Residence-Based Taxation in America: Why the Law Has Not Yet Been Adopted (and What Is Happening Now)

Residence-based taxation in America has been on the political agenda since late 2024, but the legislative process is moving more slowly than many Americans living abroad had hoped. Why is this taking so long, and what is currently happening behind the scenes? This article provides an up-to-date overview.

Residence-based taxation in America has been on the political agenda since late 2024, but the legislative process is moving more slowly than many Americans living abroad had hoped. Why is this taking so long, and what is currently happening behind the scenes?

This article provides an up-to-date overview of the Residence-Based Taxation for Americans Abroad Act, why it has not yet passed, what would change under the proposal, and what Americans living abroad should do while waiting for further developments.

Since the Residence-Based Taxation for Americans Abroad Act was introduced at the end of 2024, we have received many questions about residence-based taxation in America. The central question is always the same: why has there not yet been a clear breakthrough?

The answer is less straightforward than many would like. A proposal such as Residence-Based Taxation (RBT) must not only be politically desirable, but also legally sound, fiscally responsible, and practically workable. That requires extensive review and coordination. Especially in a Congress that is simultaneously dealing with several major tax-related issues, progress on complex legislation is rarely fast.

What Is Residence-Based Taxation for Americans Abroad?

The United States currently uses a system known as citizenship-based taxation. This means that U.S. citizens are generally required to file a U.S. tax return and report worldwide income, even if they permanently live outside the United States.

This is different from the approach used by most other countries, which usually tax individuals primarily based on where they live. Under a residence-based taxation system, Americans who genuinely live outside the United States would be taxed more like nonresidents, instead of being taxed as if they still lived in the U.S.

In practical terms, residence-based taxation could reduce or remove many of the filing burdens that affect ordinary Americans abroad, including dual citizens, Accidental Americans, long-term expats, and families who have built their lives outside the United States.

However, the current proposal is not a complete repeal of all U.S. tax obligations for Americans abroad. It is an opt-in or election-based system. That means qualifying Americans abroad would likely have to meet specific conditions before they could benefit from it.

What Is H.R. 10468 — The LaHood Bill?

On December 18, 2024, Congressman Darin LaHood introduced the Residence-Based Taxation for Americans Abroad Act as H.R. 10468 in the 118th Congress. The bill would represent a fundamental shift in U.S. tax policy by allowing qualifying Americans who permanently live outside the United States to elect a different tax treatment.

The original bill was introduced late in the 118th Congress and could not complete the legislative process before that Congress ended. The focus has since shifted to updating and reintroducing the proposal in the 119th Congress.

Advocacy organizations following the issue closely have reported that work is continuing around a revised version of the proposal, including coordination between Congressman LaHood’s office and Senator Todd Young’s office. Tax Fairness for Americans Abroad has also reported ongoing work on reintroduction in 2026.

Was RBT Included in the Big Beautiful Bill?

No. Residence-based taxation was not included in the One Big Beautiful Bill Act.

This is important because many Americans abroad hoped that RBT might be included in a larger tax package. Instead, the broader tax legislation moved forward without adopting residence-based taxation for Americans abroad. Greenback Tax Services’ 2026 overview of the OBBB tax changes for U.S. expats discusses the tax package without identifying RBT as an enacted reform for Americans abroad

This does not mean RBT is dead. It means the proposal still needs its own viable legislative route, either through regular order, a bipartisan tax package, or another suitable legislative vehicle.

Why Hasn’t the US Switched to Residence-Based Taxation Yet?

The proposal is far-reaching – and therefore closely scrutinized.

Because RBT would be a structural change to the current citizenship-based taxation system, every aspect of the proposal is being carefully reviewed. Congressional staff and external experts are examining definitions, exceptions, administrative feasibility, and anti-abuse provisions.

The objective is clear: a law that works for ordinary families and individuals living abroad, without unintentionally creating opportunities for aggressive tax planning.

In addition, policymakers are assessing how RBT would interact with existing frameworks such as FATCA requirements, FBAR reporting obligations, and the role of financial institutions. Banks and other institutions must be able to implement any new system within existing compliance regimes.

