Tax-frustrated expats consider giving up US citizenship

About 9 million U.S. citizens currently live abroad, according to estimates by the US State Department. Many of these ‘expats’ have cultivated more permanent lives abroad, with established careers, relationships and community ties. A new study from Greenback Expat Tax Services sheds light on some of the key aspects of living abroad and why many expats are now considering giving up their US citizenship.

Dollar, a tax services provider for Americans living abroad, publishes an annual Expat Life Survey. For 2022, the company surveyed 3,200 US citizens living in 121 different countries about various aspects of their professional, financial and social lives. A majority of respondents were over 65and 34% had spent more than 20 years living outside the United States.

In addition to these demographic details, the survey also included employment and income questions. 31% of respondents surveyed were employed by a large organization (250 or more people) and half reported an annual income of less than $100,000. When asked how the COVID-19 pandemic has impacted their careers, the majority expressed their intention to work remotely at least part-time in the future.

Overall, the biggest point of contention for respondents was navigating US taxes while living abroad. While most countries tax based on residency status, the US government follows a citizenship-based taxation process. In a citizenship-based system, all citizens are taxed under the same personal income tax system, regardless of where they live. American expatriates must therefore pay U.S. income taxes on any worldwide income, including salaries, investment income, etc. With this system in place, many US citizens living abroad are required to pay US taxes. and taxes in their host country each year.

In addition to tax filings, some US citizens may be required to report foreign accounts to the US Treasury Department, depending on the total value of their accounts. Declaration of foreign accounts is a lesser-known requirement often overlooked by expats when browsing abroad, and failure to do so can result in serious financial penalties.

Greenback’s survey found that many expats struggle to navigate the US government’s tax and financial requirements, and nearly 80% don’t believe they should have to pay US taxes while living abroad. Because of these frustrations, about one in four have “seriously considered” renounce their US citizenship. For those considering renouncing citizenship, the burden of US taxes and a host of other political and personal motivations have been cited.

Renouncing your US citizenship can be a complicated process and it comes at a price. Anyone officially renouncing their citizenship must pay a Fee of $2,350 at the Department of State, and some with higher net worths may be required to pay an “exit fee” based on their global assets. The State Department also cautions against giving up strictly for tax purposes, indicating “Individuals wishing to renounce U.S. citizenship should be aware that renouncing U.S. citizenship may have no effect on their United States tax or military service obligations.”

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