Are US Taxes the Reason 1 in 4 Americans Living Abroad Want to Renounce Citizenship? | Tom Griffiths
Tom LR Griffiths is a tax advisor and consultant, specialising in US expatriate tax matters
Tom LR Griffiths
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Are US Taxes the Reason 1 in 4 Americans Living Abroad Want to Renounce Citizenship?

Tom Griffiths - US taxes

Are US Taxes the Reason 1 in 4 Americans Living Abroad Want to Renounce Citizenship?

The US government has a history of neglecting its citizens living abroad and helping them to feel undervalued, underrepresented and overburdened by their complicated taxation system.

Are taxes the reason 1 in 4 Americans living abroad want to renounce citizenship?

Well, it would seem so, because according to recent figures, over 22% of Americans living overseas are seriously considering citizenship renunciation, and over 40% would potentially consider it an option.

American ex-pats object to the US government’s strict taxation system, which requires citizens to pay taxes on all of their income regardless of whether they reside in an entirely different country outside the US. This system (unlike many others globally) requires US residents to file and pay their taxes twice.

The other sticking point for US citizens living abroad is the disclosure of foreign financial accounts to the US Treasury if the combined balance across all bank accounts exceeds $10,000. The Foreign Account Tax Compliance Act (FATCA) also requires ex-pats to report offshore accounts to the IRS if they exceed $200,000 at the end of the year or $300,000 at any point during the year (double for married filers).

These rules were established to prevent tax evaders from hiding money in offshore bank accounts or committing fraud; the problem is that they also penalise upstanding US citizens living abroad. An unassuming ex-pat can find themselves with hefty penalties of over $10,000 per violation if they fail to file either one of the above.

There are always political and economic considerations and other influences, such as marrying a non-US citizen, which can sway the decision on whether to remain a US citizen. It would seem the burden of filing taxes when living or working remotely abroad is proving a bit too stressful for those wanting to live outside the US, so much so that they would consider renouncing their citizenship which is not a small decision to make.

The US Tax System is Overly Complicated and Expensive for Americans Living Abroad.

Many US ex-pats believe the Residents Based Taxation system would be more beneficial than the citizenship taxation system because US citizens living abroad wouldn’t have to file their US taxes. This would help simplify the tax system, reduce their US tax bill liability and prevent them from paying double the tax simply because they reside abroad.

How the US government handled the Covid-19 pandemic has undoubtedly impacted those US residents living abroad, with a record number of US citizens renouncing their citizenship even during the lockdown period. If these tax issues continue to plague US ex-pats and their concerns are not addressed, America could see more citizens choosing other countries to call their home.

If you are a US citizen living abroad and are considering the enormous but not impossible step of renouncing your residency because of tax reasons. In that case, it is worth speaking to a US taxation expert to review all the options open to you before taking that step.