What Is the JCT Budget Score; and Why Does It Block Progress?

In Washington, the so-called legislative score plays a decisive role. This is the official estimate of the budgetary impact of a bill. For tax legislation, that estimate is prepared by the Joint Committee on Taxation (JCT), typically over a ten-year budget window.

As long as an official score has not been issued — and as long as concerns about potential loopholes remain unresolved;  it is difficult to build sufficient political support. Without a score, there is effectively no timeline.

This does not mean the proposal is stalled. Rather, it reflects ongoing technical work to refine and strengthen the bill.

A major concern is whether very high-net-worth individuals could attempt to move abroad “on paper” only in order to reduce U.S. taxation. For that reason, anti-abuse rules are central to the discussion. Congressional staff and experts are working on ways to make the bill fair and realistic, while preventing abuse.

Congress Faces Competing Priorities and Strict Procedural Rules

Even when there is substantive momentum, residence-based taxation cannot simply be added to any larger legislative package.

Congressional procedures impose strict limitations on how and when tax proposals can move forward. In 2025 and 2026, additional pressure has come from other major tax initiatives, broad tax packages, and expiring tax provisions with fixed deadlines. These efforts draw on the same policymakers, staff, and committees responsible for evaluating RBT.

There is also a procedural issue around reconciliation. Some tax measures can move through Congress under special budget rules, but not every provision fits within those rules. Because RBT touches complex areas of tax law and may interact with Social Security-related provisions, it may require a more traditional legislative route or inclusion in a suitable year-end tax package.

This is one reason why political support alone is not enough. The bill must also fit the right procedural path.

What Is Happening Now?

Although the process may appear slow from the outside, significant work is continuing behind the scenes.

Current developments include:

Preparation for the 119th Congress
The original bill was introduced late in the 118th Congress and could not complete the legislative process. The focus has now shifted to updating and reintroducing the proposal in the new Congress.

Coordination between the House and the Senate
The team around Senator Todd Young is working with Congressman LaHood’s office on a parallel Senate track, including substantive alignment and potential adjustments. This coordination has also been reflected in updates from advocacy organizations following the issue closely. Democrats Abroad has also described RBT reform as an active issue and has emphasized the need for bipartisan support

Work on the score and anti-abuse provisions
Congressional staff and experts are addressing concerns raised by the Joint Committee on Taxation, including the risk that very high-net-worth individuals could attempt to relocate “on paper” only. The goal is a fair and realistic legislative score without unexpected budgetary consequences. The importance of this budgetary estimate, and the concerns associated with it, have also been explained in detail by Tax Fairness for Americans Abroad.

Building support and coalitions
Organizations representing Americans abroad are publishing analyses, explainers, and technical memos to inform lawmakers and staff about the real-world impact of the current system and the potential effects of residence-based taxation.

What Would Change for Americans Abroad Under RBT?

For ordinary Americans abroad, the most important question is practical: what would actually change if residence-based taxation were adopted?

The exact answer depends on the final bill text. However, based on the original proposal, the system would likely work through an election. Qualifying Americans abroad would choose to be treated differently for U.S. tax purposes, while keeping their U.S. citizenship.

A simplified comparison

Under the current citizenship-based taxation system, U.S. citizens are generally taxed on their worldwide income, regardless of where they live. Many Americans abroad must therefore file an annual U.S. tax return, even if they have no U.S. income and already pay tax in their country of residence.

Under the proposed residence-based taxation system, qualifying Americans abroad could elect to be treated differently for U.S. tax purposes. The exact rules would depend on the final bill text, but the general idea is that eligible Americans living outside the United States would no longer be taxed in the same way on foreign-source income.

U.S.-source income would likely remain taxable in the United States. This could include, for example, income from U.S. property, U.S. investments, or other income connected to the United States.

Foreign account reporting is still an open question. Under the current system, FBAR and FATCA reporting may apply when foreign accounts or financial assets meet certain thresholds. Under RBT, the treatment of FBAR and FATCA would depend on the final legal text and implementation rules.

