US Expats Seek Changes To Tax Rules

expat network

US Expats Seek Changes To Tax Rules

Citizen-based taxation of US expats is a controversial subject and the annual survey carried out by Greenback Expat Tax Services shows it is the major issue for expats and is the major reason causing growing numbers to consider renunciation of their US citizenship.

Nine million US expats live and work abroad, but since they retain US citizenship, they also retain their federal tax reporting requirements. Each year, Greenback Expat Tax Services conducts a survey to better understand the attitudes of this remote population. From late March to May 2019, Greenback Expat Tax Services received input from over 3,100+ US expats.

Overall, expats expressed that the taxation requirements should be simplified or lifted altogether, that they are subject to unfair treatment, and that their interests are ignored by the government their taxes continue to support.

32% owe tax to the IRS and 7% did not file a tax return. Expats are not very aware of The Streamlined Filing Procedures, which is an IRS amnesty program that helps taxpayers become compliant without facing penalties with 43% saying they are not aware of it. 20% of expats said they would like to use the procedures to get caught up.

71% of US expats do not feel they should be required to file US taxes while living abroad (up 4% since last year). 49% of respondents stated that the number one issue that the US government can do to help Americans living abroad is to repeal citizenship-based taxation, however 74% of those surveyed are not aware of the potential changes ahead with the Tax Fairness for Americans Abroad Act of 2018, which is a bill that would exempt foreign income earned by US expats from taxation.

Citizenship renunciation remains a major consideration for expats. Of the 3,100+ expats surveyed, 5% are planning to renounce their citizenship — for comparison nearly equivalent to 3/4 of the state of Wyoming. A further 21% are seriously considering renouncing their US citizenship (up from 17% last year) — roughly the population of New Mexico. 41% are not currently considering renunciation but would not rule it out.

Of those who are contemplating giving up their citizenship, 39% are doing it because of the tax burden imposed on US citizens. 17% said it was because they are disappointed in the direction of the US government.

6% of expats were not familiar with FBAR (Foreign Bank Account Reporting). If the survey data is representative, that could mean over half a million expats are at risk of prosecution for failing to comply with requirements of which they were not aware. This includes facing civil monetary penalties, up to $12,921 per violation judged to be non-wilful. And for wilful violations, the penalty may be $129,210 or 50% of the balance in the account – whichever is higher.

A massive 89% of expats believe that they are not fairly represented by the US government, up 3% from last year. This is important to note because although it is not a major election year, expat votes will play an important role in 2020.

41% of expats are in some way impacted by FATCA (Foreign Account Tax Compliance Act), and 20% did not know what it was. Though the thresholds for FATCA requirements are much higher for Americans living abroad, over a third of expats continue to be affected. The range of ways FATCA can affect expats can be anything from having trouble finding a local bank to work with to losing access to business bank accounts because the company does not want its balances reported to the IRS.

For the fourth year in a row, our data suggests that the vast majority of US expats do not feel that their interests are fairly represented by the US government. The fact that they still have to file Federal Tax Returns each year feels like an unsolvable problem to some. Many voiced their desire to have a political leader represent them as a collective group, similar to other countries with representatives for those who live outside the country.

Moving Abroad Checklist

Initial Considerations

Will your partner be travelling with you?

If so, what will they be giving up in your present home and will they be able to continue with their career in your new home? You will need to check whether a separate visa is required for your partner to work or if your visa gives that right. If they are unable to work you will need to decide on the effect on your finances and what alternatives are available to give a fulfilling life (home business, training, voluntary work).

Are you taking family with you?

Moving with family raises many exciting opportunities, but also can create challenges. The HSBC Expat Explorer survey indicates that expat kids can take six months to settle in to their new country (see article). Getting young or even older children to prepare to move and leave their friends and family behind can be a challenge and should be thought through.

The options for education is another area that needs to be thought through.

Moving your child to a new country with a different education system can be a great opportunity to broaden their experience, but if they are close to key exams the timing can make this inadvisable. If you do take your family with you, it is important to decide between joining the local school system or choosing an international school.

Where will you be living?

Whether you will be living in a house or apartment, furnished or unfurnished, these decisions will affect what you need to take with you. The time you are planning to live overseas will also affect whether you should leave your property at home empty, rent it out or sell it. See the article Sell, Store or Ship.