Many Americans working abroad are renouncing their citizenship because of tax requirements imposed by U.S. tax laws. For Illinois residents employed overseas, an immigration lawyer in Chicago can explain tax laws that have an impact on people working in a foreign country.
U.S. Tax Requirements for Citizens Working Abroad
The United States is one of the only countries in the world that requires its citizens to file taxes on income earned while living abroad. According to a Reuters report, the first $95,100 of income earned abroad is tax exempt as long as workers fill in the Foreign Income Exclusion form and prove that taxes are paid to the country they reside in. For people who want to legally escape U.S. filing requirements, the only way is to formally renounce their U.S. citizenship.
The process of filing taxes from overseas is complicated. It requires heavy paperwork, help from local and foreign-language resources, and lacks of online filing options. An immigration lawyer in Chicago often sees Americans working abroad that face banking problems, back taxes, and steep fines.
To avoid tax penalties, U.S. citizens working abroad must comply with a regulation that requires them to disclose information on any foreign bank accounts that contain $10,000 or more. Foreign banks are also required to provide information on those clients and their bank account funds to the U.S. government. To reduce offshore tax evasion, the Foreign Account Tax Compliance Act, passed in 2010, requires foreign financial institutions such as banks, hedge funds, and private equity funds to provide the IRS with information on all U.S. clients.
In addition to complicated tax requirements, there is also an “exit tax” for wealthy Americans who chose to give up citizenship. Over the last two decades, a number of millionaires and billionaires, including Michael Dingman, a former Ford Motor Company executive, and Ted Arison, the late founder of Carnival Cruises, have renounced their citizenship.
According to the Federal Register, approximately 1,800 people gave up their American citizenship and Green Cards in 2009. Since then, that number has grown at the rate of about 1,100 each year. Considering that an estimated 6.5 million Americans reside and work abroad, those numbers are not too significant overall, but there are concerns related to this growing trend. Illinois residents who live and work abroad face tax burdens that often raise immigration questions; an immigration lawyer in Chicago can help address these problems.