Many expats have a love-hate relationship with their American citizenship. While they may love being American citizens, the ongoing tax-filing requirements can make the burden of remaining a citizen too much to bear. Each quarter the Federal Register publishes the American citizenship renunciation numbers, and the numbers often reflect a number of different trends for expats. Find out what the latest citizenship renunciation trends are!
Citizenship Renunciation: Numbers and Reasons
Americans renounce citizenship for a wide variety of reasons, including changes in political administration, opposition to a particular policy or war, or newfound patriotism toward their resident country. However, of all the possible reasons for renunciation, US taxation is an issue that affects all expats.
Citizenship Renunciation and Taxes
Expat taxation issues are often at the heart of citizenship renunciation. Unlike most countries, the US has citizenship-based taxation. Each year, Americans living anywhere in the world must file Federal Tax Returns if they meet the income thresholds—even if they do not owe any tax. For single filers, that threshold is only $12,200 annually; for those filing jointly, the threshold doubles. If you’re self-employed, only $400 of income means you’ll need to file. These requirements can be burdensome, particularly when it comes to US taxation of dual citizens and accidental Americans.
Although the IRS has taken measures to reduce double taxation through expat tax credits and exclusions, some Americans abroad may still fall victim to double taxation. Citizenship renunciation is the only way to completely eliminate US tax obligations.
FATCA: A New Wave of Citizenship Renunciation
Tax issues for expats go beyond simple financial concerns. Some Americans abroad find US tax compliance and disclosure to be burdensome or unfair. In 2010, a new hasty pace of citizenship renunciations began when FATCA’s enactment complicated banking matters for expats significantly. In addition to filing requirements for individuals, FATCA forces foreign financial institutions to report on accounts held by US citizens. As a result, many foreign banks refuse to take on American customers, creating a frustrating situation for expats trying to maintain funds for their lives abroad.
Consequences of Citizenship Renunciation
Filing returns year in and year out can be cumbersome and complicated, so many expats have at least considered renunciation. However, remember that citizenship renunciation comes with more than a few strings attached. For instance, you’ll have to be tax compliant before you renounce. And, if you are a covered expatriate, you’ll face an expensive exit tax. Lastly, renunciation is a very permanent decision, and in general, you won’t get a chance to change your mind.
Recent Citizenship Renunciation Trends
Before FATCA was introduced in 2010, the US typically recorded less than 200 citizenship renunciations per quarter. But in the years following FATCA, renunciations numbers rose to top 1,000 per quarter. With over nine million expats currently residing overseas, this number may seem like a small fraction but is indeed significant compared to years past.
As the trend continued, 2016 and 2017 reported record-breaking rates of renunciation. Though renunciation in 2018 still exceeded 1,000 in some quarters, a drop at the end of the year suggested that the trend might be slowing down finally.
In 2019, when the first quarter report showed that 1,018 Americans had renounced, a decline seemed less likely. However, as the year went on, renunciations dropped sharply to just 183 Americans renouncing in the third quarter and 261 in the fourth quarter. There could be a lot of reasons for this dip. Without wildly speculating, it’s safe to say that the rate of renunciations had to slow down and return to pre-FATCA levels at some point.
What Does the Future Hold?
Citizenship renunciation may rise again soon now that the IRS is doubling down on its promise to revoke passports of those who have seriously delinquent tax debt. Plus, the IRS has also rolled out six compliance campaigns that target those who are not currently tax compliant with a specific focus on expats. These measures may push expats to rid themselves of their American citizenship – and by extension, their American passport reliance – once and for all.
Get Your Taxes in Order Today!
Whether or not you want to renounce your citizenship, becoming tax compliant is your best option. Find out how easy the process is when you get started with Greenback today!