If you are an American and don’t know it, you could be in for a shock when an unexpected tax bill comes through the post.
Thousands of people around the world are suddenly discovering they are ‘Accidental Americans’ because they or their family has some distant connection to the USA.
And because the US tax system is citizen-based, not based on where they live, these Accidental Americans are finding out that Uncle Sam wants a slice of their earnings and capital gains.
So how can someone be American without knowing?
Testing your US citizenship
Here’s a look at the ways the Internal Revenue Service will consider someone American:
- A mix-up by parents at birth– If an American mum and dad mistakenly told their child that they were not American because they were born in another country
- Moving countries while a child– If someone was born in the States but moved overseas while very young, they might think you were not American because they have spent most of your life elsewhere
- Taking up citizenship of another country– Although a national of a foreign country, someone’s US citizenship may not have formally ended
- Born in the USA– Another moving to a new country scenario when someone does not take up their social security number because they live abroad
- No passport renewal– Even though a US passport may have expired, citizenship remains in place
To find out if you are an Accidental American, you should trace your family history, places where you have lived and worked.
Renouncing US nationality
Renouncing US citizenship is a legal process that requires a five-year retrospective tax filing and payment of an ‘exit charge’. Expats will have to make a declaration at a US consulate to complete terminating citizenship.
Someone retains US citizenship until the US Department of State sends a certificate confirming nationality has been renounced.
Until that piece of paper is received, Accidental Americans must still make tax filings. The IRS has a streamlined procedure designed to make tax filing easier for Accidental Americans.
The IRS also has online advice for international taxpayers and expats