The Trump Tax plan, specifically the “One Big Beautiful Bill Act” is shortly to pass to the US Senate, where it may proceed to the next steps in becoming law.

I had intended to write this article over a number of weeks, however as each day has passed that I've been writing, the likelihood of the bill passing appears to be decreasing. So, I have published as soon as I can, before the bill is amended or potentially withdrawn.

Despite its untraditional name, this is a piece of legislation largely devoted to taxation, and adjustment to the tax code, to be implemented by the IRS.

We’ve already received a number of calls from US citizens living in New Zealand curious of how the bill will affect them, so we thought we’d outline it here.

We’ll go over some of the key provisions of the bill which have the potential to impact NZ based US taxpayers, and the annual US tax return to the IRS.

It should be noted below, that whilst I am discussing whether each bill provision has a positive or negative impact for NZ based US citizens, it should not be read to imply any political lean in any way. This is being assessed solely for the changes it may bring from a tax perspective in New Zealand.

Making Permanent parts of the Tax Cuts and Jobs Act of 2017 (TCJA)

Overall Benefit: One key provision of the TCJA was the reduction of the federal tax brackets, with a top tax rate of 37%.

The biggest US tax benefit here for NZ based US citizens, is for those with KiwiSaver.

To explain a little further:

As discussed in earlier articles, US tax residency is tied to citizenship. Meaning, a US citizen who resides in New Zealand must report their worldwide income (ie NZ income) on a US tax return each year. We then can claim a credit for New Zealand taxes paid, which can be used to offset the US tax bill that is calculated.

Generally speaking, for those with wages or most other types of income, New Zealand has higher tax rates than the US. This usually means that when claiming Foreign Tax Credits in a US tax return, for New Zealand tax paid, then there is sufficient credit to offset the US tax liability.

So, on this front, no change. Very few NZ US citizens pay tax on their New Zealand income to the IRS, due to these credits (allowed by the NZ US double tax treaty).

But, for those with KiwiSaver, its quite possible your fund (ie the growth fund, balanced fund etc.) is being taxed under a method of taxation named Section 1291, otherwise known as PFIC.

Under this method of US tax, upon withdrawal of KiwiSaver, the gain can be prorated over the life of the KiwiSaver account, and taxed at whatever the top US tax bracket was for that year. By having a lower top US tax bracket, it means less tax on KiwiSaver withdrawals.

Can I claim foreign tax credit on KiwiSaver withdrawals?

Frustratingly, foreign tax credit under section 1291 can only be claimed upon distribution. But because NZ does not tax KiwiSaver distributions, we have no foreign tax credit to apply.

Therefore, the TCJA lower tax brackets being made permanent will result in lower tax liability on KiwiSaver withdrawals.

It is important to obtain US tax advice from a qualified US tax specialist to ensure your KiwiSaver is filed in the most tax efficient method possible.

Overall Benefit: Increase of SALT deduction (state and local taxes deduction):

The main beneficiary of the extension of the SALT deduction, is those living in the US. Here at The US Tax Team New Zealand, we assist a large number of Kiwis who reside in the US, or US citizens who have NZ financial interests.

The SALT deduction works as the name suggests, and is a deduction against federal taxes, for the taxes paid to a State or Local Government.

The SALT deduction was previously limited to $10,000 per year, and this has now been increased up to $40,000 per year in certain circumstances. For those living in the US, this will result in lower tax liabilities, unless we see states increase their local tax rates, given that this may be more palatable amongst their voter base now.

Overall Benefit: Permanent increase of Standard Deduction:

Prior to the existence of the TCJA, the standard deduction was limited to $6500 for single filers, and itemised deductions could be claimed for a wide range of personal expenses.

What is the Standard Deduction?

As part of the One Big Beautiful bill, the standard deduction has been increased up to $16200 for single filers, at the expense of itemised deductions, which (now have and) continue to have limitations placed on them as part of the TCJA.

A little like a tax free threshold, the standard deduction is a deduction which every US person taxpayer can claim.

