Residence-Based Taxation for Americans Abroad: What ACA/DEG’s Revenue Analysis Shows
American Citizens Abroad Global Foundation will soon share updated data about the federal revenue implications of moving to a residency-based taxation system. The new revenue estimates will apply to FY2027-2036 ACAGF is resharing its previous analysis here in preparation for the updated study release.
Please reach out to ACAGF if you’d like to learn more about our studies on Americans overseas, RBT, and how we see the costs, revenue, and other data around Americans Abroad and comparing citizenship to residence based taxation.
Previous Study
American Citizens Abroad (ACA) and American Citizens Abroad Global Foundation (ACAGF) commissioned District Economics Group (DEG) to update a public-data model of how residence-based taxation (RBT) could affect U.S. federal revenue. The analysis examines one “simple” RBT design for U.S. citizens who genuinely reside overseas. It is not a bill, and it is not a substitute for an official Joint Committee on Taxation score.
The main finding is straightforward: a carefully designed elective RBT system can be structured at zero or near-zero revenue loss over the 2022–2031 budget period. In the modeled framework, qualifying Americans abroad would continue to owe U.S. tax on U.S.-source income, but they would generally not owe U.S. income tax on foreign income earned while they are bona fide foreign residents.
This summary explains the ACA/DEG study, which safeguards were included, the importance of population measures, and what the headline revenue results mean for tax policymakers, Americans abroad, and business publications covering cross-border workforce issues.
Headline revenue results & Key takeaways
ACA reports that a “simple” RBT model produced an estimated +$0.67 billion over the 2022–2031 budget period after accounting for transition-tax revenue and one-time user fees. The result does not assume new revenue from increased enforcement or compliance.
· RBT can be elective rather than mandatory.
· Long-term residents abroad can be exempted from transition taxes and user fees without creating a large overall revenue loss over the 10-year budget window.
· The foreign earned income exclusion can remain available for taxpayers who do not elect RBT.
· Electing taxpayers would not be subject to U.S. income tax on foreign income, but would remain subject to U.S. tax on U.S.-source income.
· FATCA reporting could be lifted for the country in which the electing taxpayer is resident; FBAR reporting would remain unchanged under the modeled approach.
· ACA estimates that more than 2 million Americans abroad could move from worldwide-income taxation to U.S.-source-income taxation over the 10-year period if RBT is enacted.
Key takeaways
· RBT can be modeled as revenue neutral. ACA reports that its “simple” RBT model produced approximately +$0.67 billion over the 2022–2031 budget period after accounting for one-time user fees and transition-tax revenue.
· The result does not depend on new enforcement revenue.
· U.S.-source income remains taxable. Electing RBT would not eliminate U.S. tax on U.S.-source income, U.S. business income, or other income that remains connected to the United States.
· Model has RBT as optional. The foreign earned income exclusion would not need to be repealed. Taxpayers who prefer existing rules could choose not to make the RBT election.
· Long-term residents abroad are treated differently. In the modeled approach, Americans who had lived abroad for at least three years before enactment would be grandfathered and would not face a transition tax or one-time user fee.
· The study estimates 3,921,240 non-military U.S. citizens abroad in 2022, including 2,292,000 filers and 1,629,000 non-filers.
Why accurate population estimates matter
The federal government does not maintain a single reliable database of U.S. citizens who live and work abroad. That makes tax policy harder to design and harder to score. The U.S. State Department has stopped issuing estimates of 9 million because the underlying data was difficult to source. The Federal Voting Assistance Program estimated 4.8 million overseas U.S. citizens, including military and civilian citizens, in 2018.
These differences matter. If Congress, Treasury, the IRS, or the Joint Committee on Taxation uses a population estimate that is too high or too low, the resulting policy may be poorly targeted. Revenue estimates may also overstate or understate how much RBT would cost or raise.
The ACA/DEG analysis is important because it begins with a detailed attempt to estimate the population of Americans abroad and then uses that baseline to model how RBT could work in federal revenue terms.
What the ACA/DEG study modeled
The study analyzes economic issues related to RBT by modeling U.S. citizens residing abroad, including filers, non-filers, and government employees. It uses public data from sources such as the IRS, Federal Reserve Board, Social Security Administration, United Nations, country tax guides, and federal budget baselines.
The model was updated to account for the Tax Cuts and Jobs Act, the COVID-19 pandemic, and Congressional Budget Office baseline data for federal fiscal years 2022 through 2031. The purpose was to test whether a simple, administrable RBT approach could be revenue neutral, resistant to abuse, and designed as optional.
Background: ACA, ACAGF, and District Economics Group
This is ACA’s second economic analysis of a possible residence-based taxation framework. The first analysis was released in 2017, as the Tax Cuts and Jobs Act was being enacted. The updated study revisits the model using public data and a broader country-level crosswalk between individual income tax return data and United Nations immigration statistics.
The sponsor of the study is American Citizens Abroad Global Foundation. Economic analysis was performed by District Economics Group, a nonpartisan economic consulting firm that works on federal and state budget, legislative, regulatory, and tax-policy issues.
The study and its parameters are not a legislative proposal. Congress would decide the final shape of any RBT bill, and only the Joint Committee on Taxation can provide a definitive congressional revenue estimate.
