The One Big Beautiful Bill Act, signed into law on July 4, 2025, changes several federal tax credits, deductions, and business rules that can affect Americans living abroad.
For most U.S. expats, the most relevant changes are:
- A $2,200 Child Tax Credit for 2025;
- Higher standard deduction amounts;
- A new 1% tax on certain cash-funded international money transfers;
- New deductions for seniors, qualified tips, overtime, and certain car-loan interest;
- A partially refundable adoption credit; and
- Changes affecting U.S. owners of foreign businesses.
The effect depends on your income, family circumstances, use of the Foreign Earned Income Exclusion or Foreign Tax Credit, and whether you own a business outside the United States.
What Are the Most Important OBBBA Changes for U.S. Expats?
| Provision | Final rule | Practical effect for expats |
|---|---|---|
| Child Tax Credit | Up to $2,200 per qualifying child for 2025 | May reduce U.S. income tax or provide an ACTC refund |
| Standard deduction | $15,750 single/MFS, $31,500 MFJ, and $23,625 HOH for 2025 | Reduces taxable income remaining after other exclusions and deductions |
| Remittance tax | 1% on certain cash-funded transfers from the United States | Ordinary bank-account, ACH, and qualifying card-funded transfers are generally not taxed |
| Senior deduction | Up to $6,000 per eligible person | Available to qualifying expats age 65 or older |
| Tips deduction | Up to $25,000 of qualified tips | May apply to some employees and self-employed workers abroad |
| Overtime deduction | Up to $12,500, or $25,000 on a joint return | Usually unavailable for work performed entirely outside the United States |
| Adoption credit | Up to $5,000 refundable for 2025 | May benefit expat families completing qualifying adoptions |
| Foreign-business provisions | Changes to foreign research expenses, CFC calculations, and reporting periods | May affect U.S. owners of foreign companies beginning in 2025 or 2026 |
How Did the OBBBA Change the Child Tax Credit?
For 2025, the maximum Child Tax Credit increased to $2,200 per qualifying child. Up to $1,700 per qualifying child may be refundable through the Additional Child Tax Credit.
The standard ACTC calculation is generally 15% of earned income above $2,500, subject to the $1,700-per-child refundable limit and the amount of unused Child Tax Credit.
Beginning with 2025 returns, the taxpayer claiming the CTC or ACTC must have a Social Security Number valid for employment and issued before the return’s due date, including extensions. On a joint return, at least one spouse must meet this employment-valid SSN requirement. Each qualifying child must also have an employment-valid SSN issued by the deadline.
The credit begins to phase out when modified adjusted gross income exceeds $200,000 for most filing statuses or $400,000 for married couples filing jointly.
The IRS Child Tax Credit guidance confirms the $2,200 CTC, $1,700 maximum ACTC, and $2,500 earned-income threshold for 2025.
Can an Expat Claim the ACTC While Using the Foreign Earned Income Exclusion?
No. A taxpayer who files Form 2555 to claim the Foreign Earned Income Exclusion, foreign housing exclusion, or foreign housing deduction cannot claim the Additional Child Tax Credit on that return.
Using the Foreign Tax Credit instead may preserve ACTC eligibility because the foreign earned income remains reported on the U.S. return. However, the FTC does not automatically create a refund. The taxpayer must still satisfy the earned-income, SSN, income, and qualifying-child requirements.
Our Child Tax Credit guide for Americans abroad explains the qualifying-child and SSN rules. Our Additional Child Tax Credit guide explains the refund calculation and Form 2555 restriction.
Expats deciding between the two methods should also review our FEIE versus Foreign Tax Credit comparison.
What Is the Standard Deduction for U.S. Expats?
U.S. citizens and Green Card holders living abroad generally use the same federal standard deduction amounts as taxpayers living in the United States.
| Filing status | 2025 standard deduction | 2026 standard deduction |
| Single or Married Filing Separately | $15,750 | $16,100 |
| Married filing jointly or qualifying surviving spouse | $31,500 | $32,200 |
| Head of household | $23,625 | $24,150 |
The higher standard deduction can reduce U.S. taxable income that remains after applying the Foreign Earned Income Exclusion, Foreign Tax Credit, or other provisions.
However, the standard deduction does not reduce self-employment tax. An expat whose earned income is fully excluded and who has no other taxable income may also receive little immediate benefit from the increase.
The IRS lists the final amounts in its guidance for individuals and workers.