We have the option between Itemised Deductions (ie deducting certain expenses you had during the year), or the standard deduction.

Claiming itemised deductions can be complicated, and many deductions are only claimable to the extent that they exceed 2% of your adjusted gross income for the year.

For example, if you had income of $100,000, then only expenses over $2000 (2% of 100k) can be claimed.

The standard deduction is far more simple, and is a straight deduction without any itemisation.

Under the TCJA, and the One Big Beautiful Bill, the standard deduction for single filers increases us to $16200 USD. As part of this, limitations were placed on itemised deductions.

Many itemised deductions, such as charitable donations, can be difficult to claim in NZ (as only US charities can usually be claimed), and itemised deductions rarely were beneficial to NZ based US citizens.

An increase to the Standard Deduction is beneficial to NZ US citizens, given the difficulty of claiming itemised deductions.

Possible Benefit: Deductible Loan Interest on a Car Loan of US Built Cars

Whilst it is not entirely clear yet whether a foreign denominated loan can be considered, the One Big Beautiful Bill contains a provision for the deduction of car loan interest on the purchase of a car built (final assembly) in the United States.

This will be available as a deduction regardless of whether you choose to claim the standard deduction or itemised deductions on your tax return.

If you’re considering purchasing an American car, and have other income subject to US taxation, this deduction could well reduce your tax liability each year.

Overall Negative Impact: Continuation of limitation on Casualty Loss Deduction

As anyone residing in New Zealand (or with some knowledge of the country) will know, New Zealand is prone to natural disasters, some of which can be very difficult to obtain insurance for.

Prior to the TCJA, those who suffer certain casualty losses (such as a home destroyed in a natural disaster), could claim a deduction for the loss which wasn’t not compensated by insurance or otherwise.

The TCJA (and continued under the One Big Beautiful Bill) significantly cut back on this benefit, to being only claimable in a federally declared disaster zone.

In short, casualty losses could only be claimed for losses which occur in the United States going forward.

One provision did remain however, in that casualty gains are still taxable to the extent that they exceed the losses.

For example, if your home was purchased for $800,000, and then destroyed in a natural disaster, but insurance paid out $1,000,000, then it is possible to have $200,000 of taxable gain in this instance.

Overall Benefit: Make permanent current tax rates on GILTI income

One key provision of the Tax Cuts and Jobs Act, was the introduction of GILTI taxation, which stands for Global Intangible Low Taxed Income. In line with its questionable acronym, GILTI created significant implications for NZ US citizens who own a company.

This law didn’t just affect those who own large corporations, but also those with small businesses whom they may contract through or run a small online business.

Whilst GILTI is a very complex form of taxation, the key summary of it is that profits in a New Zealand CFC could be subject to US taxation, despite being taxed in NZ. Under GILTI, a portion of the foreign company’s profits can be included in the US tax net, resulting in a tax liability in the US on that income.

What is a CFC for US Tax Purposes?

A CFC is a Controlled Foreign Corporation, which is any non-US company owned greater than 50% by 5 or less US citizens. This means, a New Zealand company that a US citizen sets up, with of course 100% ownership, would be treated as a CFC.

What is changing about GILTI Taxation?

Nothing in this instance.

The GILTI inclusion rate, which means the amount of the foreign company’s income which would’ve been included as US taxable income was due to increase to 62.5%, from the current 50.8% in 2026, once the original TCJA provisions were due to expire.

Again, in basic terms, this means that the amount of foreign income which may have been subject to US taxation would’ve increased to potentially 62.5% of the foreign business’ profits.

By keeping the amount percentage at the current rate of 50.8%, we’ll continue to see similar rates of taxation as currently, as opposed to the higher rates that were due to come into effect in 2026.

GILTI taxation is an especially complex area of the US tax code, and tax advice from a US tax specialist is recommended whenever a US citizen owns a foreign company (ie New Zealand company), or is considering establishing a foreign company. Our US tax specialist, David Tzimenakis is able to provide tax advice in this area.

