Giving up U.S. citizenship can have tax and legal consequences. Whether you must continue paying U.S. taxes depends on your income and assets.
Quick Summary
If you renounce U.S. citizenship, you may still have to pay U.S. income taxes if:
- Your annual income is above $172,000 (2022 amount)
- You have a 10-year average income tax liability of at least $178,000 (2022 amount)
- You have a net worth of $2 million or more
You must also continue filing U.S. tax returns and reports on foreign assets for 5 years after renouncing citizenship.
What is the exit tax for giving up citizenship?
The exit tax, also called the expatriation tax, is a one-time tax on your worldwide assets as if you sold them when you expatriate. It applies if you:
- Have a net worth of $2 million or more
- Have a 10-year average income tax liability of at least $178,000 (2022 amount)
The exit tax rate is the same as the capital gains tax rate, up to 20% in 2022. It taxes any net gains over $759,000 (2022 exemption amount).
Do you still have to pay income tax if you renounce citizenship?
You may still owe U.S. income tax after expatriation if you meet the following criteria:
- Your annual income is above $172,000 (2022 amount). This applies even if you lived outside the U.S.
- Your net worth is $2 million or more
- Your average income tax liability over the past 5 years is more than $178,000 (2022 amount)
You must continue filing U.S. tax returns and reporting foreign accounts for 5 years after renouncing citizenship if you meet any of the above criteria. After 5 years, the income threshold no longer applies.
How long do you have to pay taxes after giving up citizenship?
If you renounce U.S. citizenship, you generally must continue filing U.S. tax returns and reporting foreign bank accounts for 5 years. However, there are some exceptions:
- No income threshold – After the 5 years, you only continue to pay U.S. income tax if your net worth is $2 million or more or your average prior income tax exceeds $178,000 (does not matter what your income is after 5 years)
- Dual citizens – Only applies if you become a citizen of your other country and tax resident there
- Green card holders – Exit tax applies but not the income tax requirement if you expatriate after holding a green card for less than 8 years
You may qualify to terminate long-term U.S. tax residency after filing 8 years of tax returns if you meet certain conditions. However, the exit tax still applies if you meet the net worth or tax liability tests.
Do you have to pay exit tax if you move overseas?
The exit tax applies if you expatriate and meet either the net worth or tax liability tests. Merely moving overseas does not trigger the exit tax.
However, moving overseas can still carry tax consequences. For example, if you are a U.S. citizen or long-term resident and move overseas, you must continue filing U.S. tax returns. You also must report foreign bank accounts if your total balances exceed $10,000.
How can you avoid the exit tax?
Some options to avoid the exit tax on giving up U.S. citizenship include:
- Stay under the $2 million net worth threshold
- Stay under the $178,000 average income tax liability threshold (Five-year average before expatriating and any tax year after)
- Offset capital gains with losses to keep taxable gains under $759,000 (2022 exemption amount)
Gifts or bequests from U.S. citizens or residents may still be subject to gift/estate tax even if you avoid the exit tax on expatriation.
Conclusion
You may still have to pay U.S income tax and file U.S. returns if you renounce citizenship, depending on your income and net worth. The exit tax applies to high-net-worth individuals when they expatriate. Staying under the net worth, income tax, and capital gains thresholds can help avoid exit tax liability.
Consult a tax professional to understand your specific tax obligations if considering renouncing U.S. citizenship.
Frequently Asked Questions
What are the costs of giving up U.S. citizenship?
The costs of renouncing U.S. citizenship include:
- U.S. State Department fee – $2,350 to renounce citizenship (2022 fee)
- Exit tax – One-time tax on worldwide assets for high-net-worth individuals
- Continuing tax and filing requirements – May still have to file U.S. tax returns and FBAR reports for 5 years
- Transmission of citizenship – Children born overseas no longer U.S. citizens automatically
- Loss of rights – No right to live, work or vote in the U.S. as a citizen
Can U.S. expats still get Social Security benefits?