Does the New 1% Remittance Tax Apply to Expats?
Beginning January 1, 2026, a 1% federal excise tax applies to certain remittance transfers sent from the United States to recipients in foreign countries.
The tax applies when the sender funds the transfer with:
- Cash;
- A money order;
- A cashier’s check; or
- Another similar physical payment instrument.
The tax generally does not apply when the transfer is funded directly from a qualifying bank account or with a U.S.-issued debit or credit card. Ordinary bank-account and ACH-funded transfers are therefore generally outside the tax.
The sender is liable for the tax, and the remittance transfer provider collects it. The rule is based on how the transfer is funded, not whether the sender is a U.S. citizen, Green Card holder, or noncitizen.
There is no general annual refundable income-tax credit for a properly imposed remittance tax. Refund procedures may apply when the tax was collected incorrectly or when a taxed transfer was canceled or expired and the transferred amount was returned.
Read our U.S. remittance tax guide for examples of taxable and nontaxable transfers. The IRS remittance-tax guidance confirms the 1% rate and the cash-like funding rule.
Can U.S. Expats Claim the New Senior Deduction?
Yes. Living abroad does not automatically prevent an eligible taxpayer from claiming the new senior deduction.
For 2025 through 2028, an eligible person age 65 or older may claim an additional deduction of up to $6,000. A married couple may claim up to $12,000 if both spouses qualify.
The deduction begins to phase out when modified adjusted gross income exceeds:
- $75,000 for most taxpayers; or
- $150,000 for married couples filing jointly.
The deduction is available whether the taxpayer uses the standard deduction or itemizes. Married taxpayers must generally file jointly to claim it.
Form 2555 filers must complete the modified-adjusted-gross-income calculation on Schedule 1-A. Foreign earned income excluded on Form 2555 is taken into account when determining whether the deduction is reduced.
The deduction does not make Social Security benefits automatically tax-free.
Can U.S. Expats Claim the New Tips Deduction?
Some expats may qualify for the deduction, but it does not make all tip income tax-free.
For 2025 through 2028, eligible employees and self-employed individuals may deduct up to $25,000 of qualified tips received in an occupation recognized as customarily and regularly receiving tips.
The tips must be voluntary and properly reported. Mandatory service charges do not qualify. The deduction begins to phase out when modified adjusted gross income exceeds $150,000, or $300,000 for joint filers.
A taxpayer must have an employment-valid SSN. Married taxpayers must generally file jointly.
Expats claiming Form 2555 must include the applicable excluded foreign income when calculating modified adjusted gross income on Schedule 1-A. They should not assume that excluding the tip income and claiming an additional deduction will produce a double benefit.
The IRS explains the eligibility and reporting requirements in its tips-deduction guidance.
Can Expats Claim the New Overtime Deduction?
Most overtime earned for work performed entirely outside the United States will not qualify.
For 2025 through 2028, eligible taxpayers may deduct up to $12,500, or $25,000 for married couples filing jointly, of qualified overtime compensation. Only the overtime premium is deductible. For time-and-a-half pay, this generally means the additional half-time amount rather than the employee’s full overtime wages.
The overtime must be required under the U.S. Fair Labor Standards Act. The FLSA generally does not apply to work performed in a foreign country, even when the employer is based in the United States.
Overtime paid solely because of a foreign labor law, employment agreement, or company policy generally does not qualify. The deduction may still apply when the qualifying work is physically performed in the United States.
The IRS overtime guidance explains the deduction limits, while the Department of Labor explains the foreign-work limitation.
Can an Expat Deduct Car-Loan Interest?
The new deduction will apply to relatively few expats.
For 2025 through 2028, eligible taxpayers may deduct up to $10,000 of interest paid on a qualifying loan used to purchase a personal-use vehicle.
The loan must:
- Have originated after December 31, 2024;
- Be secured by the vehicle;
- Finance a new vehicle purchased for personal use; and
- Finance a vehicle whose final assembly occurred in the United States.
Leases do not qualify. The deduction begins to phase out when modified adjusted gross income exceeds $100,000, or $200,000 for joint filers.
The taxpayer must report the vehicle identification number on the return. A vehicle purchased and assembled outside the United States will generally not qualify.
Did the OBBBA Make the Adoption Credit Refundable?
Partially. Beginning in 2025, up to $5,000 of the adoption credit may be refundable. The refundable amount is indexed for inflation and increases to $5,120 for 2026.