Policy parameters used in the model
The model assumes that electing Americans abroad would generally be taxed like nonresident alien individuals. Foreign income would fall outside U.S. income tax, while U.S.-source income would remain taxable.
· Long-term residents abroad: A U.S. citizen who had resided abroad for at least three years before RBT enactment would be automatically eligible and would not pay a transition tax, departure fee, or one-time user fee.
· Newer residents abroad: Individuals who were not long-term residents would generally need to show bona fide foreign residence for the most recent five taxable years. Years abroad before enactment could count.
· Higher-income transition cases: Some relatively wealthy taxpayers in the newer-resident group could be subject to a transition-tax mechanism.
· One-time user fee: The model assumes a $2,350 user fee for certain electing taxpayers who are not grandfathered long-term residents.
· Tax havens: Individuals resident in tax-haven jurisdictions would not be eligible for RBT under the modeled approach.
· Annual confirmation: Electing taxpayers would need to confirm each year that they remain eligible and have not moved back to the United States.
Difficult modeling questions
The hardest questions involve utilization and revenue leakage. Any revenue estimate depends on how many eligible taxpayers would elect RBT, how many new taxpayers would move abroad after enactment, and how many high-income taxpayers would qualify for the election.
The DEG model is designed to make those variables visible. It estimates domestic and foreign income by income type, country category, and tax-treaty status. That allows analysts to test how specific policy choices, such as eligibility periods or transition-tax rules, affect the 10-year revenue estimate.
Data points for tax and business publications
· Estimated non-military U.S. citizens abroad in 2022: 3,921,240.
· Estimated U.S. citizens abroad who were filers in 2022: 2,292,000.
· Estimated U.S. citizens abroad who were non-filers in 2022: 1,629,000.
· Estimated adjusted gross income mix for Americans abroad: approximately 26% domestic-source income and 74% foreign-source income.
· Estimated adjusted gross income mix for individuals with AGI above $500,000: approximately 25% domestic-source income and 75% foreign-source income.
· Estimated share of earned income after the section 911 exclusion in zero-tax countries: 12%.
The non-filer estimate should not be described as a count of tax evaders. Some individuals may not have enough income to file, and others may not understand the filing rules that apply to U.S. citizens abroad.
Why this matters for tax policy
The United States is one of the few countries that taxes citizens on worldwide income even when they live permanently abroad. Residence-based taxation would move qualifying Americans abroad closer to the approach used by most other countries: residence and source, not citizenship alone, would drive tax treatment.
For policymakers, the ACA/DEG analysis is useful because it frames RBT as a revenue-design problem rather than only a taxpayer-relief issue. The model suggests that eligibility rules, transition rules, user fees, and anti-abuse safeguards can be adjusted to protect the U.S. tax base while reducing duplicative taxation and compliance complexity for genuine foreign residents.
Why this matters for business and workforce coverage
RBT is also relevant for business publications because citizenship-based taxation affects hiring, mobility, banking access, and entrepreneurship for Americans abroad. A clearer RBT framework could make it easier for U.S. citizens overseas to work in foreign markets, start businesses, accept local employment, and remain connected to the U.S. economy without facing overlapping tax systems on the same foreign income.
The revenue question is central. If Congress believes RBT would create a large budget loss, reform is less likely. The ACA/DEG analysis argues that a carefully designed system can preserve taxation of U.S.-source income while limiting revenue exposure from foreign-source income earned by bona fide foreign residents.
Frequently asked questions
What is residence-based taxation for Americans abroad?
Residence-based taxation would allow qualifying U.S. citizens who genuinely reside overseas to be taxed by the United States more like nonresident alien individuals. U.S.-source income would remain taxable, but foreign income earned while abroad would generally not be subject to U.S. income tax.
Does the ACA/DEG study say RBT is revenue neutral?
The ACA/DEG model shows that one “simple” RBT design can be structured at zero or near-zero revenue loss over the 2022–2031 budget period. The page reports an estimated +$0.67 billion under that modeled approach.
Would RBT repeal the foreign earned income exclusion?
Not under the modeled approach. Taxpayers who prefer existing rules could decline the RBT election and continue using the foreign earned income exclusion if eligible.
Would U.S.-source income still be taxed?
Yes. The modeled RBT approach preserves U.S. taxation of U.S.-source income. The change applies primarily to foreign income earned by qualifying Americans who genuinely reside abroad.
Would FBAR reporting change?
No. The ACA page states that FBAR reporting is not changed under the modeled approach.
Is the ACA/DEG analysis an official congressional score?
No. The analysis is intended to help policymakers understand possible revenue effects. Definitive congressional estimates would be produced by the Joint Committee on Taxation.
Source notes
Source webpage: American Citizens Abroad, “Analysis of Revenue Effects of Residents-Based Taxation.” Original URL: https://www.americansabroad.org/aca_deg_analysis_of_revenue_effects_of_residents_based_taxation
Referenced source organizations and data sources in the original page include American Citizens Abroad, American Citizens Abroad Global Foundation, District Economics Group, the IRS, Federal Reserve Board, Social Security Administration, United Nations, country tax guides, the Federal Voting Assistance Program, Treasury, and the Joint Committee on Taxation.
This page is not tax advice. It summarizes policy analysis for legislative, revenue-estimating, media, and public-information purposes.
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