John Marcarian | 7 Aug 2025 | 19 min read
The “One Big Beautiful Bill Act” (OBBBA), signed into law on July 4, 2025, is the most sweeping U.S. tax overhaul since 2017.
While it extends many Tax Cuts, it also introduces new provisions that affect inbound and outbound expatriates.
Below we summarize key changes and considerations, including new deductions, changes to foreign earned income provisions, reporting obligations, and residency rules.
New Deductions Or Changes For Foreign Nationals Moving To The U.S. (Inbound Expats)
Moving Expense Deduction
Unfortunately for new U.S. residents, OBBBA permanently disallows the moving expense deduction (and the exclusion for employer-paid moving reimbursements) for non-military taxpayers.
This means foreign nationals relocating for work can no longer deduct their moving costs (which had been suspended under TCJA and now will not return).
In practice, inbound employees should negotiate tax gross-ups on moving packages, since moving benefits are fully taxable. Only active-duty military (and certain intelligence community members) remain eligible for the moving expense deduction.
Standard Deduction And Dual-Status Issues
OBBBA locked in a much larger standard deduction (now $15,750 single / $31,500 joint for 2025 and indexed) as a permanent feature.
However, non-resident aliens still cannot use the standard deduction.
A foreign national who arrives mid-year will file as a dual-status alien, generally paying U.S. tax only on U.S.-source income for the non-resident portion of the year, but with no standard deduction for that part.
If they qualify, they might elect to be treated as U.S. resident for the full year (under IRC §7701(b)(4)) to claim the standard deduction – but that subjects their full-year worldwide income to U.S. tax.
These first-year elections rules are unchanged under OBBBA, so careful timing and modeling is needed to decide the optimal filing status.
Tax Treaty Provisions
Inbound taxpayers should also review tax treaty provisions. If a treaty tie-breaker would treat them as resident of their home country for part of the year, they may use that (since they are not U.S. citizens, the treaty saving clause doesn’t bar it), though doing so can be complex.
OBBBA did not create any new inbound tax exemptions or basis step-ups – meaning new residents receive no automatic step-up in basis for assets they owned before moving.
Planning Tip. For inbound individuals – consider disposing of highly appreciated foreign assets before becoming a U.S. resident, or to be prepared for U.S. tax on the full gain if sold post-arrival (since U.S. basis will generally be original cost).
“Remittance Tax” On Outbound Transfers
A novel provision imposes a 1% excise tax on certain money transfers from the U.S. to foreign recipients (effective for transfers after 2025).
This is aimed at cash remittances – for example, an expat worker in the U.S. sending cash to family overseas via a money transfer service would pay a 1% tax, collected by the remittance provider.
However, transfers from U.S. bank accounts or by U.S. debit/credit card are exempt, so immigrants and foreign workers in the U.S. can plan around this by using bank-to-bank transfers instead of cash remittance services to avoid the fee.
While not a “deduction,” this new tax is a consideration for inbound expats who regularly send funds abroad.
Other Inbound Notes
OBBBA’s major individual tax cuts (rate reductions, bigger child credits, etc.) generally benefit U.S. residents and citizens across the board, including recent arrivals.
For example, the Child Tax Credit (CTC) was increased to $2,500 per child (from $2,000).
However, the act tightened ID requirements. Now at least one parent filing jointly must have an SSN to claim the refundable portion of the CTC.
This is actually easier than the initially proposed rule that both parents have SSNs – a relief for mixed-nationality couples.
Children still need SSNs (ITINs don’t qualify) as before. Inbound expats should obtain SSNs for themselves and their U.S.-citizen children as soon as possible to maximize credits.
Finally, note that state tax obligations might still follow a new arrival (if they establish residency in a U.S. state).
OBBBA temporarily raised the federal state and local tax (SALT) deduction cap from $10k to $40k (through 2029, with AGI phase-outs). This provides some relief if a new resident pays significant state/local taxes.
However, non-residents and dual-status filers generally cannot benefit from the standard deduction or SALT deduction unless they elect full-year residency, so the practical benefit is limited to those fully subject to U.S. tax.
