• Monte Silver, Tax lawyer

US Tax bill passes House. Overview of new provisions & impact on expats

It is true that the new 2022 budget and tax bill just passed by the House will only become law if and when the Senate passes it via the “reconciliation bill”. Politically, this process requires that ALL 51 Democratic senators support it. Not easy. But the Democrats, who control Congress & the White House, know they MUST pass of bill in 2021, before the 2022 mid-term election cycle after the new year. Like Trump did in December 2017 with the TCJA.

The House bill is 1600 pages. It covers countless issues unrelated to tax, and is highly intricate on each subject. Given the limited time, one must assume that Chuck Schumer & the Senate Democrats were deeply involved in the bill’s negotiations and drafting. Thus, it follows that overall blueprint of the House bill must be acceptable to the Senate … more or less.

In terms of tax, at a high level, the bill is aimed at taxing (i) the rich, and (ii) huge US companies via the GILTI regime. Indeed, the bill spends many dozens of pages detailing GILTI-related issues. And as Expat business owners, we unfortunately remain “all in”. GILTI.

Here are some issues that do impact expats:

1. GILTI. Mostly effective Jan 2023, some important changes are:

  1. Reduction of the IRC 250 deduction from 50% to 28.5%, (bad)

  2. Increase of the Foreign Tax Credit from 80% to 95% (good).

Overall impact: Given that the Treasury passed the high tax GILTI exemption, expats whose companies are subject to relatively high corporate tax rates in their country may not have any GILTI tax liability. For those in low-moderate tax-rate countries, a careful analysis of the 962 election becomes relevant. And, finally, Biden’s Treasury is evaluating this “big-business” break and may cancel the high tax exemption at any time. Clearly bad for many of us.

Personal impact: Continue to pay higher CPA fees to comply with GILTI.

Not included in the bill: Citizens abroad are mentioned once in the bill in the context of ultra-rich expats being subject to a new 5% tax. IRC 911 is not mentioned. Specific tax rates are not included.

2. Taxes on rich expats (generally effective January 1, 2022).

  1. The 3.8% Obamacare tax is expanded for taxpayers who earn more than $400,000. In this case, the definition of “Net Investment Income” is expanded to include income and gains from active businesses. For example, if your real estate business generates income and capital gains, that amount is included in the definition, where once it was not.

  2. An ultra-high wealth 5% tax: The additional 5% tax on income over $10,000,000. applies to the ultra-rich expats, after reduction of the FEIE under IRC 911. This is the only mention of expats in the bill. Pretty sad :(

3. Increased funding to the IRS - $80 billion. To increase enforcement and generate revenue. One can assume that high-wealth expats will be focused on more and more.

To read the full bill passed by the House, click here:


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