Eligibility would also be important. RBT would not automatically apply to every American abroad. The proposal is expected to include conditions such as genuine residence outside the United States, a formal election process, and prior U.S. tax compliance. That means Americans who are currently behind on U.S. tax filing may need to resolve their compliance status before they could benefit from any future RBT system.

The key point is that RBT would not automatically apply to every American abroad. The proposal is expected to contain eligibility rules, anti-abuse provisions, and a formal election process.

Why Five Years of Compliance Matter

One of the most important practical details is the expected compliance requirement. Earlier versions of RBT proposals have required Americans abroad to be compliant with U.S. tax obligations for a prior period before they can elect into the new system.

This matters because an American abroad who has not filed U.S. tax returns for several years may not be able to benefit immediately if RBT is adopted.

That is why waiting passively may not be the best strategy. If you are behind on U.S. tax filing, it may be wise to clarify your position now rather than wait for a law that may take years to pass — and may include strict eligibility conditions.

Realistic Timeline: When Could RBT Become Law?

There is currently no guaranteed timeline.

Even in an optimistic scenario, RBT would still need to be reintroduced, scored, negotiated, passed by both chambers of Congress, and signed into law. Advocacy organizations have suggested that 2027 would be the earliest realistic effective date if the process moves successfully.

That means Americans abroad should not assume that RBT will change their filing obligations for the current tax year.

For now, existing U.S. tax rules remain in force.

The Bottom Line: Slow Does Not Mean Stalled

The key takeaway is straightforward. Progress on residence-based taxation in America is slow because the process must be thorough.

The absence of headlines does not mean the issue is being ignored. The legislative machinery is moving, but at Washington’s pace.

RBT remains one of the most important reform proposals for Americans abroad. But it is still a proposal, not current law.

Americans Overseas’ Concerns

At the same time, we believe it is important to be clear about our concerns.

We have seen similar processes before. Under political pressure, legislation can start out looking promising and solution-oriented. Over time, however, layers of exceptions may be added — often out of concern about revenue loss, abuse, or anti-money-laundering risks:  leaving only a narrow group that ultimately benefits.

That is our primary concern.

For this reason, Americans Overseas continues to monitor developments closely and to participate actively in relevant discussions. As an organization with extensive practical experience and hundreds of firsthand accounts from Americans living and working abroad, we consistently bring these realities into the conversation.

Is there reason for hope? Yes.

But this remains a long process, and it is still unclear what the final outcome will look like – and who will ultimately benefit from it.

As always, we will continue to keep you informed.

What Should You Do Now While Waiting for RBT?

The most important advice is simple: do not wait for future legislation before understanding your current obligations.

Residence-based taxation has not yet been adopted. Existing U.S. tax filing rules still apply. If you are a U.S. citizen living abroad, you may still need to file a U.S. tax return, report foreign accounts, or resolve earlier non-compliance.

This is especially important because any future RBT election may depend on prior compliance. If you are behind, getting clarity now could make a significant difference later.

Americans Overseas can help you understand:

• whether you are considered a U.S. person for tax purposes;
• whether you may need to file U.S. tax returns;
• whether FBAR or FATCA reporting may apply;
• whether the Streamlined Procedure could help if you are behind;
• what residence-based taxation could mean for your situation if it is adopted in the future.

Get informed with Americans Overseas

We, the founders of Americans Overseas, were born in the Netherlands and received our American citizenship through our (American) mother.

When we first learned about the U.S.–Netherlands tax treaty around 2013, we felt disbelief (“this can’t be true”), anger (“how can they do this?”), fear (“will I get fined or have problems?”), and panic (“what should I do?”).

Unfortunately, it is true that there is a U.S. tax obligation for Dutch citizens who acquired American nationality by birth. There was no information from local authorities, the U.S. consulate referred us to the IRS, and the IRS itself was impenetrable.

That is why we started this initiative: to help others with reliable information, to prevent unnecessary panic, and to offer free, no‑obligation assistance. When needed, we can connect you with a network of affordable professionals (accountants) who can help you meet your U.S. tax obligations.

Contact us for more information