For 2025, the total adoption credit is worth up to $17,280 per eligible child. For 2026, the maximum increases to $17,670.
The timing rules differ for domestic and foreign adoptions. Expenses related to a foreign adoption generally become eligible only when the adoption becomes final.
This change may benefit U.S. expat families completing a qualifying intercountry adoption, even when they have limited U.S. income-tax liability.
Can Children Living Abroad Have a Trump Account?
A child living abroad may qualify if the child meets the applicable citizenship, age, and Social Security Number requirements.
Parents, guardians, and other authorized individuals can establish a Trump Account for an eligible child who has not turned 18 by the end of the election year and has a valid SSN.
The $1,000 federal pilot contribution is available for qualifying U.S. citizen children born from January 1, 2025, through December 31, 2028. The account cannot be funded before July 4, 2026.
The IRS Trump Accounts page explains the election process, contribution rules, and Form 4547 requirements.
How Did the Estate-Tax Exclusion Change?
For U.S. citizens who die in 2026, the federal estate-tax basic exclusion amount increases to $15 million, up from $13.99 million for 2025.
This can affect U.S. citizens living abroad because U.S. estate tax generally applies to their worldwide assets, including foreign real estate, investment accounts, business interests, and other property.
Different rules apply to noncitizen spouses, nonresident noncitizens, foreign trusts, and foreign corporations. High-value cross-border estates require separate planning.
How Does the OBBBA Affect Expat Business Owners?
The business provisions are especially important for expats who operate companies, hire workers, develop software, or receive payments through online platforms.
Did the Form 1099-K Threshold Change?
Yes. The law restored the general Form 1099-K reporting threshold to:
- More than $20,000 in reportable payments; and
- More than 200 transactions during the year.
Both conditions generally must be met before a third-party settlement organization is required to issue Form 1099-K.
This is only an information-reporting threshold. Business and self-employment income remains reportable even when the taxpayer does not receive Form 1099-K.
How Are Foreign Research and Development Costs Treated?
The law allows businesses to currently deduct qualifying domestic research and experimental expenses paid or incurred in tax years beginning after December 31, 2024.
Research activities performed outside the United States remain subject to a different rule. Qualifying foreign research expenses generally must be capitalized and amortized over 15 years.
This distinction can affect U.S. businesses and U.S. owners of foreign companies that employ developers, engineers, researchers, or product teams outside the United States.
The IRS explains the distinction in Revenue Procedure 2025-28.
What Changed for Owners of Foreign Corporations?
The law made technical changes to how certain controlled foreign corporation income and foreign taxes are calculated. It also changed the tax-year rules for certain foreign corporations, with several provisions applying to foreign-corporation tax years beginning after 2025.
These changes may affect:
- GILTI or net CFC tested income calculations;
- Subpart F income;
- Foreign Tax Credit calculations;
- Section 962 elections;
- The timing of income inclusions; and
- The corporation’s required tax year.
U.S. owners of foreign companies should not assume that their 2025 Form 5471 calculations will carry over unchanged to 2026.
Our Form 5471 filing guide explains who may need to file the form. Our controlled foreign corporation guide explains GILTI, Subpart F income, and other CFC tax consequences.
What Should U.S. Expats Do Before Filing?
Before filing a 2025 or 2026 U.S. tax return:
- Confirm that the taxpayer and qualifying children obtained the required SSNs before the filing deadline.
- Compare the FEIE and FTC before filing Form 2555 if the ACTC may be available.
- Check whether the senior, tips, overtime, or car-loan interest deductions apply.
- Use Schedule 1-A to calculate the new deductions and the applicable income phaseouts.
- Keep records showing how international money transfers from the United States were funded.
- Review adoption-credit eligibility if completing a domestic or intercountry adoption.
- Report business income even when no Form 1099-K was issued.
- Review 2026 foreign-corporation calculations if you own or control a company outside the United States.
If you are new to the U.S. filing system, our guide to filing U.S. taxes from abroad explains the basic return, filing deadlines, and common international forms.
Can 1040 Abroad Help Apply the New Rules?
Yes. 1040 Abroad prepares federal tax returns for U.S. citizens and Green Card holders living overseas.
We can compare the Foreign Earned Income Exclusion with the Foreign Tax Credit, calculate the CTC and ACTC, apply the new deductions, and prepare the international forms required for foreign accounts, investments, trusts, and businesses.
Learn more about our Federal Tax Return Preparation Service or contact 1040 Abroad to discuss your situation.
