and policies.

With the claims that the new government will raise the taxes, there has been thinking whether expat taxes rules will also undergo change or not. The newly elected president does have some plans to roll back some changes from the earlier president’s signature tax law, tax cuts and jobs act (TCJA).

All the Americans including those living abroad are required to file US taxes every year, reporting their global income to IRS. Most claims of the expats claims provisions such as foreign tax credit and the foreign earned income exclusion when they file and so do not end up owning any US tax, however this does not prevent Americans abroad from having to file tax.

Also, expats have to report their foreign bank accounts and investments to the IRS. Many of the new president’s tax plans involve reversing changes made in TCJA.

For instance, there are plans to revert the highest rate of income tax from 37% back to 39.6%. Long term capital gains tax and pay roll tax would also rise for high earners.

There will also be change to state and gift taxes with the rate rising from 40% to 45% and with untaxed exemption limit reducing to $3.5m. So far the changes recommended only affect high earners.

One proposed change that will affect many expats positively is the plan to raise the child tax credit to $3000, with the entire amount refundable instead of $1400 that is presently refunded. An expanded child and dependent care credit would also include a refundable amount.

Such changes epitomize that expat parents who pay foreign taxes and do away their US tax liability by claiming the foreign tax credit receive a $3000 per child annually, potentially along with further refund if they are having qualifying child care expenses.

For corporate expats with foreign registered business are subject to another tax called GILTI. The new president plans to remove the 50% discount so effectively doubling GITLI tax rate for many foreign registered companies owned by Americans.

FATCA law introduced in 2010, giving IRS the means to enforce worldwide US tax compliance for the first time. This law unintentionally created certain issues like access banking and other financial services for expats in their country of residence.

There be repeal of this act for providing relief for US living abroad from having to file US taxes or report their foreign accounts or assets.

It is advisable for the Americans living abroad to seek advice and guidance from an expat tax specialist to ensure that they avoid penalties, adhere to expat tax laws and file US tax in the most beneficial way given their circumstances.

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