Renouncing US Citizenship: Cost & Tax Obligations
- How Much Does It Cost to Renounce US Citizenship?
- Can I Change My Mind After Renouncing My US Citizenship?
- Tax Implications of Renouncing US Citizenship
- The Difference Between Covered and Non-Covered Expatriates
- Green Card Holders Beware
- Have Questions Regarding Renouncing Your US Citizenship? Get Reliable Help with Your Expat Taxes
Renouncing US citizenship is a significant and irreversible decision that carries substantial tax implications. This process is often considered by expatriates for various reasons. To make an informed decision, it’s crucial to understand the US tax consequences thoroughly to make a decision that aligns with your long-term personal and financial goals.
Key Takeaways
- The tax implications of renouncing your US citizenship can be a complicated and time-consuming process.
- The State Department charges a flat fee for renouncing US citizenship, which is currently $2,350. Depending on your tax status, you may also have to pay additional taxes when renouncing your citizenship.
- Renouncing US citizenship can trigger an Exit Tax under certain conditions. This tax applies if your net worth exceeds $2 million or your average annual net income tax for the past 5 years exceeds a specified threshold. It’s designed to tax the built-up wealth before exiting the US tax system
How Much Does It Cost to Renounce US Citizenship?
The current fee for renouncing US citizenship is $2,350, which must be paid at the time of your renunciation appointment at a US embassy or consulate. This fee covers the administrative costs associated with processing the renunciation. In addition to this fee, you may incur other costs, such as legal and tax advisory fees, especially if you have to pay an exit tax.
Can I Change My Mind After Renouncing My US Citizenship?
No, renouncing your US citizenship is an irreversible decision. Once the renunciation process is completed and you receive your Certificate of Loss of Nationality, regaining citizenship becomes extremely challenging. For individuals who renounce before the age of 18, there is a six-month window after turning 18 to reconsider. However, for adults, the renunciation is final. Regaining citizenship requires undergoing the standard naturalization process, which is lengthy, complex, and carries no guarantee of success.
Tax Implications of Renouncing US Citizenship
Once you renounce your US citizenship, you will no longer be taxed as a US citizen. Not only could you have to pay an Exit tax, but depending on your situation, you might have to continue filing US tax returns and paying taxes to the US. In certain circumstances, specifically related to investment income tied to the US, you could wind up paying more tax to the US after renouncing. If your goal is to get out of the US tax system entirely, you should seek the help of a tax professional and develop a personalized strategy. Let’s look at some of the most common tax implications of renouncing US citizenship.
- If you are considered a covered expatriate, you will have to go through the process of calculating any Exit tax that may be owed. This is a tax based on all assets you own, even personal items like vehicles and jewelry.
- Having certain accounts in the US, such as 401k or 403b retirement accounts, could result in having to file a US tax return every year. Other types of accounts, including pensions and retirement accounts, could result in having to file US tax returns under certain circumstances.
- If you earn income from US sources, you will have to file a tax return as a Non-Resident annually. US sourced income includes such things as business ownership interests, real estate, and brokerage accounts that are all based in the US. A flat tax of 30% on investment income may apply.
- Being a covered expat could also impact your ability to give gifts to US citizens — even years after you’ve renounced your US citizenship. Under US tax law, if a US person receives a gift from a covered expat exceeding the $18,000 annual exclusion, the gift is taxed at the highest gift tax rate. This tax is imposed on the US person who receives the gift rather than the covered expat who gave it.
The Difference Between Covered and Non-Covered Expatriates
Knowing whether you qualify as a covered expat is essential in deciding whether renouncing your US citizenship makes sense. So what’s the difference between a covered expat and a non-covered expat?
In simple terms, the IRS will consider you a covered expatriate if any of the following standards apply:
- Your personal net worth exceeds $2 million.
- Your average income tax liability over the past five years exceeds a set threshold ($201,000 for the 2024 tax year).
- You fail to certify on Form 8854 that you’ve diligently filed tax returns for the last five years. Certification also entails paying any past and current taxes you may owe.
If you meet just one of the standards, you will be subject to the exit tax and the IRC 2801 expat gift tax.
Green Card Holders Beware
If you have lived in the US for eight of the past 15 years, giving up your green card is considered expatriation and may trigger the exit tax. Notably, residing in the US for even one day in a calendar year counts as living in the country for that entire year. For example, if you were present in the US on the last day of year one, lived continuously in the US during years two through seven, and were in the US again on the first day of year eight, you would be deemed to have lived in the US for eight years. Therefore, surrendering your green card under these circumstances could subject you to expatriation rules.
If you make a tax treaty election before meeting this “eight years in the past 15 years” rule, it will stop the clock. The year you make a tax treaty election will not count as a year in the US. However, if you have already “lived” in the US for eight years within the last 15, making a treaty election is an act of expatriation that could result in having to pay an exit tax — even if you don’t renounce your green card. Use caution when making treaty elections if you are a Green Card Holder.
Have Questions Regarding Renouncing Your US Citizenship? Get Reliable Help with Your Expat Taxes
Have questions about the process or next steps? Contact us, and one of our Customer Champions will happily address all your concerns. We can even assist you in meeting your US tax obligations, regardless of whether you renounce your US citizenship.
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