According to the Wall Street journal: More Americans living overseas are renouncing their citizenship. British Prime Minister Boris Johnson did it. He’s American by birth and decided to renounce his citizenship because of US taxes.
In the past decade, nearly 37,000 Americans expatriated, according to the Federal Register: the official journal of the federal government.
This year promises to set a record.
In the first two quarters, more than 5,300 people renounced their U.S. citizenship, turned in their passports or green cards, nearly matching the total that expatriated in all of 2016, the previous record-setting year, according to the published list. More than 10,000 U.S. persons could renounce by the end of the year.
The most likely reason for the recent exodus, financial experts surmise, is a desire to stop filing U.S. tax returns—although some former citizens say they had other reasons for making the move.
British Prime Minister Johnson was born in New York when his British parents worked there but only decided to relinquish his citizenship in 2016 after he had sold his home in north London and found out he might owe $50,000 to the IRS in capital-gains tax.
More than 9 million Americans live overseas, according to the Department of State. The U.S. is one of only two countries that require citizens to file a tax return no matter where they live; the other being Eritrea.
Since 2010 the Foreign Account Tax Compliance Act (FATCA) requires all non-U.S. financial institutions to identify their American customers, a rule intended to combat terrorist financing and tax evasion by people with offshore accounts.
The general idea is that if financial institutions want to do business in the U.S., they have to go through your accounts and find all the Americans (US persons) wherever they are situated and tell the U.S. about them.
In some cases, financial institutions opted out and instead closed their American patrons’ accounts.
The IRS couldn’t provide information on how many Americans living overseas file tax returns, and demographic information on the group is difficult to come by, but the Federal Voting Assistance Program, which is mandated to report on the registration and voting activities of U.S. citizens living overseas, estimates that 15% earned $19,999 or less in 2018; 41% earned between $20,000 and $74,999; and 43% earned more than $75,000.
Being told your bank is literally terminating your account is not only upsetting, it’s terrifying.
The story of U.S. citizens living overseas is often about tax cheats who leave for tax reasons, but modest-income Americans realized they were supposed to be filing taxes, and it was a huge headache. You need an international tax accountant who you’ll pay $1,000 plus each year, at least. That’s not cheap.
There is also a cost to renouncing citizenship (in addition to the $2,350 fee).
The tax rules are complicated, but, in general, an exit tax is calculated for individuals.
Renouncing your US citizenship means forfeiting the right to vote, receive U.S. protection or assistance while abroad and other benefits. But for some Americans, that might feel like a small price to pay to avoid the financial burdens of living overseas.
We, the founders of Americans Overseas, were born in the Netherlands and obtained our American nationality through our (American) mother. When we heard about this for the first time around 2013, we were in total disbelief (it can’t be true!), anger (how can they do this?), fear (am I going to get fines or pick up other problems?), and panic (what should I do?).
It is (unfortunately) true that there is an additional American tax levy. But there’s no information from local government, and when approached, the consulate referred us to the IRS, and the IRS was impenetrable.
That’s why we started this initiative to help people from all over the world by providing proper information to avoid unnecessary panic, and offering help free of obligation and free of charge. If needed, we have a network of affordable professionals (accountants) who can help you with your tax obligations.
If you have more questions about US citizenship and tax you can contact us at Americans Overseas.
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Source: Wall Street journal