Overall Benefit – Increase and Extension of US Estate Tax Threshold

Prior to the TCJA in 2017, the Lifetime Gifting and Estate Tax Credit (aka the estate tax threshold) was $5,500,000 in the value of an estate (for single filers) before estate income tax would apply.

This credit can be used over the course of a US taxpayer’s lifetime for gifting, with the remainder available for the person’s estate.

As part of the TCJA, this credit increased to $11,000,000 and has increased annually with inflation since.

This provision, alongside other parts of the TCJA was due to expire at the end of this year, reverting the estate tax threshold back down to the original $5.5 million.

The One Big Beautiful Bill Act permanently increases the estate tax threshold to $15m for single filers, to be increased annually with inflation.

Whilst this isn’t of benefit to the majority of US citizens in New Zealand, it is nevertheless beneficial for those with a significant estate.

Estate tax planning can result in significant tax savings, and discussing this with your US tax professional is recommended.

Not Included – No Tax on Social Security

As part of the presidential campaign of Donald Trump, it was pledged that social security benefits would be excluded from taxation.

This would have been particularly beneficial for NZ based US citizens, as discussed in my article a few weeks ago. Currently, whilst New Zealand doesn’t tax the social security benefits of US citizens who reside in NZ, the IRS does.

For many retired individuals, social security is their only taxable income, and the only reason they need to file a US tax return to the IRS from New Zealand each year. Waiving tax on social security would have ended this.

Unfortunately, this was left out of the One Big Beautiful Bill, however it is possible it may arise again in future. This would have been an extremely expensive addition to the bill, and it is also possible it may never be discussed again.

Overall Negative Impact – Changes to Child Tax Credit Requirements

Under the One Big Beautiful Bill Act, stricter requirements will come into place in order to claim the now increased value of the Child Tax Credit.

For those who are still eligible, the Child Tax Credit will increase up to $2500 per child under 17 (with limitations).

This is particularly relevant for New Zealand based US citizens filing annual tax returns to the IRS, in that for the first time, it places a social security number requirement on the filer’s spouse.

Under the new bill, in order to claim the Child Tax Credit for a US citizen dependent, both the filer and the filer’s spouse must have a social security number.

This means, for a US citizen parent who has an NZ citizen spouse (not dual-citizen), and a US citizen child together, they would no longer be eligible for Child Tax Credit unless the spouse obtains a social security number.

Unfortunately, only those with work rights, or right of abode in the US can usually apply for a social security number.

This change does mean that for some US citizen and NZ citizen married couples, may no longer be eligible to claim the Child Tax Credit. It should be noted however, that the CTC already had some strict eligibility criteria, and many US taxpayers in New Zealand were already ineligible to claim. As a result, the Additional Child Tax Credit is the more commonly claimed credit from the IRS here in New Zealand.

Does the One Big Beautiful Bill Act change the Additional Child Tax Credit for US citizens in New Zealand?

Not as of yet, there appears to be no change to the Additional Child Tax Credit.

Summary

It should be noted that the above is just a tiny snapshot of the potential changes due to come into effect if the One Big Beautiful Bill act becomes law.

Ignoring all of the political rhetoric around this bill, and looking at it solely from a tax perspective, it is a mixed bag of benefit. Whilst the overall lower tax rates are beneficial for those with KiwiSaver, alongside the increased Estate and Gifting tax threshold, ultimately US citizens living in New Zealand are in certain situations, subject to a higher tax burden than prior to the TCJA in 2017 (mostly due to GILTI).

We’ve tried to limit the discussion here only to the main points which will affect US citizens in New Zealand, but nevertheless for those residing in the US, the changes will be far greater.

It remains to be seen now whether this bill will ever become law, given the events of the last week and the apparent swing in support against the bill.

It is important to always obtain specialist US NZ tax advice from a US tax professional. If you’d like to discuss any of the above, reach out today for expert US tax advice – info@usatax.nz – 09-242-3445