Yes, U.S. citizens who expatriate can still collect Social Security retirement benefits if they have enough U.S. work credits, generally at least 10 years. Benefits are reduced if retiring before full retirement age.
To collect while overseas, you must live in a country where SSA can send payments. Payments also may be taxed in your country of residence.
Do you have to pay U.S. tax on foreign income if you relinquish citizenship?
For 5 years after expatriation, you must continue to pay U.S. tax on foreign income if you meet certain income thresholds or net worth standards. The thresholds are $172,000 income or $2 million net worth/average $178,000 tax liability.
After the 5 years, only the net worth and past tax liability tests apply. Your foreign income will not be taxed regardless of amount.
Can a U.S. dual citizen relinquish just one citizenship?
For U.S. tax purposes, dual citizens may renounce just their U.S. citizenship and remain a citizen of the other country. They must also become a tax resident of that country under the relevant tiebreaker rules.
However, the U.S. State Department may still consider that person a U.S. citizen if the other country views them as a dual citizen. So it is unclear if the U.S. would accept renunciation of only U.S. citizenship.
What if you have no income after expatriation?
If you renounce U.S. citizenship and end up having no U.S. source or foreign income, you likely do not need to continue filing U.S. tax returns. This may happen if you retire overseas with little savings or fixed income.
However, you still must pay the $2,350 State Department fee and continue reporting foreign accounts on FBAR forms if your balances exceed $10,000.
Comparison of Tax Requirements
| Category | Citizen Living Overseas | Citizen Who Renounces |
|---|---|---|
| File U.S. tax return | Yes | Maybe – Depends on income/net worth |
| Pay U.S. tax on worldwide income | Yes | Maybe – Depends on income/net worth |
| Pay exit tax | No | Maybe – If high net worth |
| Report foreign accounts | Yes, if over $10,000 | Yes, if over $10,000 |
Tax Filing Requirements After Renouncing Citizenship
| Year | Tax Return | FBAR | Taxable Income |
|---|---|---|---|
| 1 | Required if income/net worth rules met | Required if foreign accounts over $10,000 | Yes, if income exceeds $172,000 |
| 2 | Required if income/net worth rules met | Required if foreign accounts over $10,000 | Yes, if income exceeds $172,000 |
| 3 | Required if income/net worth rules met | Required if foreign accounts over $10,000 | Yes, if income exceeds $172,000 |
| 4 | Required if income/net worth rules met | Required if foreign accounts over $10,000 | Yes, if income exceeds $172,000 |
| 5 | Required if income/net worth rules met | Required if foreign accounts over $10,000 | Yes, if income exceeds $172,000 |
| 6+ | Only if net worth or past tax liability | Only if foreign accounts over $10,000 | No, income amount does not matter |
Long-Term Tax Residency Termination
If you meet these tests, you may qualify to terminate long-term U.S. tax residency after 5 years of post-expatriation tax compliance:
- Citizen of country where you are a tax resident
- Tax resident of that country for past 5 years
- U.S. tax form 8833 submitted for those 5 years
- Net worth under $2 million
- Annual income under $172,000 for past 5 years
You must continue to file Form 8854 annually and may still owe U.S. tax on U.S. income. Exit tax still applies if you exceeded thresholds at expatriation.
Benefits of Terminating Long-Term Tax Residency
- No more required filings of U.S. tax return or FBAR forms
- No U.S. tax on foreign income over $172,000 threshold
- No need to disclose gifts or bequests from U.S. citizens
Downsides of Terminating Long-Term Tax Residency
- Still subject to U.S. gift/estate tax on transfers from U.S. citizens/residents
- No step-up in basis for U.S. assets – Subject to U.S. tax if sold
- Denied visa waiver entry to the United States
Consult an expat tax expert to understand if terminating long-term residency is recommended for your specific situation.