IRS Taxation of Dual Citizens: A Quick Reference Guide for Expats

Does the IRS Care If You Are a Dual Citizen? The Short Answer Is: No!

The US is one of the only countries in the world that utilizes a citizenship-based tax system rather than a territorial one. The only other one is Eritrea. What this means is that the IRS taxes citizens—including dual citizens—wherever they reside in the world, whether or not a foreign jurisdiction has already taxed that income. It is a “luxury” afforded to US citizens. In contrast, most other countries tax their citizens on a territorial basis, which means they are only taxed when they live and work in that country.

Accountants at Greenback are often asked if the tax rules are different for dual citizens, where the taxpayer is both a US citizen and a citizen of another country. The short answer is, unfortunately, no. It does not matter that you’re a dual citizen; the IRS will still require you to file and report on your worldwide income. This remains true even if you’re living and working in your other home country.

The News About Taxation of Dual Citizens Isn’t All Bad

While it may be duplicative to have to report your worldwide income to the US every year, the good news is that, in the vast majority of cases, no actual tax is due in the US. That’s because the US allows for both a Foreign Earned Income Exclusion, which allows you to exempt the first $105,900 (for 2019) of earned income (think wages, salary, self-employment, etc.) from US tax, as well as the Foreign Tax Credit, which allows you to offset US tax due on income already taxed by a foreign country. So, for most Greenback clients, no actual tax will apply in the US. But if dual citizens don’t file an informational return, IRS penalties are high, and the interest compounds very quickly!

Dual Citizens May Get an IRS Refund 

If you file a US tax return reporting your foreign earned income and utilize a foreign tax credit, you may not only offset US tax due completely but also qualify for various refundable tax credits (such as the additional child tax credit, for example). In these situations, you may receive money back from the US even though you paid no tax in the US that year. Sounds too good to be true, but it’s not.

For Dual Citizens Who Are Behind on Their US Taxes

If you have missed the tax-filing requirement deadlines for several years, we have great news. Greenback assists clients in this situation every day and can help you by utilizing an IRS program uniquely designed for taxpayers like you. For instance, the Streamlined Filing Procedures is an amnesty program that allows expats who were unaware of their continued tax-filing requirement abroad to get caught up, penalty-free! That way, you can get back into compliance, avoid penalties, and quite possibly obtain a refund.

Greenback Makes the Taxation of Dual Citizens Simple

Greenback is here to help. Our dedicated CPAs and IRS Enrolled Agents can assist you with your US expatriate taxes—every step of the way. Let’s get started now.

Free Guide: 25 Things Every Expat Needs to Know About Taxes

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