The United States remains one of only two countries in the world that taxes its citizens based on citizenship rather than residency, a policy that burdens millions living abroad.
Americans working and living overseas are subject to filing requirements and tax obligations to the U.S. government regardless of where they earn their income or reside.
This citizenship-based taxation system has long drawn criticism from expat advocacy groups, financial professionals, and lawmakers who argue it creates significant hardship for ordinary Americans abroad.
Unlike most developed nations, which use residency-based taxation, the U.S. system requires citizens overseas to navigate two separate tax regimes simultaneously, often at great personal cost.
Many expats find themselves paying taxes in both their country of residence and filing detailed returns to the Internal Revenue Service, a process that can cost thousands of dollars annually in compliance fees alone.
The Foreign Account Tax Compliance Act, known as FATCA, adds another layer of burden by requiring foreign financial institutions to report on accounts held by U.S. citizens, causing many overseas banks to turn away American clients entirely.
This so-called “bank rejection” phenomenon has left many expats unable to open basic checking or savings accounts in the countries where they legally live and work.
Reform advocates have argued for years that shifting to a residency-based system would alleviate these pressures without meaningfully reducing federal tax revenues, since most expats already pay taxes in high-tax foreign jurisdictions.
Despite bipartisan acknowledgment of the problem in recent congressional sessions, no comprehensive legislative fix has advanced far enough to reach a floor vote in either chamber.
Expat communities continue to push for change, arguing that the current system effectively punishes Americans who pursue careers, families, or opportunities outside the United States.
The record number of Americans renouncing their citizenship in recent years is frequently cited as direct evidence of the toll this tax policy takes on those living abroad.
With Washington focused on broader domestic tax debates heading deeper into 2026, advocates fear that meaningful reform for the estimated nine million Americans living overseas remains as distant as ever.
