BBC: Could baby Archie pay United States taxes?

Could baby Archie pay United States taxes? BBC reports: Harry and Meghan have had their first child and along with the excitement of being parents could come an unwanted United States taxes bill

As US citizens, Meghan – and her baby son baby Archie – are liable to pay United States taxes.

The US is one of only a few countries to charge tax based on citizenship and not residency. Other countries that tax non-resident citizens include Eritrea and Myanmar. This means that even though the duke and duchess will be living in Windsor, the US government still expects Meghan to file tax returns with the Internal Revenue Service (IRS) – the US tax authority.

That goes for Prince Harry and Meghan’s baby too. Any American who has lived in the US in the last five years automatically passes on their citizenship to their offspring.

Baby Archie and United States taxes

Meghan is expected to apply for UK citizenship, but that process takes time. Once she is a UK citizen, the duchess could renounce her US citizenship and her tax liability.

That process isn’t simple either and it requires paying more taxes. The US government charges an exit tax on all assets owned by anyone above the age of 18-and-a-half years renouncing their citizenship.

While the Duchess of Sussex will be able to renounce her US citizenship in a few years when she becomes a UK citizen, baby Archie will have to wait until he is 16.

Under US law minors under the age of 16 are “presumed not to have the requisite maturity” to relinquish citizenship.

US citizens living abroad taxed by the US?

The US and the UK have an agreement that gives US citizens a tax credit based on the amount of tax paid in the UK, but that’s unlikely to erase either Meghan’s or her son’s United States tax bill.

US citizens living abroad are obliged to file taxes each year reflecting their income, gifts over $15,797 assets over $200,000, and disclosing any foreign bank accounts and must pay applicable US taxes.

For Meghan, this will include baby shower gifts. Baby Archie’s birthdays could become an accounting exercise. Any future income from investments or trusts put in the child’s name will also be taxable. As an actress, Meghan was reportedly paid $50,000 per episode of the TV show Suits. While she is no longer a working actress she will receive some payments whenever the show is rebroadcast.

The duke and duchess’s expenses – such as living costs, travel, and clothing – are covered by Harry’s father for their role as working royals, representing the Queen.

Avoiding the United States taxes

It’s likely that when Harry accepts any money from his father he keeps his accounts separate from Meghan’s to avoid giving the US tax authorities any insight into the Duchy or any other family trusts.

Any money given by Prince Charles directly to Meghan or his grandson will have to be declared to the US authorities and will be taxable. The potential exposure of the Royal Family’s complicated finances is a bigger risk than a large tax bill.  The Royal Family likely have some quite complicated trust structures to pass down family wealth and it’s unlikely they would want the US to look into that.

Most married couples in the US file their taxes jointly, but the duchess will probably file as an individual to avoid revealing her husband’s finances.

Children who earn under $2,000 can file their taxes with their parents, but a royal baby will possibly have gifts and inherited assets that will have to be declared to the IRS.

The situation with Baby Archie highlights the complicated tax rules American expatriates face. Some are hoping the high-profile birth could help prompt changes.

More questions about United States taxes for Americans living abroad?

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 fined 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 the 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 United States tax you can contact us at Americans Overseas.

Contact us for more information

Source: BBC