Incoming Trump Presidency and the Potential Tax Impact for US Persons in Switzerland

As the US prepares for President-elect Donald Trump to take office on January 20, 2025, the United States is preparing for significant shifts in tax policy. With Republicans controlling both chambers of the US Congress, and many individual income tax provisions of the Tax Cuts and Jobs Act of 2017 (TCJA) sunsetting at the end of 2025, the stage is set for potential tax changes that will impact businesses, individuals, and the broader economy. For Americans living abroad, these changes could have significant implications and allow for new planning opportunities.

With the upcoming sunset of many of the TCJA’s individual income tax provisions, the new Congress has made it clear that their priority is to pass a tax bill to, at minimum, extend most of the favourable individual income tax provisions that are otherwise set to expire at the end of 2025. Additionally, throughout President-elect Trump’s campaign, he made various statements around potential additional tax changes.

Potential Extension of TCJA

The key individual income tax provisions of the TCJA set to expire at the end of 2025 include:

• The increased standard deduction (for 2025: $15,000 for Single/Separate, $30,000 for Joint, and $22,500 for Head of Household filers),
• The decrease in the marginal tax rate across all income brackets,
• The doubled child tax credit ($2,000 instead of $1,000 per qualifying child), and
• The increased estate and gift tax exemption ($13,990,000 lifetime exclusion per taxpayer, and $19,000 annual gift tax exclusion).

Absent any modification or extension of the TCJA provisions, we would expect the standard deduction, child tax credit, and estate/gift tax exemptions to revert to their pre-TCJA levels (indexed for inflation) and decrease by approximately half. Additionally, we would expect the restoration of the personal exemptions that were available in tax years prior to 2018.

Speaker of the House Rep. Mike Johnson and Senate Majority Leader Sen. John Thune have both expressed their intentions to pass an extension of the TCJA. However, disagreements surely remain on new tax law changes and the legislative approach to passing a tax bill.

President-elect Trump’s Tax Proposals

During his campaign, President-elect Trump proposed several key changes to the tax code including extension of the TCJA’s temporary provisions and additional changes, which build on TCJA. The primary focus of his tax agenda includes further reducing corporate tax rates and introducing new tax incentives aimed at boosting domestic production and supporting families.

For Americans living abroad, particularly in Switzerland, several of Trump's proposals could have direct impacts, namely:

• Social Security Benefits: The proposal to eliminate taxes on Social Security benefits could benefit American retirees living abroad, who currently face taxes on up to 85% of their benefits if their combined income exceeds certain thresholds.
• Foreign Earned Income Exclusion and Housing Deduction: While not specifically addressed in Trump's proposals, any changes to the Foreign Earned Income Exclusion (FEIE) or housing exclusion could affect Americans working and living in high-cost countries like Switzerland. Currently, the FEIE allows US citizens to exclude a portion of their foreign earnings from US taxation, and the housing exclusion provides additional relief for housing costs.
• Removing the cap on State and Local Tax (SALT) itemised deductions: The TCJA introduced a $10,000 ceiling on SALT that can be claimed as an itemised deduction, which is set to expire after 2025. While only about 9% of US taxpayers itemise, this provision can be very relevant for taxpayers moving to/from states with relatively high tax burdens. While the support of this provision interestingly does not fall along party lines, President-elect Trump has indicated his support for reinstating the full deduction on State and Local Taxes.
• Restoration of Personal Exemptions: Although repealed until 2025 with the TCJA, personal exemptions are set to be restored after 2025. The inflation-indexed amounts (2017) are $4,050 per household member, with the respective AGI phaseouts being $261,500 (single) and $313,800 (joint). There has been little indication thus far from the incoming administration on whether this provision is expected to be permanently repealed or reinstated after 2025.
• Itemised Deduction Limitation: The limitation applies to deductions such as mortgage interest, state and local taxes, and charitable contributions. The limitation can limit itemised deductions by up to 80%. Although the limitation was suspended under the TCJA, it is scheduled to be back restored after 2025. There is little indication thus far on whether the limitation is expected to be permanently repealed or reinstated after 2025.

Proposed Legislation to Introduce Residence-based Taxation

Trump mentioned during the campaign to “end the double taxation of overseas Americans.” While more concrete details were not discussed on the campaign trail, on December 18, 2024, Representative LaHood (R-IL) introduced the “Residence-Based Taxation of Americans Abroad Act”, a bill which proposes implementing a residence-based taxation system for US citizens living overseas.

This bill aims to alleviate compliance and tax burdens for Americans overseas. The proposed bill would allow certain Americans living abroad to make an election to be treated as a non-resident for US tax purposes, thereby subjecting them to US tax only on US-sourced income and gains. If a US person makes this election, they may be subject to an exit tax if their net worth is in excess of the estate tax exemption ($13,990,000 for 2025 tax year).

It is broadly believed that this is unlikely to pass as a standalone bill, but elements of it could make their way into the broader tax bill, which may pass later in the year.

As President-elect Trump takes office, taxpayers should stay informed about potential tax policy changes and their implications.

For US persons living in Switzerland, a switch to a residence-based tax system may allow tax planning opportunities that are currently unavailable to most US persons living in Switzerland.

For example, more Americans could realise tax savings via additional Swiss Pillar 2 and Pillar 3 pension contributions. Additionally, more Americans could take advantage of the significantly lower tax rates in certain Swiss cantons.

Evaluating, modelling, and planning for various outcomes will be essential if these proposals evolve into concrete legislation. The coming months will be critical in determining the future direction of US tax policy under the new administration.

If you would like to discuss more on this topic, please reach out to our key contacts below.

Authors

• Jack J. Nettis III - Senior Manager, Global Employer Services
• Alex Saluveer - Senior Manager, Global Employer Services
• Travis Sakos - Manager, Global Employer Services
• Andrew Eledge - Senior Consultant, Global Employer Services