Big Rob wrote:
You know that the US is one of the only countries in the world that taxes their citizens based on being a citizen rather than based on residency, right?
No I wasn't aware.
We file our taxes every year and usually get some back (State and Federal). Handy, if somewhat depressing, to know my wife would have to file if we ever move to the UK.
You probably will too.
IIRC if you are an American Citizen working abroad you have to fill in an IRS form similar to one a nominal resident would fill in. The first US$90k or so earned per annum is tax exempt, and any subsequent earnings are subject to ensuring that there is no unfair double-taxing i.e. if the country you work in has a tax level after deductions which is the same or more than the equivalent for someone working in the USA, no additional taxes would be paid but were it to be less, the difference would have to be stumped up.
The exclusion is dependent on your residency status abroad and how long you stayed outside the US during the tax year. Someone who lives most of their time outside the US but spends their summers there would not be eligible for this exemption. There are also the reporting requirements including the reporting of bank accounts or any other thing like that that the expat has access to if the value ever goes over $10,000 during the tax year even if there is no tax due to the US. The fines for failing to do so are quite punitive, and as I've posted, it interferes with people's ability to get a bank account abroad. Plus it means you have to file taxes every year even if you owe no tax. Which means for most of us we have to file two sets of taxes with two sets of requirements or pay someone who knows about both American tax code and those of the country where you reside. And, of course, there's more to it. Here
's a handy, simple guide.
One way out of this is to renounce your American Citizenship but of course you would need to be able at first to be able to obtain citizenship of another country as you can't leave yourself stateless. Renouncement also doesn't remove any back taxes to be paid and in some cases you might still have to fill in a tax return form for some years even after renouncing your citizenship. Once you do, if you seek to enter the USA in future you'll be treated as a foreigner and as if you were never born there. It can also affect your family if they are still resident in the USA, as property and inheritance is liable to be taxed higher.
The only other country that I know that takes its citizens who reside outside of its jurisdiction is the Philippines, but there might be others.
The best explanation of the current tax obligations before, during and after renunciation can be found here
under number 2. You also have to pay to renounce. It's this huge process that you can't possibly accidentally do. Yet, I can't tell you how many people in the US think I must have inadvertently done so when I became British. There are days I wish it could have been that easy.
And the Reed amendment
is still enforceable.