Changes For Americans Moving Or Living Abroad (Outbound Expats)
Foreign Earned Income Exclusion (FEIE) And Housing Exclusion
The FEIE – a key tax break for U.S. expats – continues unchanged in mechanism, with annual inflation adjustments.
For 2025, the FEIE cap rises to $130,000 per qualifying individual (up from $126,500 in 2024).
Married couples who both qualify can exclude up to $260,000 of foreign wage or self-employment income.
The foreign housing exclusion/deduction was also adjusted. The base housing amount is $20,800 and the general housing cost limit about $39,000 for 2025 (with higher caps for certain high-cost cities abroad).
Bottom line. Americans abroad can exclude a bit more income due to inflation indexing; OBBBA did not restrict these exclusions.
Expats should continue to track their bona fide residence or physical presence test status carefully each year to maintain FEIE eligibility – the law did not change the qualification tests (12+ months abroad or 330-day rule).
Foreign Tax Credit (FTC) And Tax Treaties
One initial concern was a provision known as Section 899 (nicknamed the “revenge tax”) that would have penalized Americans in countries with “unfair” taxes (initially aimed at nations with digital services taxes, etc.), effectively limiting the use of foreign tax credits in those cases.
Good news. After international pushback, Section 899 was removed from the final bill. Thus, U.S. expats retain full access to the FTC* to offset foreign income taxes paid, and no new surtax will apply on income from any particular country.
The FTC system remains as before, so Americans abroad can generally credit foreign taxes dollar-for-dollar against U.S. tax on the same income (up to limits), helping avoid double taxation in high-tax countries.
In fact, one tweak in OBBBA actually improves FTC usage for some expats. The act reduces the “deemed paid” foreign tax credit haircut from 20% to 10%.
This mostly affects those with GILTI (Global Intangible Low-Taxed Income) from controlled foreign corporations – now renamed “Net CFC Tested Income” – where previously only 80% of foreign taxes were creditable. Going forward, 90% of foreign taxes on GILTI/NCTI will be creditable.
For an entrepreneur abroad who owns a foreign corporation, this could modestly lower U.S. tax on high-taxed foreign earnings (since more of the foreign tax can offset U.S. tax).
Other international business provisions – like making the CFC look-through rule permanent and restoring certain attribution rules – may ease tax burdens on expats with complex structures.
No Switch To Pure Residency-Based Taxation (Yet)
Despite hopes in the expat community, OBBBA did not end citizenship-based taxation.
U.S. citizens and green card holders are still taxed on worldwide income regardless of residence. President Trump had promised to “end double taxation” on Americans abroad and supported a residence-based taxation (RBT) proposal, but that was not included in this bill.
A separate bill (the LaHood RBT Act) was introduced and may be debated later, but as of now nothing has changed: Americans abroad must continue filing annual U.S. tax returns, FBARs, etc., on their worldwide income and assets.
The FEIE and FTC remain the primary tools to mitigate double taxation.
Tax treaties also remain in effect, but remember the “saving clause” in U.S. treaties generally prevents U.S. citizens from using treaty residency tie-breakers to avoid U.S. tax.
OBBBA did not alter any treaty provisions or the saving clause. (In practical terms, a U.S. citizen cannot use a tax treaty to claim non-residency and escape U.S. tax – you’d have to expatriate to do that. For long-term green card holders, using a treaty to be treated as a non-resident can trigger the expatriation rules – see below.)
Foreign Housing, Meals, And Other Deductions
Aside from the FEIE/housing exclusion adjustments noted, OBBBA didn’t take away expat-specific deductions.
For instance, the housing exclusion formula under §911 remains in place.
Some expats who work for foreign employers may have access to tax-equalization or housing reimbursement plans – those too are unchanged by the law (though employers might need to recalibrate tax projections given other changes).
One Item To Note. If an outbound U.S. employee was hoping the moving expense deduction might be restored for their move abroad, that is not the case – as mentioned, moving expense write-offs remain disallowed for civilians. Employers should gross-up any moving allowances for U.S. employees relocating overseas, since those payments will be taxable compensation to the employee.
Estate And Gift Tax Relief
Many Americans abroad worry about U.S. estate tax on worldwide assets.
