Why and How Do Americans Renounce Citizenship?

Why and How Do Americans Renounce Citizenship?
May 24, 2019

Americans renounce citizenship for a variety of reasons: taxes, political environment, and more. But typically, one of the top factors is US expat taxes. Let’s take a look at renunciation reasons, consequences, and trends to get a sense of the expat mindset.

Why Are Citizenship Renunciation Trends Important?

Citizenship renunciation and US expatriate’s tax requirements are inextricably tied. Yes, there are many other factors that Americans consider when they take the plunge to renounce citizenship. But being reminded every year during tax season of a significant financial drawback to being an American citizen has compelled even some of the most patriotic expats into the decision to relinquish their citizenship.

In addition, the birth of FATCA (Foreign Account Tax Compliance Act) in 2010 made the routine task of finding a place to bank an absolute nightmare for some expats. These elements are often the deciding factor when Americans elect to become citizens of other countries.

How Do You Renounce Citizenship as an American?

If you are an American who has decided to renounce your US citizenship, you’ll need to follow these steps to complete the process:

  1. Obtain citizenship in another country — Typically, the US will not allow you to be “stateless” so you’ll need to present proof of your second passport or nationality.
  2. Complete the renunciation request form (Form DS-4079) – Use this form to provide information on your citizenship status and why you want to renounce. One of the main goals of the form is to ensure that you are electing to renounce voluntarily and not under duress.
  3. Appear before the U.S. Consulate in a foreign country — You will need to visit a US Consulate or Embassy outside the United States to meet with a representative, complete forms, and provide identification documents.
  4. File your final tax return and Form 8854 — You’ll need to file a final tax return to report taxable income earned between January 1st and the day your renounce your US citizenship. Along with your final tax return, you’ll need to file Form 8854, which is used to calculate if you’ll owe the exit tax.
  5. Pay the renunciation fee — Currently, the US government charges $2,350 to renounce your US citizenship.
  6. If required, pay the exit tax — Renouncing Americans are required to pay the exit tax if: (1) their average annual net income tax in the past five years was $168,000 or more (for 2019), (2) their net worth is more than $2 million, or (3) you fail to certify that you have been tax compliant for the 5 years prior to renunciation.

What Happens When You Renounce Your Citizenship?

Renouncing citizenship is not just a big decision – it’s also a very permanent decision. Expats who decide to renounce are relinquishing their right to vote in American elections, government assistance provided overseas, and unhindered travel in and out of America. For expats with family members who still reside in the US, giving up these rights and privileges can be especially difficult.

Further, once you surrender your citizenship, you can never reclaim it. But even with these consequences looming on the minds of expats, sometimes the endless taxation in their future is enough for them to pull the plug on their citizenship.

How Many Americans Renounce Citizenship?

If you look back through the annals of citizenship renunciation, it’s evident that an immense upswing started in 2010. That year, the vast financial implications of FATCA stirred frustrated expats to action. Renunciation figure jumped from 100 to 200 per quarter to over 1,000.

For nearly a decade, US citizenship renunciations continued at this high rate. It was not until recently that the US began to see a major decline in renunciations. At the end of 2019, only 261 Americans renounced their citizenship, indicating a potential return to pre-FATCA numbers.

However, it’s unclear if this slowdown will continue. Tax laws and political environments change rapidly, and there is no way to know how new policies will impact Americans abroad.

Get US Expatriate’s Tax Compliant Today!

Whether or not you renounce your citizenship, becoming tax compliant is essential. Greenback’s experts can help with that. Get in touch with us, and we can help answer any questions you have.

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