Always wondered why US citizens do not make a bigger deal out of this. If I understand correctly, if you are a US citizen, but live somewhere else in the world, IRS still expects to be paid tax from your individual income in that foreign country (possibly in addition to the tax you pay in your country of residence) right? I assume there are minimum income thresholds but still...
US citizens make something of a deal out of it, as you can see from expat forums every spring when tax-filing season comes. However, relatively few American citizens abroad choose to renounce their citizenship because they find it useful to retain it. The minimum income threshold to pay income taxes (otherwise you just file) is ~$100,000, so that generally means most middle-class people don’t have to pay.
The real pain is for people who don’t really think of themselves as US expats, but who have US citizenship through an accident of birth and perhaps haven’t thought of that in years. For them, it is when e.g. a bank in their country suddenly doesn’t want to accept them as a customer due to the onerous reporting requirements, that they are aghast at the situation.
> Are there even any other countries that do this?
Not really. Most US expats who would want to renounce their citizenship, know to tell the consul at the renunciation appointment a vague "I have citizenship of country X now and I no longer identify with my American citizenship," and not, "I don’t want to file US taxes anymore."
> The minimum income threshold to pay income taxes (otherwise you just file) is ~$100,000, so that generally means most middle-class people don’t have to pay.
> Always wondered why US citizens do not make a bigger deal out of this.
It affects a relatively small set of people (those with substantial income who live abroad in a lower-tax jurisdiction), and it'd be politically difficult to change.
> I assume there are minimum income thresholds but still...
None other than the normal thresholds for income taxes.
The one ameliorating factor is the foreign tax credit: you get a credit for taxes you've already paid to your local jurisdiction. So, in the likely case that you live somewhere with higher taxes, you won't pay any net US income tax. If you live somewhere with lower taxes, you'll pay the difference to the US.
It's around $100k (increasing with inflation) for individuals.
> However, you may qualify to exclude your foreign earnings from income up to an amount that is adjusted annually for inflation ($103,900 for 2018, $105,900 for 2019, $107,600 for 2020, and $108,700 for 2021).
For the most part it doesn’t matter except for more paperwork. If you live in a country with higher taxes (most countries) you pay $0 in US tax.
If you live in a country with lower taxes you exempt a bunch of income, deduct housing costs and get credit for any taxes paid in your original country. You end up paying very little US taxes.
It’s actually rather difficult and costly to renounce citizenship —- you must pay for that privilege. The passport fee should be more than enough (as it is for literally every other country), especially for a passport that barely cracks the top 20 to top 10 in various indices of passport strength. We are being exploited and there’s really no good reason.
> The passport fee should be more than enough (as it is for literally every other country)
The US does have an extremely good network of embassies, and the US is also probably the most effective country on earth at being able to evacuate their citizens from areas that turn hostile.
And of course... a passport is nothing without the state to back it up. That requires more funding than just a passport fee.
>The US does have an extremely good network of embassies
The only reason most citizens would go to an embassy is to renew their passport, so these embassies are needed once every 5-10 years. Do you really think that US embassies offer such high level of service coverage and quality that it is worth paying through the nose for?
>US is also probably the most effective country on earth at being able to evacuate their citizens from areas that turn hostile.
This is hardly a real benefit if you don't actively travel to unstable areas. How often does the need for evacuation from hostile areas come as a total surprise?
> the US is also probably the most effective country on earth at being able to evacuate their citizens from areas that turn hostile
Countries turning hostile is a low risk for expats. And whenever major natural disasters have occurred in recent decades, it is often reported that smaller European countries evacuated their citizens better and more kindly than the US.
> if you are a US citizen, but live somewhere else in the world, IRS still expects to be paid tax from your individual income in that foreign country (possibly in addition to the tax you pay in your country of residence) right?
Does anyone know more about this? Do American pasport holders abroad pay taxes twice?
(You still file twice even if you don’t end up owing tax. You also must report any foreign bank accounts for which you have signatory control that contained > $10k or equivalent at any time in past year. If not you are subject to fines of 50% their balance.)
Always wondered why US citizens do not make a bigger deal out of this. If I understand correctly, if you are a US citizen, but live somewhere else in the world, IRS still expects to be paid tax from your individual income in that foreign country (possibly in addition to the tax you pay in your country of residence) right? I assume there are minimum income thresholds but still...
Are there even any other countries that do this?