What You Need to Know About Taxes in 2026 If You Live Overseas

A dramatic overhaul of US expat taxes could double your financial burden in 2026. American citizens living abroad just need to pay attention to this pending tax legislation right away. These changes being thought over would increase what you owe to the IRS by a lot, whatever your income level or time spent outside the United States.

US citizens face unique financial challenges with expat taxes that other countries' residents don't experience. The United States stands with only one other country worldwide that taxes its citizens' global income, whatever their place of residence. These new proposals target Americans abroad through remittance taxes and additional withholding requirements. Your total tax obligation could reach nearly 50% of your income. You have time to prepare for these potential changes before they take effect.

Trump Proposes New Taxes on US Expats

President Trump's "One Big Beautiful Bill" brings major tax changes that will affect Americans living overseas. The proposal includes two key tax provisions that mean higher financial costs for US citizens abroad.

First of all, the bill adds a 3.5% remittance tax when you send US dollars from America to foreign countries. Moving money from US-based accounts to overseas banks will cost an extra 3.5% on the total amount. You have roughly 6 months to develop various strategies, as the new tax will take effect in January 2026.

Furthermore, the second proposal targets investment income with a new withholding tax on US stock dividends and bond interest. This comes as a response to countries that charge what Trump's team calls "unfair taxes" on American companies, especially Digital Services Taxes that hit tech giants.

The withholding tax starts at an extra 5% and could go up by 5% each year until it hits 20%. Notably, non-US citizens already pay up to 30% withholding tax in numerous instances. As a result, the total tax could reach between 35% and 50%. Add the remittance tax, and you might pay up to 53.5% on some income types.

The proposed withholding rules create special problems for people who invest through Irish-domiciled Exchange-Traded Funds (ETFs). Many expats use these funds because they're tax efficient. Even so, selling investments won't face these new taxes on capital gains.

Nobody knows yet if converting to another currency before moving money or using non-US brokers might help avoid these taxes. The draft bill still needs Senate approval, and changes are likely.

These proposals worry many about market stability, but final decisions are still pending. The Senate's approval process leaves room to revise the current draft.

Remittance Tax Threatens Cross-Border Transfers

Americans who move money across borders face a new challenge – a proposed 3.5% remittance tax. This tax would automatically take 3.5% from any US dollars sent from American accounts to foreign countries. The new rule would basically penalise expats who move their money internationally.

The tax would hit several everyday transactions that expats rely on. Your US broking account transfers to foreign bank accounts would cost 3.5% extra. US investment dividends going to foreign-based accounts might also get taxed the same way.

Is there any positive news? This remittance tax wouldn't start until January 2026. The delay gives you about 6 months to plan ahead if the law passes.

Financial experts haven't figured out all the details yet, but they're talking about some possible solutions:

• Converting USD to other currencies in your brokerage account before overseas transfers

• Moving stocks or ETFs to non-US brokerages before selling them

• Creating new payment systems that reduce cross-border transfers

The tax's effects reach beyond individual expats. If foreign companies have to pay 3.5% to send profits back home, they might reconsider their US investments. Business groups could fight the tax during the lawmaking process.

The bill still requires approval from the Senate, and regulations that impact a large number of people frequently undergo significant changes. While no dedicated groups lobby for expats in Washington, many different sectors might push back against such a broad tax.

Market experts say the law could make foreign investors less interested in US markets, which might hurt stock and bond prices. Combined with other parts of the bill that increase US debt, this could create more market uncertainty.

All the same, financial advisors suggest not making quick moves based on laws that might still change.

Withholding Tax Could Raise Total Burden to 50%

The proposed legislation carries significant implications. Beyond the remittance tax, Americans living abroad face an even bigger financial hit through extra withholding taxes. These taxes target their US investment income – dividends, interest, and rental income.

The withholding tax works in steps. It starts with an extra 5% tax that could go up by 5% each year until it hits 20%. Non-US citizens already pay up to 30% withholding tax in numerous instances. This means your total withholding could reach between 35% and 50% on investment income.

The math gets worse quickly. Including the 3.5% remittance tax, you may find yourself paying 53.5% on certain income streams. You read that right – more than half your investment returns could go to taxes.

Here's some good news, though. These withholding taxes won't touch capital gains from selling investments. You might need to rethink your investment strategy if these proposals become law.

The situation gets trickier for investors using Irish-domiciled ETFs. Ireland's tax-efficient structures work well now, but higher rates could apply if these get added to the withholding tax list. This creates a real problem since avoiding US assets isn't realistic – they make up over 60% of the global stock market.

Things get even more complex with the EU's plans for a 3% Digital Services Tax. Ireland hosts many big US tech companies' regional offices thanks to its low corporate tax rates. Now it's stuck between following European rules and keeping US businesses happy.

Market experts warn these changes could scare away foreign investors from US markets. This might hurt stock values and overall market stability. The proposal's US tax cuts and increased spending would add to the debt load, which could shake up both stocks and bonds.

Prepare Now for Potential Tax Changes

The proposed tax changes pose a serious threat to your financial well-being as an American living abroad. A 3.5% remittance tax combined with rising withholding taxes could reshape your investment strategies and cross-border financial management completely.

You still have time to make necessary adjustments. The remittance tax won't take effect until January 2026, which gives you room to adjust your financial plans. The legislation still needs Senate approval, where major changes often happen during negotiations.

Tax experts recommend considering preventive measures at this time. You should think over restructuring your international money transfers. Look for investment vehicles that might avoid these new taxes. Talk to tax professionals who focus on expat finances before making any big moves.

Note that capital gains seem exempt from these new withholding rules, though the situation could change as the bill moves forward. The proposed law remains unclear about possible alternatives, such as converting currency before moving funds.

These tax proposals show why American expats must watch US tax policy changes closely. Your tax duties follow you everywhere, unlike citizens from other countries. Staying informed and ready is your best defence against paying twice for your hard-earned money.