Expats Frustrated With Taxes Consider Renouncing U.S. Citizenship

Around one in four expats have considered renouncing their U.S. citizenship, according to a new study.
Around 9 million U.S. citizens are currently living abroad, according to the U.S. State Department. Many of these “expats” have cultivated more permanent lives overseas, with established careers, relationships, and community ties.
Greenback, a tax services provider for Americans living abroad, releases a survey on expat life each year. For 2022, the company surveyed 3,200 U.S. citizens living in 121 different countries on various aspects of their professional, financial, and social lives. A majority of those surveyed were over the age of 65, and 34% had spent more than 20 years living outside of the U.S..
In addition to these demographic details, the survey also included questions on employment and income. 31% of surveyed respondents were employed by a large organization (of 250 or more people), and half reported an annual income below $100,000. When asked how the COVID-19 pandemic had impacted their careers, the majority expressed plans to work remotely at least part time moving forward.
The biggest challenge for those surveyed was navigating U.S. taxes while living abroad. While most countries tax based on resident status, the U.S. government follows a citizenship-based taxation process. Under a citizenship-based system, all citizens are taxed under the same personal income tax system, regardless of where they live. American expats therefore must pay U.S. income taxes on any worldwide income, including salaries, investment earnings, and more. With this system in place, many U.S. citizens living abroad are required to pay U.S. taxes as well as taxes in their host country each year.

In addition to tax filings, some U.S. citizens may be required to report foreign accounts to the U.S. Department of the Treasury, depending on the total value of their accounts. Reporting foreign accounts is a lesser-known requirement often overlooked by expats as they navigate life abroad, and failure to do so can result in serious financial penalties.

Greenback’s survey reported that many expats find it difficult to navigate the U.S. government’s tax and financial requirements, and nearly 80% don’t believe they should have to pay U.S. taxes while living overseas. As a result of these frustrations, about one in four have “seriously considered” renouncing their U.S. citizenship. For those considering citizenship renunciation, the burden of U.S. taxes and a host of other political and personal motivations were cited.

Giving up one’s U.S. citizenship can be a complicated process and it does come with a price tag. Any individual officially giving up their citizenship must pay a $2,350 fee to the State Department, and some with higher net worths may be required to pay an “exit fee” based on their worldwide assets. The State Department also warns against renouncing strictly for tax purposes, stating “persons who wish to renounce U.S. citizenship should be aware of the fact that renunciation of U.S. citizenship may have no effect on their U.S. tax or military service obligations.”

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