OBBBA increased the unified estate/gift tax exclusion to $15 million per individual (up from ~$14M). This high exemption (available through 2030) greatly reduces the number of expats subject to U.S. estate tax.
It also presents a planning opportunity. Wealthy expats considering renouncing U.S. citizenship can use the large gift exemption now to shed assets and potentially get their net worth below the $2 million “covered expatriate” threshold.
By utilizing the $15M exemption to gift assets tax-free now, an expat could avoid the exit tax entirely upon expatriation. (For example, an American abroad with $10M net worth can gift, say, $5M to a trust for their children – using up part of the $15M exemption – and thereafter be under $2M net worth, avoiding covered expatriate status if they renounce.)
Caution. The $15M exemption isn’t guaranteed forever; it’s set to revert (likely to ~$6M) in 2031 unless extended.
Thus, expats with estate tax concerns might act sooner rather than later. OBBBA did not otherwise change the exit tax regime under §877A – any U.S. citizen or long-term green card holder who expatriates with net worth above $2M (or failing other tests) still faces the mark-to-market exit tax.
Proper planning (now aided by the high exemption) remains crucial.
New Reporting Burdens And Compliance Changes (And Planning Responses)
A major theme of OBBBA is increased tax compliance and enforcement, including for international filers.
Key changes that inbound/outbound taxpayers should note:
- Expanded Foreign Asset Reporting – The law authorizes lower thresholds for FATCA Form 8938 and FBAR reporting and even for foreign gift reporting. While the IRS hasn’t yet announced new limits, OBBBA gives Treasury the green light to “lower the bar” for reporting foreign accounts and assets. Currently, U.S. expats must file an FBAR (FinCEN 114) if aggregate foreign accounts > $10,000, and Form 8938 if foreign financial assets > $200,000 (single) at year-end. These thresholds could drop, meaning more expats may have to file these forms going forward.
Foreign gifts/inheritances – Today, a U.S. person must file Form 3520 if they receive > $100,000 from a foreign individual or > ~$18,000 from a foreign corporation/trust.
OBBBA significantly lowers these thresholds (exact new amounts TBD).
This means more expats will trigger Form 3520 filings for even modest gifts or bequests from abroad.
While such foreign gifts remain non-taxable, the penalty for failing to report can be 25% of the gift – so this is a serious compliance point. International tax advisors should flag any inbound gift to a client, no matter how small, to see if it now requires a report.
- Accelerated Deadlines & Shorter Extensions – The Act directs alignment of some expat filing deadlines closer to domestic deadlines. U.S. taxpayers abroad have traditionally enjoyed an automatic 2-month filing extension to June 15, with further extensions to October (and even December in some cases). OBBBA shortens this window. Expect tighter due dates for international filings, possibly ending the automatic June 15 extension.
For example, the due date for filing a Form 3520 or Form 5471 might be pulled forward. We await IRS guidance, but practitioners should prepare expats to file earlier and not rely on lengthy extensions. The era of casually filing an expat return in October might be over – timely attention to April 15 (or a nearer date) is advised once rules are clarified.
- Stiffer Penalties and Enforcement – Congress has hiked penalties for international non-compliance across the board. Failure to file an FBAR, Form 8938, 5471, 3520, etc., will carry even heavier fines than before, and the IRS is mandated to step up international enforcement (with funding previously allocated to IRS enforcement largely preserved). Also, expect greater data sharing between IRS and foreign tax authorities.
For expats, this means less margin for error – every foreign account, asset, and entity must be reported meticulously.
It’s prudent to perform a “compliance check-up”. Ensure all past FBARs and international forms have been filed (the Streamlined Procedures remain an option to clean up past omissions, ideally before penalties hit).
OBBBA’s message is clear: the compliance net is tightening.
- Small Business and Investment Tweaks – Expat entrepreneurs will face some new wrinkles. OBBBA instructs Treasury to limit Section 179 expensing and certain small-business deductions on foreign assets/businesses.
In practice, if an American abroad owns a foreign business or rental property, they may not be able to immediately deduct equipment purchases (§179) placed in service overseas as liberally as a domestic business.
There may also be new anti-abuse rules for expats claiming business losses or expenses from abroad.
Details will emerge in IRS guidance, but tax professionals should be prepared to recalculate assignment cost projections for employers and reassess expat entrepreneurs’ estimated taxes.
On the investment side, note that no relief was provided from the PFIC rules or the transition tax/GILTI regime that hit many expats after 2017 – those remain in effect. (If anything, as noted, GILTI was slightly modified to be more inclusionary by reducing the §250 deduction to 40%, but high foreign tax credits mitigate its impact for many.)
Expats should continue to avoid foreign mutual funds (PFICs) or be ready to file Form 8621 annually.
Planning Opportunities
Despite increased burdens, OBBBA opens some planning avenues:
- Use of the Higher FEIE and Credits – With a ~$130k exclusion, expats on the margin might newly avoid all U.S. tax by ensuring salary splits or housing allowances that maximize use of the FEIE + housing exclusion. Also, the slightly larger Child Tax Credit can mean bigger refunds for those with qualifying kids (make sure to claim the Additional CTC if eligible).
- Estate/Gift and Expatriation Planning – As discussed, the $15M lifetime exclusion offers a window for high-net-worth expats to reorganize wealth (gifts, trust funding, etc.) while U.S. estate tax is minimal. It can facilitate an exit strategy or simply provide peace of mind that one’s estate won’t be taxed absent very large assets.
- State Tax Considerations – Expats retaining state residency (or planning a move abroad mid-year) might benefit from the temporary SALT deduction increase if they itemize. For example, an expat who sells a U.S. home or has high state tax in the year of departure can potentially deduct up to $40k of it federally now – factor this into timing (maybe accelerate income/transactions into 2025-2029 to utilize the higher cap).
- Remittance Tax Avoidance – Inbound foreign workers should shift from cash remittances to bank transfers, as noted, to legally avoid the 1% excise.
In short, global tax planning is more critical than ever.
Expats should coordinate U.S. and foreign tax strategies. For instance, a reduction in U.S. tax by FEIE could expose them to unused foreign tax credits (since you can’t claim credit on excluded income), so one might choose the FTC over FEIE in certain scenarios to maximize overall benefit. Each expat’s situation must be modeled under the new rules to uncover the best approach.
Residency Tie-Breakers, Dual-Status And First/Last-Year Residency Cases
OBBBA did not change the fundamental residency rules for tax purposes – but it adds context:
- Dual-Status Taxpayers – Individuals who are U.S. resident for part of the year and non-resident for part (e.g. the year of arrival or departure) will still file split-year returns as before. One caveat. Because the standard deduction is now permanently high and still unavailable to non-residents, dual-status filers get no standard deduction (and no personal exemption, as exemptions remain $0) for the non-resident portion.
This can result in higher taxable income in a split year.
Strategies remain the same – e.g., if arriving late in the year, consider electing to be treated as a full-year resident (if eligible under the first-year election rules) to claim the full standard deduction and credits, especially if foreign income for the pre-arrival part was low or already taxed abroad.
Conversely, if departing mid-year, one typically does not want to be taxed as a U.S. resident for the full calendar year. In those cases, use the “last-year” residency termination rules (IRC §7701(b)(2)(A)(iii) and (B)) by showing a closer connection to the new country and limited U.S. presence after departure.
OBBBA introduced no new relief or complexity in these calculations – it’s status quo.
However, watch the new accelerated filing deadlines. A dual-status taxpayer can’t procrastinate filing until October; if extension periods are reduced, they may need to file by spring with all necessary information on worldwide income ready.
Early coordination with foreign employers for income statements is advised.
- Tax Treaty Tie-Breakers – Many U.S. tax treaties have residency “tie-breaker” provisions that determine a single country of residence when both countries claim someone as a resident in a given year.
As noted, U.S. citizens cannot fully escape U.S. taxation via treaty due to the saving clause (the U.S. reserves the right to tax its citizens as if the treaty didn’t exist).
OBBBA did not amend any treaties or the saving clause. For non-citizens, such as a foreign national who becomes a U.S. resident but remains a tax resident of their home country, the treaty tie-breaker could be invoked to treat them as non-resident in one of the countries.
That process remains the same – though one should be mindful – if a long-term green card holder uses a treaty to be treated as non-resident of the U.S., that action can be considered a form of expatriation (essentially a surrender of their green card for tax purposes) potentially subjecting them to the exit tax under §877A.
OBBBA did not change this anti-treaty-shopping rule for long-term residents.
Thus, dual-status and treaty positions should be taken with caution and full disclosure (Form 8833 is required for treaty-based return positions).
- Increased Scrutiny – While the rules haven’t changed, the enforcement environment has. The law’s new reporting and documentation demands could indirectly affect residency determinations.
For example, more aggressive information reporting might flag an individual who claims to be a non-resident via a treaty tie-breaker but still has significant U.S. indicia.
In practice, an American abroad who asserts treaty benefits (say, to exempt foreign pension income under a treaty article) might face more IRS questions under the new regime.
Treaty-based positions should be thoroughly supported by contemporaneous evidence (residency certificates, proof of foreign tax paid, etc.).
Likewise, first-year and last-year residency cases may see heightened IRS scrutiny – e.g., if someone claims to have left the U.S. for good in June, the IRS may more often request proof of foreign residence for the remainder of the year. It’s advisable to document travel dates and foreign ties more rigorously in anticipation of this stricter oversight.
Bottom line. The residency definitions (substantial presence test, green card test, etc.) are unchanged – no new “residency tie-breaker certificate” or election was created in OBBBA (the mooted RBT proposal would have allowed citizens to elect non-resident status, but it’s not law).
So the familiar complexities of dual-status returns and treaty tie-breakers remain.
The difference post-OBBBA is a less forgiving compliance atmosphere.
Entry and exit dates should be carefully planned, to maximize the use of any available exclusions/credits in split years, and ensure all required statements (e.g., dual-status statement, treaty disclosure) are properly attached to returns.
Given the new law’s emphasis on enforcement, taking meticulous care with these cases will be critical.
Conclusion
The One Big Beautiful Bill Act of 2025 brings a mix of tax cuts, new rules, and tightened compliance that expats must navigate.
For inbound expats, there’s relief in the form of permanent lower tax rates and higher credits, but also the loss of any moving expense offset and a new remittance tax to consider.
For outbound Americans, the status quo of worldwide taxation continues – mitigated by an even larger FEIE and FTC preservation – but accompanied by more reporting obligations and potential penalties.
Notably, the “worst-case” provisions feared by expats (like the Section 899 FTC surtax) were averted, making this law, in some ways, less punitive than expected.
In fact, some experts call it expat-friendly due to the higher exclusions and the groundwork laid for future residence-based reform.
Still, the administrative burden on expats will rise. More forms (FBAR, FATCA, 3520) at lower thresholds, stricter timelines, and vigorous enforcement mean taxpayers must be ever diligent.
There are also subtle planning points – from exploiting the temporarily generous estate exclusion, to adjusting tax equalization policies for employers, to revisiting whether FEIE or FTC yields a better outcome under the new rates.
Each expat’s scenario will be unique under OBBBA, so personalized analysis is key.
IRS/Treasury Guidance. As of mid-2025, the IRS has begun issuing guidance on implementing OBBBA’s provisions.
For example, guidance was promised on the new tip and overtime deductions (with transition relief for 2025 reporting), and we anticipate further instructions on international provisions (e.g. how to apply the new excise tax or any changes in reporting thresholds).
In summary, expat taxation in the post-OBBBA era will require careful attention but also presents new opportunities.
By understanding the law’s changes – higher deductions and credits, preserved exclusions, and new compliance rules – inbound and outbound taxpayers alike can minimize their tax liability while staying fully compliant with both U.S. and foreign laws.
The 2025 tax year will be a test run for many of these changes, so proactive planning in late 2025 and early 2026 will be essential.
With thoughtful planning, Americans abroad and foreign nationals in the U.S. can navigate the One Big Beautiful Bill’s provisions to their advantage, or at least avoid its pitfalls, and move forward with greater confidence in their tax positions.
